BUTLER NATIONAL CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

THROUGHOUT THIS ITEM 2 ALL NON TABULAR FINANCIAL RESULTS ARE PRESENTED IN THOUSANDS OF U.S. DOLLARS EXCEPT WHERE MILLIONS OF DOLLARS IS INDICATED.

Forward-Looking Statements Statements made in this report, other reports and proxy statements 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 Item 1A (Risk Factors) of the Annual Report on Form 10-K for the fiscal year ended April 30, 2022 , and elsewhere herein or in other reports filed with the SEC . 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. The forward-looking statements in this report are only predictions and actual events or results may differ materially. In evaluating such statements, a number of risks, uncertainties and other factors could cause actual results, performance, financial condition, cash flows, prospects and opportunities to differ materially from those expressed in, or implied by, the forward-looking statements. These risks, uncertainties and other factors include those set forth in Item 1A (Risk Factors) of the Annual Report on Form 10-K for the fiscal year ended April 30, 2022 , including the following factors: ? the geographic location of our casino; ? customer concentration risk; ? executive officers are family members; ? industrial business cycles; ? fixed-price contracts; ? development, production, testing and marketing of new products; ? loss of key personnel; ? risks associated with international sales; ? future acquisitions and investments; ? change of control restrictions; ? launching new online gaming or sports wagering channels; ? ability to generate returns on sports wagering operations; ? fraud, theft, and cheating; ? cyber-security threats; ? extensive regulation across our industries; ? evolving government regulations and law; ? changes in regulations of financial reporting; ? the stability of economic markets; ? potential impairment losses; ? marketability restrictions of our common stock; ? the possibility of a reverse-stock split; ? stock dilution caused by the annual employer match to our 401(k) plan; ? market competition; ? acts of terrorism and war; ? inclement weather and natural disasters; ? pandemics or other national health crisis (including COVID-19); ? fluctuating fuel and energy costs; ? rising inflation; ? extensive taxation; Except as expressly required by the federal securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this report. Results of operations in any past period should not be considered indicative of the results to be expected for future periods. Fluctuations in operating results may also result in fluctuations in the price of the Company's common stock. Investors should also be aware that while the Company, from time to time, communicates with securities analysts; it is against its policy to disclose any material non-public information or other confidential commercial information. Accordingly, shareholders should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report. Furthermore, the Company has a policy against issuing or confirming financial forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not the responsibility of Butler National Corporation . 16

Table of Contents Management Overview Management is focused on increasing long-term shareholder value from increased cash generation, earnings growth, and prudently managing capital expenditures. We plan to do this by continuing to drive increased revenue from product and service innovations, strategic acquisitions, and targeted marketing programs. We have two separate reporting segments: Aerospace Products and Professional Services. Aerospace Products and Professional Services do not share the same customers and suppliers and have substantially distinct businesses. The Aerospace Products operating segment provides products and services in the aerospace industry. Companies in Aerospace Products derive their revenue from system design, engineering, manufacturing, integration, installation, repairing, overhauling, servicing and distribution of aerostructures, avionics, aircraft components, accessories, subassemblies and systems. The Professional Services operating segment provides services in the gaming industry. Professional Services companies manage a gaming and entertainment facility and provide architectural and engineering services. These reporting segments operate through various subsidiaries and affiliates listed in the Company's fiscal year 2022 Annual Report on Form 10-K. Aerospace Products. The Aerospace Products segment includes the manufacture, sale and service of electronic equipment and systems and technologies to enhance and support products related to aircraft. Additionally, we also operate several Federal Aviation Administration (the "FAA") Repair Stations. Companies in Aerospace Products concentrate on Learjet , Beechcraft King Air , Cessna turbine engine, Cessna multi-engine piston and Dassault Falcon 20 aircraft. Specifically, the design, distribution and support for products for older aircraft, or "Classic" aircraft are areas of focus for companies in Aerospace Products.

Products. The products that the companies within this group design, engineer, manufacture, integrate, install, repair and service include:

? Aerial surveillance products ? GARMIN GTN Global Position

System

Navigator with Communication Transceiver

? Aerodynamic enhancement products ? J.E.T autopilot products

? Airspeed and altimeter systems ? Electrical systems and switching equipment ? Avcon Fins ? Noise suppression systems ? ADS-B (transponder) systems ? Rate gyroscopes ? Conversion of passenger ? Replacement vertical accelerometers configurations to cargo

? Cargo/sensor carrying pods and ? Provisions for external stores

radomes

? Electronic navigation instruments, ? Attitude heading reference systems

radios and transponders Modifications. The companies in Aerospace Products have authority pursuant to Federal Aviation Administration Supplemental Type Certificates ("STCs") and Parts Manufacturer Approval ("PMA"), to build required parts and subassemblies and to make applicable installations. Companies in Aerospace Products perform modifications in the aviation industry including:

? Aerial photograph capabilities ? Extended tip fuel tanks

? Aerodynamic improvements ? Radar systems ? Avionics systems ? ISR - Intelligence Surveillance Reconnaissance ? Cargo doors ? Special mission modifications ? Conversion from passenger to ? Stability enhancements freighter configuration ? Extended doors ? Traffic collision avoidance systems Special Mission Electronics . We supply defense-related, commercial off-the-shelf products to various commercial entities and government agencies and subcontractors in order to update or extend the useful life of aircraft with older components and technology. These products include: ? Cabling ? HangFire Override Modules ? Electronic control systems ? Test equipment

? Gun Control Units for Apache and ? Gun Control Units for land and sea

Blackhawk helicopters based military vehicles Professional Services. The Professional Services segment includes the management of a gaming facility and related dining and entertainment facilities in Dodge City, Kansas . Boot Hill Casino and Resort features approximately 500 slot machines and 14 table games. Companies in Professional Services also provide licensed architectural services, including commercial and industrial building design, and engineering services. Boot Hill. Butler National Service Corporation ("BNSC") and BHCMC, LLC ("BHCMC"), companies in Professional Services, manage The Boot Hill Casino and Resort in Dodge City, Kansas ("Boot Hill") pursuant to the Lottery Gaming Facility Management Contract, by and among BNSC, BHCMC and the Kansas Lottery , as subsequently amended and extended ("Boot Hill Agreement"). As required by Kansas law, all games, gaming equipment and gaming operations, including sports wagering, at Boot Hill are owned and operated by the Kansas Lottery . In July 2022 , the State of Kansas enacted Senate Bill 84 that allows for the Kansas Lottery through the four state-owned casinos to use digital or in-person avenues to engage in the business of sports wagering. The law allows BHCMC to partner with up to three platforms for sports wagering. The platform partners provide the sports wagering management service through their sites and brands, paying us a percentage of revenue. BHCMC entered into provider contracts for sports wagering platforms with DraftKings, Golden Nugget Online Gaming LLC, and Bally Corporation. Online sports wagering is currently underway through the DraftKings platform. Construction is underway for an onsite Sports Book at Boot Hill Casino in conjunction with DraftKings that is scheduled to open in March 2023 .

Architectural and Engineering Services. Companies in Professional Services provide licensed architectural, including commercial and industrial building design, and engineering services.

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Table of Contents COVID-19 Overview The pandemic caused by COVID-19 has caused volatility in world-wide financial markets since 2020, primarily due to uncertainty with respect to the severity and duration of the pandemic. Although many experts believe the pandemic has ended in 2022, the threat of outbreaks and new variations of the virus continue to affect operations and finances of businesses like ours. We have experienced lower customer headcount, which has been off-set by a larger net revenue per customer. We are experiencing, and expect to continue experiencing, lower demand for our professional services and increased costs and other challenges related to COVID-19 that adversely affects our business. The COVID-19 pandemic has impacted our business operations and financial results and continues to impact us in fiscal 2023. We face numerous uncertainties in estimating the direct and indirect effects on our present and future business operations, financial condition, results of operations, and liquidity. Due to several rapidly changing variables related to the COVID-19 pandemic, we cannot reasonably estimate future economic trends and the timing of when stability will return. Refer to Item 1A. "Risk Factors" for a disclosure of risk factors related to COVID-19. As the economy in general slowly recovers, and vaccinations rates in our operating territory improve and new infections decline, we have continued to see improvements in customer headcount. However, the unpredictable nature of the pandemic could again lead to closures, decreased traffic and demand, and increased COVID-19- related operating expenses, for the foreseeable future. While COVID-19 has resulted in, and will continue to bring, significant challenges and uncertainty to our operating environment, we believe that our resilient business model and the strength of our brand and balance sheet position us well to emerge from the pandemic. Results Overview The six months ended October 31, 2022 revenue decreased 5% to $34.6 million compared to $36.4 million in the six months ended October 31, 2021 . In the six months ended October 31, 2022 the professional services revenue was $18.7 million compared to $18.6 million in the six months ended October 31, 2021 , an increase of 1%. In the six months ended October 31, 2022 the Aerospace Products revenue was $15.9 million compared to $17.8 million in the six months ended October 31, 2021 , a decrease of 11%. The six months ended October 31, 2022 net income decreased to $3.1 million compared to a net income of $6.1 million in the six months ended October 31, 2021 . The six months ended October 31, 2022 , operating income decreased to $5.6 million from an operating income of $8.8 million in the six months ended October 31, 2021 . RESULTS OF OPERATIONS six months ended October 31, 2022 COMPARED TO six months ended October 31, 2021 Six Months Six Months Ended October Percent of Ended October Percent of Percent Change (dollars in thousands) 31, 2022 Total Revenue 31, 2021 Total Revenue 2021-2022 Revenue: Professional Services $ 18,707 54 % $ 18,557 51 % 1 % Aerospace Products 15,922 46 % 17,836 49 % -11 % Total revenue 34,629 100 % 36,393 100 % -5 % Costs and expenses: Costs of Professional Services 7,375 21 % 6,779 18 % 9 % Cost of Aerospace Products 11,409 33 % 11,939 33 % -4 % Marketing and advertising 2,699 8 % 2,426 7 % 11 % Employee benefits 1,249 4 % 1,121 3 % 11 % Depreciation and amortization 1,527 4 % 1,407 4 % 9 % General, administrative and other 4,743 14 % 3,956 11 % 20 % Total costs and expenses 29,002 84 % 27,628 76 % 5 % Operating income $ 5,627 16 % $ 8,765 24 % -36 % Revenue: Revenue decreased 5% to $34.6 million in the six months ended October 31, 2022 , compared to $36.4 million in the six months ended October 31, 2021 . See "Operations by Segment" below for a discussion of the primary reasons for the decrease in revenue.

? Professional Services derives its revenue from (a) professional management

services in the gaming industry through Butler National Service Corporation

("BNSC") and BHCMC, LLC ("BHCMC"), and (b) professional architectural,

engineering and management support services. Revenue from Professional

Services increased 1% for the six months to $18.7 million at October 31, 2022

compared to $18.6 million at October 31, 2021 . ? Aerospace Products derives its revenue by designing, engineering,

manufacturing, installing, servicing and repairing products for classic and

current production aircraft. Aerospace Products revenue decreased 11% for the

six months to $15.9 million at October 31, 2022 compared to $17.8 million at

October 31, 2021 . The decrease in revenue is primarily due to a decrease in

aircraft modification revenue of $2.0 million . 18

Table of Contents Costs and expenses: Costs and expenses related to Professional Services and Aerospace Products include the cost of engineering, labor, materials, equipment utilization, control systems, security and occupancy. Costs and expenses increased 5% to $29.0 million in the six months ended October 31, 2022 compared to $27.6 million in the six months ended October 31, 2021 . Costs and expenses were 84% of total revenue in the six months ended October 31, 2022 , as compared to 76% of total revenue in the six months ended October 31, 2021 . Costs of Professional Services increased 9% in the six months ended October 31, 2022 to $7.4 million compared to $6.8 million in the six months ended October 31, 2021 . Costs were 21% of total revenue in the six months ended October 31, 2022 , as compared to 18% of total revenue in the six months ended October 31, 2021 . Costs of Aerospace Products decreased 4% in the six months ended October 31, 2022 to $11.4 million compared to $11.9 million for the six months ended October 31, 2021 . Costs were 33% of total revenue in the six months ended October 31, 2022 , as compared to 33% of total revenue in the six months ended October 31, 2021 . Marketing and advertising expenses increased 11% in the six months ended October 31, 2022 , to $2.7 million compared to $2.4 million in the six months ended October 31, 2021 . Expenses were 8% of total revenue in the six months ended October 31, 2022 , as compared to 7% of total revenue in the six months ended October 31, 2021 . Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions. Employee benefits expenses as a percent of total revenue was 4% in the six months ended October 31, 2022 , compared to 3% in the six months ended October 31, 2021 . These expenses increased 11% to $1.2 million in the six months ended October 31, 2022 , from $1.1 million in the six months ended October 31, 2021 . These expenses include the employers' share of all federal, state and local taxes, paid time off for vacation, holidays and illness, employee health and life insurance programs and employer matching contributions to retirement plans. Depreciation and amortization expenses as a percent of total revenue was 4% in the six months ended October 31, 2022 , compared to 4% in the six months ended October 31, 2021 . These expenses increased 9% to $1.5 million in the six months ended October 31, 2022 from $1.4 million in the six months ended October 31, 2021 . These expenses include depreciation related to owned assets being depreciated over various useful lives and amortization of intangible items including the Kansas privilege fee related to the Boot Hill Casino being expensed over the initial term of the gaming contract with the State of Kansas . BHCMC, LLC depreciation and amortization expense for the six months ended October 31, 2022 was $1.2 million compared to $1.2 million in the six months ended October 31, 2021 . General, administrative and other expenses as a percent of total revenue was 14% in the six months ended October 31, 2022 , compared to 11% in the six months ended October 31, 2021 . These expenses increased 20% to $4.7 million in the six months ended October 31, 2022 , from $4.0 million in the six months ended October 31, 2021 . The increase is primarily due to the stock award of $352 and cash compensation of $140 awarded to a board member.

Other expense:

Interest expense was $1.4 million in the six months ended October 31, 2022 , compared with interest expense of $1.3 million in the six months ended October 31, 2021 . Interest related to obligations of BHCMC, LLC was $1.3 million in the six months ended October 31, 2022 compared to $1.1 million in the six months ended October 31, 2021 . Operations by Segment We have two operating segments, Professional Services and Aerospace Products. The Professional Services segment includes revenue contributions and expenditures associated with casino management services and professional architectural, engineering and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for classic and current production aircraft.

The following table presents a summary of our operating segment information for the six months ended October 31, 2022 and October 31, 2021 :

Six Months Six Months Ended October Percent of Ended October Percent of Percent Change (dollars in thousands) 31, 2022 Total Revenue 31, 2021 Total Revenue 2021-2022 Professional Services Revenue Boot Hill Casino $ 18,567 99 % $ 18,393 99 % 1 %

Management/Professional

Services 140 1 % 164 1 % -15 % Revenue 18,707 100 % 18,557 100 % 1 % Costs of Professional Services 7,375 39 % 6,779 36 % 9 % Expenses 7,068 38 % 6,419 35 % 10 % Total costs and expenses 14,443 77 % 13,198 71 % 9 % Professional Services operating income $ 4,264 23 % $ 5,359 29 % -20 % Six Months Six Months Ended October Percent of Ended October Percent of Percent Change (dollars in thousands) 31, 2022 Total Revenue 31, 2021 Total Revenue 2021-2022 Aerospace Products Revenue $ 15,922 100 % $ 17,836 100 % -11 % Costs of Aerospace Products 11,409 71 % 11,939 67 % -4 % Expenses 3,150 20 % 2,491 14 % 26 % Total costs and expenses 14,559 91 % 14,430 81 % 1 % Aerospace Products operating income $ 1,363 9 % $ 3,406 19 % -60 % 19

Table of Contents Professional Services

? Revenue from Professional Services increased 1% for the six months ended

October 31, 2022 to $18.7 million compared to $18.6 million for the six months

ended October 31, 2021 .

In the six months ended October 31, 2022 Boot Hill Casino received gross

receipts for the State of Kansas of $24.5 million compared to $25.0 million

for the six months ended October 31, 2021 . Mandated fees, taxes and

distributions reduced gross receipts by $7.7 million resulting in gaming

revenue of $16.8 million for the six months ended October 31, 2022 , compared

to a reduction to gross receipts of $7.9 million resulting in gaming revenue

of $17.1 million for the six months ended October 31, 2021 . Sportsbook revenue

was $825 in the six months ended October 31, 2022 compared to $0 in the six

months ended October 31 , 2021.Non-gaming revenue at Boot Hill Casino remained

constant at $2.2 million for the six months ended October 31, 2022 , compared

to $2.2 million for the six months ended October 31, 2021 . The remaining management and Professional Services revenue includes professional management services in the gaming industry, and licensed

architectural services. Professional Services revenue excluding Boot Hill

Casino decreased 15% to $140 for the six months ended October 31, 2022 , compared to $164 for the six months ended October 31, 2021 .

? Costs of Professional Services increased 9% in the six months ended October

31, 2022 to $7.4 million compared to $6.8 million in the six months ended

October 31, 2021 . Costs were 39% of segment total revenue in the six months

ended October 31, 2022 , as compared to 36% of segment total revenue in the six

months ended October 31, 2021 .

$7.1 million compared to $6.4 million in the six months ended October 31 ,

2021. Expenses were 38% of segment total revenue in the six months ended

October 31, 2022 , as compared to 35% of segment total revenue in the six

months ended October 31, 2021 . Aerospace Products

? Revenue decreased 11% to $15.9 million in the six months ended October 31 ,

2022, compared to $17.8 million in the six months ended October 31, 2021 . The

decrease in revenue is primarily due to a decrease in aircraft modification

business of $2.0 million .

? Costs of Aerospace Products decreased 4% in the six months ended October 31 ,

2022 to $11.4 million compared to $11.9 million for the six months ended

October 31, 2021 . Costs were 71% of segment total revenue in the six months

ended October 31, 2022 , as compared to 67% of segment total revenue in the six

months ended October 31, 2021 . The decrease is directly related to the decrease in aircraft modification revenue. ? Expenses increased 26% in the six months ended October 31, 2022 to

$3.2 million compared to $2.5 million in the six months ended October 31 ,

2021. Expenses were 20% of segment total revenue in the six months ended

October 31, 2022 , as compared to 14% of segment total revenue in the six

months ended October 31, 2021 . The increase is primarily due to the stock

award of $352 and cash compensation of $140 awarded to a board member. 20

Table of Contents

SECOND QUARTER FISCAL 2022 COMPARED TO SECOND QUARTER FISCAL 2021

Three Months Three Months Ended October Percent of Ended October Percent of Percent Change (dollars in thousands) 31, 2022 Total Revenue 31, 2021 Total Revenue 2021-2022 Revenue: Professional Services $ 9,745 50 % $ 9,232 50 % 6 % Aerospace Products 9,581 50 % 9,417 50 % 2 % Total revenue 19,326 100 % 18,649 100 % 4 % Costs and expenses: Costs of Professional Services 3,752 19 % 3,454 18 % 9 % Cost of Aerospace Products 6,582 34 % 5,927 32 % 11 % Marketing and advertising 1,368 7 % 1,246 7 % 10 % Employee benefits 636 3 % 546 3 % 16 % Depreciation and amortization 756 4 % 705 4 % 7 % General, administrative and other 2,230 12 % 2,028 11 % 10 % Total costs and expenses 15,324 79 % 13,906 75 % 10 % Operating income $ 4,002 21 % $ 4,743 25 % -16 % Revenue: Revenue increased 4% to $19.3 million in the three months ended October 31, 2022 , compared to $18.6 million in the three months ended October 31, 2021 . See "Operations by Segment" below for a discussion of the primary reasons for the decrease in revenue.

? Professional Services derives its revenue from (a) professional management

services in the gaming industry through Butler National Service Corporation

("BNSC") and BHCMC, LLC ("BHCMC"), and (b) professional architectural,

engineering and management support services. Revenue from Professional

Services increased 6% for the three months to $9.7 million at October 31, 2022

compared to $9.2 million at October 31, 2021 . ? Aerospace Products derives its revenue by designing, engineering,

manufacturing, installing, servicing and repairing products for classic and

current production aircraft. Aerospace Products revenue increased 2% for the

three months to $9.6 million at October 31, 2022 compared to $9.4 million at

October 31, 2021 . 21