BUTLER NATIONAL CORP - Quarter Report: 2011 January (Form 10-Q)

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

NINE MONTHS ENDED

January 31,

2011

2010

REVENUE

Aircraft / Modifications

$

10,008,617

$

8,281,825

Avionics / Defense

3,681,954

4,542,809

Management / Professional Services

3,266,818

3,666,914

Gaming facility

16,464,836

2,911,662

--------------

--------------

Net Revenue

33,422,225

19,403,210

COST OF SALES

Aircraft / Modifications

6,514,478

6,928,137

Avionics / Defense

2,323,763

2,457,603

Management / Professional Services

1,018,684

1,875,610

Gaming facility

5,067,641

843,348

--------------

--------------

Total Cost of Sales

14,924,566

12,104,698

--------------

--------------

GROSS PROFIT

18,497,659

7,298,512

OPERATING EXPENSES MARKETING, GENERAL & ADMINISTRATIVE

16,267,459

5,507,237

GAIN ON SALE OF LAND

-

(496,433)

--------------

--------------

OPERATING INCOME (LOSS)

2,230,200

2,287,708

OTHER INCOME (EXPENSE)

Interest expense

(266,789)

(325,472)

Other

(35,625)

11,355

--------------

--------------

Other income (expense)

(302,414)

(314,117)

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES

1,927,786

1,973,591

PROVISION FOR INCOME TAXES

(702,070)

(593,400)

--------------

--------------

NET INCOME BEFORE MINORITY INTEREST

1,225,716

1,380,191

MINORITY INTEREST

1,819

(1,360)

--------------

--------------

NET INCOME (LOSS)

$

1,227,535

$

1,378,831

========

========

BASIC EARNINGS PER COMMON SHARE

$

.02

$

.02

=========

=========

Shares used in per share calculation

56,091,865

55,675,604

=========

==========

DILUTED EARNINGS PER COMMON SHARE

$

.02

$

.02

=========

=========

Shares used in per share calculation

56,196,183

55,790,476

=========

=========

The accompanying notes are an integral part of these financial statements.

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

NINE MONTHS ENDED

January 31,

2011

2010

CASH FLOWS FROM OPERATING ACTIVITIES

Net income (loss)

$

1,225,716

$

1,380,191

Adjustments to reconcile net income (loss) to net cash provided by

(used in) operations -

Depreciation and amortization

941,703

759,433

Amortization (Supplemental Type Certificates)

56,192

74,849

Stock issue

77,500

-

Stock options issued to employees

41,829

-

Loss on sale of fixed asset

43,450

-

Gain on sale of land

-

(496,433)

Changes in assets and liabilities -

Accounts receivable

(298,950)

(1,986,607)

Inventories

(585,412)

1,913,865

Prepaid expenses and other current assets

(1,131,408)

102,598

Accounts payable

92,617

517,870

Customer deposits

(133,233)

(312,554)

Deposits other

(1,700,000)

1,717,759

Accrued liabilities

(367,225)

446,381

Gaming facility mandated payment

906,306

1,266,357

Other liabilities

52,187

-

--------------

--------------

Cash flows from operating activities

(778,728)

5,569,751

--------------

--------------

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures

(1,451,577)

(446,485)

Proceeds from sale of land/other assets

39,000

2,000,000

--------------

-------------

Cash flows from investing activities

(1,412,577)

1,553,515

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings under line of credit, net

82,365

(467,913)

Borrowings of promissory notes, long-term debt and capital lease obligations

1,211,659

375,000

Repayments of promissory notes, long-term debt and capital lease obligations

(1,264,281)

(3,135,598)

--------------

--------------

Cash flows from financing activities

29,743

(3,228,511)

--------------

--------------

NET INCREASE (DECREASE) IN CASH

(2,161,561)

3,894,755

CASH, beginning of period

8,706,546

1,978,038

--------------

--------------

CASH, end of period

$

6,544,984

$

5,872,793

========

========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Interest paid

$

265,469

$

330,535

Income taxes paid

976,866

505,418

NON CASH OPERATING ACTIVITY

Non cash options to employee

$

41,829

$

-

Non cash stock issues

77,500

-

The accompanying notes are an integral part of these financial statements.

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the annual report on Form 10-K dated April 30, 2010. In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the nine months ended January 31, 2011 are not indicative of the results of operations that may be expected for the year ended April 30, 2011.

Certain reclassifications within the condensed financial statement captions have been made to maintain consistency in presentation between years.

2. In March 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-11 (ASU 2010-11), "Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives."  The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010.  Early adoption is permitted at the beginning of each entity's first fiscal quarter beginning after issuance of this Update.  The Company's adoption of provisions of ASU 2010-10 did not have a material effect on the financial position, results of operations or cash flows.

In February 2010, the FASB Accounting Standards Update 2010-10 (ASU 2010-10), "Consolidation (Topic 810): Amendments for Certain Investment Funds."  The amendments in this Update are effective as of the beginning of a reporting entity's first annual period that begins after November 15, 2009 and for interim periods within that first reporting period. Early application is not permitted.  The Company's adoption of provisions of ASU 2010-10 did not have a material effect on the financial position, results of operations or cash flows.

3. Advances for Gaming Developments: We have advanced funds for the establishment of gaming. These funds were capitalized based on the costs associated with the acquisition, development, and construction of real estate and real estate-related projects to be capitalized as part of those projects.

Our advances represent costs to be reimbursed upon approval of gaming in several locations. We have agreements in place which require payments to be made to us for the respective projects upon opening of Indian gaming facilities. Once gaming facilities have gained proper approvals, we plan to enter into a note receivable arrangement with the Tribe to secure reimbursement of advanced funds for that particular project.

We have advanced and invested a total of $4,718,991 at January 31, 2011 and at April 30, 2010 in gaming developments. We have reserves of $4,171,531, at January 31, 2011 and at April 30, 2010. We believe it is necessary to establish reserves against the advances because all of the proposed casinos involve legal and government approvals. The reserve amount is an estimate of the value we could receive if a casino was not opened and we were forced to liquidate the assets that we have acquired with our advances. These assets were intended to be used with casinos and consist of the purchase of land and land improvements related to the development of gaming facilities. We believe that these tracts could be developed and sold for residential and commercial use to recover our advances if the gaming enterprises do not open.

4. Net Income (Loss) Per Share: The Company adopted ASC 260 (Formerly Statement of Financial Accounting Standards No. 128) that requires the reporting of both basic and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. In accordance with ASC 260, any anti-dilutive effects on net earnings (loss) per share are excluded.

5. Research and Development: We invested in research and development activities. The amount invested in the nine months ended January 31, 2011 and 2010 was approximately $1,218,000 and $1,346,000 respectively.

6. Borrowings: At January 31, 2011, the Company had one line of credit totaling $1,000,000. The unused line at January 31, 2011 was $847,837. During the current year these funds were primarily used for the purchase of inventory for the modifications and avionics operations.

At January 31, 2011, there were several notes collateralized by aircraft security agreements totaling $695,258. These notes were used for the purchase and modifications of these collateralized aircraft.

There are two notes at a bank totaling $1,666,577 for real estate located in Olathe, Kansas and Tempe, Arizona. The due date for these notes is in March 2013.

One note with a balance of $745,141 is collateralized by the first and second position on all assets of the company. This was used as capital for our daily business operations in 2006. There are several other notes collateralized by automobiles and equipment totaling an additional $105,832.

As a result of our business development and acquisition activities we have debt obligations of $2,527,912.

7. Stockholders' Equity: On August 18, 2010, the Company issued 193,750 shares of Company common stock at a value of $77,500 for marketing and consulting services related to increasing public awareness and shareholder interest in the Company.

The issuance of stock by the Company to this vendor is exempt from registration pursuant to Rule 506 of Regulation D promulgated under the Securities Act of 1933, as amended. The vendor has represented to the Company and the Company believes that the vendor is an "accredited investor" as defined in Rule 501(a) of Regulation D.

• 2,420,688 options that can be exercised after December 31, 2011 once the share price reaches $0.92

• 2,420,688 options that can be exercised after December 31, 2012 once the share price reaches $1.41

• 2,420,688 options that can be exercised after December 31, 2013 once the share price reaches $1.90

We used the Black-Scholes model to value the options and used assumptions of ultimately how many option shares would vest based on our experience. The value of the option shares is $684,131 and this will be expensed over the vesting term using the active employment to determine monthly expense. For the quarter ended January 31, 2011 we expensed $41,829. The remaining amount will be expensed through fiscal 2014. The fair value of the option shares used the following weighted average assumptions: Strike Price $1.36; Stock Price $0.49; Volatility 125%; Term 3.1 years; Dividend yield 0% and Interest Rate 1.01%.

A summary of stock options and warrants is as follows:

Options

Average Price

Outstanding Beginning 04/30/2007

1,493,763

$

0.81

Granted

-

-

Expired

-

-

Exercised

-

-

Outstanding Ending 04/30/2008

1,493,763

$

0.81

Outstanding Beginning 04/30/2008

1,493,763

$

0.81

Granted

-

-

Expired

248,929

0.90

Exercised

-

-

Outstanding Ending 04/30/2009

1,244,834

$

0.79

Outstanding Beginning 04/30/2009

1,244,834

$

0.79

Granted

-

-

Expired

20,000

.0625

Exercised

-

-

Outstanding Ending 04/30/2010

1,224,834

$

0.80

Outstanding Beginning 04/30/2010

1,244,834

$

0.79

Granted

7,262,064

1.42

Expired

1,244,834

-

Exercised

-

-

Outstanding Ending 01/31/2011

7,262,064

$

1.42

9. Subsequent Events: We finalized the purchase of a Learjet 60 for approximately $2,000,000 on March 1, 2011. The aircraft is planned to be used to obtain new STC's for future growth in the aircraft modification division.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

REFERENCE TO EXHIBIT 99 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K

Statements made in this report, filed with the Securities and Exchange Commission, communications to stockholders, press releases, and oral statements made by representatives of the Company that are not historical in nature, or that state the Company or management intentions, hopes, beliefs, expectations or predictions of the future, may constitute "forward-looking statements" within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements can often be identified by the use of forward-looking terminology, such as "could," "should," "will," "intended," "continue," "believe," "may," "expect," "hope," "anticipate," "goal," "forecast," "plan," "guidance" or "estimate" or the negative of these words, variations thereof or similar expressions. Forward-looking statements are not guarantees of future performance or results. They involve risks, uncertainties, and assumptions. It is important to note that any such performance and actual results, financial condition or business, could differ materially from those expressed in such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the Cautionary Statements and Risk Factors, filed as Exhibit 99 and Item 1A. Risk Factors to the Company's Annual Report on Form 10-K for the year ended April 30, 2010 are incorporated herein by reference. Other unforeseen factors not identified herein could also have such an effect. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in future operating results, financial condition or business over time.

RESULTS OF OPERATIONS

Our revenue for the nine months ended January 31, 2011 was $33,422,225, an increase of 72% from the nine months ended January 31, 2010 with revenue of $19,403,210. Our operating profit for the nine months ended January 31, 2011 was $2,230,200, compared to a profit of $2,287,708 for the nine months ended January 31, 2010. Approximately $496,000 of the operating profit in 2010 can be attributed to the sale of land in Dodge City, Kansas.

Discussion of the specific changes by operation at each business segment follows (the results of operations are based on pre-corporate allocations):

Aircraft Modifications: Revenue from Aircraft Modifications segment for the nine months ended January 31, 2011, was $10,008,617, an increase of 20.9% from the nine months ended January 31, 2010 with revenue of $8,281,825, and an increase of 15% from the nine months ended January 31, 2009 with revenue of $8,707,767. The modifications segment had an operating profit of $2,708,199 in the nine months ended January 31, 2011, an operating profit of $578,491 in the nine months ended January 31, 2010, and $1,295,495 in the nine months ended January 31, 2009.

During the past few years we have seen a significant increase in aircraft camera modifications. As the economy grows aircraft owners may elect to update, modify, and purchase business aircraft. A shift to business aircraft ownership positively impacts our aircraft modification revenue. Although we cannot anticipate the future we must always consider the negative impact of items such as the September 11, 2001 event, increases in fuel prices, and general economic downturns.

Avionics: Revenue from Avionics segment for the nine months ended January 31, 2011, was $3,681,954 a decrease of 19% from the nine months ended January 31, 2010 with revenue of $4,542,809, and an increase of 95% from the nine months ended January 31, 2009 with revenue of $1,891,454. The avionics segment had an operating profit of $674,770 in the nine months ended January 31, 2011, $1,483,391 for the nine months ended January 31, 2010, and an operating profit of $52,827 for the nine months ended January 31, 2009. The decrease in operating profit is directly related to the decrease in revenue. Many economic and political uncertainties can impact the avionics products line.

Services - SCADA Systems and Monitoring Services: Revenue in the Monitoring Services Segment increased from $1,186,115 for the nine months ended January 31, 2010 to $1,187,236 for the nine months ended January 31, 2011, an increase of 0.1%. During the nine months ended January 31, 2011, we maintained a relatively level volume of long-term contracts with municipalities. We anticipate increases in revenue from additional lift station rehabilitations over the next three to four years. Revenue fluctuates due to the introduction of new products and services and the related installations of these types of products. Our contracts with our two largest customers have been renewed through fiscal year 2011. An operating profit of $207,197 in Monitoring Services was recorded for the nine months ended January 31, 2011, compared to a profit of $225,787 for the nine months ended January 31, 2010, a decrease of 8.2%. We believe the service business has had revenue stability over the past few years and we expect this to continue.

Corporate / Professional Services: Services in this segment include the architectural services activities related to gaming and other real estate development, administrative management services, and engineering consulting services.

Revenue consisting of architectural services and revenue related to completed construction projects were $1,609,027 for the nine months ended January 31, 2010 and $504,789 for the nine months ended January 31, 2011. Projects related to architectural services decreased $444,005 for the nine months to revenue of $492,289 at January 31, 2011. An operating loss of $194,158 for the nine months ended January 31, 2011 was recorded compared to a profit of $138,893 for the nine months ended January 31, 2010.

Revenue related to on-site gaming services and other real estate development for the nine months ended January 31, 2011 was $1,574,793 compared to $871,771 for the nine months ended January 31, 2010, an increase of 80.6%. Operating profits from management services related to gaming increased $334,310 from $401,074 for the nine months ended January 31, 2010, to $735,384 for the nine months ended January 31, 2011.

The Gaming Facility located in Dodge City, Kansas known as Boot Hill Casino and Resort opened for business on December 15, 2009. In the nine months ended January 31, 2011 the Gaming Facility received gross revenue including funds for the State of Kansas of $30,462,191. Mandated fees, taxes and distributions reduced gross revenue by $13,997,355 leaving net revenue to us, as the manager, of $16,464,836. The net loss from the Gaming Facility for the nine months ended January 31, 2011 was $454,708.

Selling, General and Administrative ("SG&A"): Expenses were $16,267,459, or 48.7% of revenue, for the nine months ended January 31, 2011 compared to $5,507,237 or 28.4% of revenue for the nine months ended January 31, 2010. Of these costs, $11,851,903 was directly related to the Gaming Facility. Additional consulting and payroll expenses of approximately $839,000 were directly related to gaming development. SG&A costs increased by $10,760,222 for the nine months ended January 31, 2011 compared to the nine months ended January 31, 2010.

As we grow, we anticipate that overhead expenses may increase. We continue to monitor and evaluate our overhead expenses in order to efficiently manage our operations.

Other Income (Expense): Interest expense decreased from $325,472 in the nine months ended January 31, 2010 to $266,789 for the nine months ended January 31, 2011.

Earnings: Our operating profit for the nine months ended January 31, 2011 was $2,230,200, compared to a profit of $2,287,708 for the nine months ended January 31, 2010. Approximately $496,000 of the operating profit in 2010 can be attributed to the sale of land in Dodge City, Kansas.

Consolidated Net Income: As a result of the factors described above, our net profit for the nine months ended January 31, 2011 was $1,225,716 compared to a profit of $1,380,191 for the nine months ended January 31, 2010, a decrease of $154,475. The income before taxes and minority interest and casino operations from January 31, 2011, was $1,927,786 of which casino operations reduced profits by $454,708.

Employees: Other than gaming through are subsidiaries there are 108 full time and 3 part time employees on January 31, 2011 compared to 96 full time and 1 part time employee on January 31, 2010. As of March 4, 2011, staffing is 106 full time and 3 part time employees. Our staffing at Boot Hill Casino & Resort on January 31, 2011 was 262 full time and 48 part time employees and at March 4, 2011 is 261full time employees and 48 part time employees. None of the employees are subject to any collective bargaining agreements.

Our revenue for the three months ended January 31, 2011 was $12,859,429, an increase of 44% from the three months ended January 31, 2010 with revenue of $8,924,063. Our operating profit for the three months ended January 31, 2011 was $1,513,580, compared to a profit of $977,316 for the three months ended January 31, 2010.

Discussion of the specific changes by operation at each business segment follows (the results of operations are based on pre-corporate allocations):

Aircraft Modifications: Revenue from Aircraft Modifications segment for the three months ended January 31, 2011, was $4,005,617, an increase of 10.8% from the three months ended January 31, 2010 with revenue of $3,616,414, and an increase of 27.5% from the three months ended January 31, 2009 with revenue of $3,009,718. The modifications segment had an operating profit of $1,519,891 in the three months ended January 31, 2011, an operating profit of $543,854 in the three months ended January 31, 2010, and an operating profit of $505,423 in the three months ended January 31, 2009.

During the past few years we have seen a significant increase in aircraft camera modification. As the economy grows aircraft owners may elect to update, modify, and purchase business aircraft. A shift to business aircraft ownership positively impacts our aircraft modification revenue. Although we cannot anticipate the future we must always consider the negative impact of items such as the September 11, 2001 event, increases in fuel prices, and general economic downturns.

Avionics: Revenue from Avionics segment for the three months ended January 31, 2011, was $1,753,861, an increase of 59.4% from the three months ended January 31, 2010 with revenue of $1,100,424, and an increase of 200% from the three months ended January 31, 2009 with revenue of $585,488. The avionics segment had an operating profit of $214,118 in the three months ended January 31, 2011, compared to $393,512 for the three months ended January 31, 2010, and $139,201 for the three months ended January 31, 2009. Many economic and political uncertainties can impact the avionics products line.

Services - SCADA Systems and Monitoring Services: Revenue in the Monitoring Services Segment decreased from $432,262 for the three months ended January 31, 2010 to $379,347 for the three months ended January 31, 2011. During the three months ended January 31, 2011, we maintained a relatively level volume of long-term contracts with municipalities. We anticipate increases in revenue from additional lift station rehabilitations over the next three to four years. Revenue fluctuates due to the introduction of new products and services and the related installations of these types of products. Our contracts with our two largest customers have been renewed through fiscal year 2011. An operating profit of $76,596 in Monitoring Services was recorded for the three months ended January 31, 2011, compared to a profit of $107,035 for the three months ended January 31, 2010, a decrease of 28.4%. We believe the service business has had revenue stability over the past few years and we expect this to continue.

Corporate / Professional Services: Services in this segment include the architectural services activities related to gaming and other real estate development, administrative management services, and engineering consulting services.

Revenue consisting of architectural services and revenue related to completed construction projects were $623,107 for the three months ended January 31, 2010 and $175,851 for the three months ended January 31, 2011. Projects related to architectural services decreased $42,179 for the three months to revenue of $163,351 at January 31, 2011. An operating loss of $115,819 for the three months ended January 31, 2011 was recorded compared to a loss of $39,901 for the three months ended January 31, 2010.

Revenue related to gaming and other real estate development, on site contract management of gaming establishments for the three months ended January 31, 2011 was $511,355 compared to $240,167 for the three months ended January 31, 2010, an increase of 113%. Operating profits from management services related to gaming increased $111,627 from $110,096 for the three months ended January 31, 2010, to $221,723 for the three months ended January 31, 2011.

The Gaming Facility located in Dodge City, Kansas known as Boot Hill Casino and Resort opened for business on December 15, 2009. In the three months ended January 31, 2011 the Gaming Facility received gross revenue including funds for the State of Kansas of $10,496,030. Mandated fees, taxes and distributions reduced gross revenue by $4,462,631 leaving net revenue to us, as the manager, of $6,033,399. The net profit from the Gaming Facility for the three months ended January 31, 2011 was $72,952.

Selling, General and Administrative ("SG&A"): Expenses were $5,586,233, or 43.4% of revenue, for the three months ended January 31, 2011 compared to $2,757,020 or 31% of revenue for the three months ended January 31, 2010. Of these costs, $4,043,173 was directly related to Gaming Facility. Additional consulting and payroll expenses of approximately $290,000 were directly related to other gaming development. SG&A costs increased by $2,829,213 for the three months ended January 31, 2011 compared to the three months ended January 31, 2010.

As we grow, we anticipate that overhead expenses may increase. We continue to monitor and evaluate our overhead expenses in order to efficiently manage our operations.

Other Income (Expense): Interest expense decreased from $110,347 in the three months ended January 31, 2010 to $84,779 for the three months ended January 31, 2011.

Earnings: Our operating income for the three months ended January 31, 2011 was $1,513,580, compared to a profit of $977,317 for the three months ended January 31, 2010.

LIQUIDITY AND CAPITAL RESOURCES

We believe that our current banks will provide the necessary capital for our business operations. However, we continue to maintain contact with other banks that have an interest in funding our working capital needs to continue our growth in operations in 2011 and beyond.

Obligations related to the Gaming Facility in Dodge City, Kansas (the Boot Hill Casino and Resort) are the rent payments by our subsidiary BHCMC, L.L.C. ("BHCMC") for the agreement for the turn-key casino. Butler National Service Corporation ("BNSC") and BHC Investment Company, L.C. ("BHCI") jointly own BHCMC. BHCMC is currently owned 99.6% by BNSC and 0.4% by BHCI. BHCI has the option to purchase an additional 39.6% of BHCMC to complete the ownership at 60% BNSC and 40% BHCI. BHCI ownership is subject to background investigation by the Kansas Gaming and Racing Commission.

BHCI is not a related party. We do not own nor do our officers or directors have ownership in BHCI. The Gaming Facility known as Boot Hill Casino and Resort was constructed and equipped by BHC Development, L.C., an unrelated real estate development company. BHC Development, L.C. rents the facility to BHCMC, LLC.

Analysis and Discussion of Cash Flow

During the first nine months of fiscal 2011 our cash position decreased by $2,161,562. The decrease is attributed to two major factors. We returned a deposit from BHC Development, LC (an unrelated development company) totaling $1,700,000 as part of the build-to-suit agreement in the initial Boot Hill Casino vault bank balance. We increased inventory by approximately $585,000.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Please see Item 7(a) of our Form 10-K for the period ended April 30, 2010.

Item 4. CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms. Our principal executive and financial officers have evaluated our disclosure controls and procedures as of the end of the period covered by this report on Form 10-Q and have determined that such disclosure controls and procedures are effective, based on criteria in Internal Control-Integrated Framework, issued by COSO.

Evaluation of disclosure controls and procedures: Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this Form 10-Q, our Chief Executive Officer and our Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of January 31, 2011. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of January 31, 2011.

Limitations on Controls
Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Changes in Internal Control Over Financial Reporting: In our opinion there were no material changes in the Company internal controls over financial reporting as of January 31, 2011 that have materially affected, or are reasonably likely to materially affect, its internal controls over financial reporting.

PART II.
OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS.
A lawsuit was filed in the United States District Court for the District of Kansas by the State of Kansas against us, the United States, the Business Committee members of the Miami Tribe and others on October 14, 1999, challenging the determination by the National Indian Gaming Commission ("NIGC") that the Miami Princess Maria Reserve No. 35 is Indian land for the purposes of gaming under the Indian Gaming Regulatory Act. The question in the case has been remanded to the NIGC for further review. The NIGC has not made a further determination on the question. The Miami Tribe expects to eventually receive a favorable determination. We cannot reliably predict the outcome of the case.

Butler National Service Corporation and BHCMC, LLC filed a lawsuit on September 4, 2009 in the United States District Court for the District of Kansas against Larry J. Woolf and Navegante, Inc. a Las Vegas based consulting firm for damages for failing to perform and defective performance related to a written and executed consulting agreement. In October of 2009, Navegante filed a lawsuit with the District Court against Butler National Service Corporation, seeking damages for breach of an alleged oral agreement to provide management services. Navegante has alleged damages in excess of $75,000. Butler National Service Corporation denies the Navegante allegations and is vigorously defending the matter. Butler National Service Corporation is pursuing the recovery of its damages for breaches of contract.

As of January 31, 2011, there are no other significant known legal proceedings pending against us. We consider all such unknown proceedings, if any, to be ordinary litigation incident to the character of the business. We believe that the resolution of any claims will not, individually or in the aggregate, have a material adverse effect on the financial position, results of operations, or liquidity of the Company.

Item 1A.

RISK FACTORS.
There are no material changes to the risk factors disclosed under Item 1A of our Form 10-K for year ended April 30, 2010.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.

Item 3.

DEFAULTS UPON SENIOR SECURITIES.
None.

Item 4.

Item 5.

OTHER INFORMATION.
None.

Item 6.

EXHIBITS.

Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001.

Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form DEF 14A filed on December 15, 2003.

31.1

Certificate of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a).

31.2

Certificate of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).

Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2

Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99

Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, are incorporated by reference to Exhibit 99 of the Form 10-K for the fiscal year ended April 30, 2010.