BUKS Butler National Corp - 10-K

Item 1A.    RISK FACTORS

The following statements on risk factors contain “forward-looking statements” within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended. Forward-looking statements can often be identified by the use of forward-looking terminology, such as “could,” “should,” “will,” “intended,” “continue,” “believe,” “may,” “expect,” “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 result and involve risks, uncertainties, and assumptions. Stockholders should be aware of certain risks, including those described below and elsewhere in this Form 10-K, which could adversely affect the value of their holdings and could cause our actual results to differ materially from those projected in any forward-looking statements. 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, except as expressly required by federal securities laws.

Risks Related to Our Business and Operations

Ou r Aerospace Products b usiness is subject to significant customer concentration risk.

During the fiscal year ending April 30, 2025, we derived 25.4 % of our revenue from five customers, and we had one "major customer" (10 percent or more of consolidated revenue) that provided 14.8 % of total revenue. During the fiscal year ending April 30, 2024, we derived 28.5% of our revenue from five customers, and we had one major customer that provided 15.2% of total r evenue. At April 30, 2025 and 2024, we had one customer that accounted for 32.4 % and 42.5%, respectively, of our total accounts receivable. Our business operations in Tempe, Arizona sell almost entirely to one customer. A loss of business from, or the bankruptcy or insolvency of, one or more of any of these major customers may have a material adverse effect on our financial condition, results of operations, liquidity and cash flows.

We depend on the U.S. government and friendly foreign countries spending for a significant portion of our revenues.

We are a supplier, either directly or as a subcontractor, to the U.S. Government, its agencies and to friendly foreign countries. We rely heavily on government spending for a significant portion of our business. The United States financing or assistance in facilitating foreign objectives around the world impacts our business at our Avcon Industries, Inc. and Butler National - Tempe subsidiaries. If the flow of United States support globally would decrease, it would have a detrimental impact. We depend upon U.S. military spending and the demand for military equipment upgrades. If the U.S. Government or friendly foreign countries ceased doing business with us or significantly decreased the amount of business they do with us, it may have a material adverse effect on our financial condition, results of operations, liquidity and cash flows.

We operate in cyclical industries and an economic downturn could negatively impact our operations.

Historically, adverse conditions in the local, regional, national and global economies have negatively affected our operations, and may continue to negatively affect our operations in the future. Such adverse economic conditions include recessionary economic cycles and downturns in customer business cycles, labor and supply shortages, global uncertainty and instability, inflation, changes in U.S. social, political, and regulatory conditions, tariffs and disruptions in the gaming and aerospace markets. During periods of economic contraction, our revenues may decrease while some of our costs remain fixed or even increase, resulting in decreased earnings. Adverse economic conditions may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

The gaming activities that we offer involve consumer discretionary expenditures and participation in such activities may decline during economic downturns, during which consumers generally earn less disposable income. An uncertain economic outlook, particularly within the region of the gaming facility, may adversely affect consumer spending in our gaming operations and may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

Our Aerospace Products business is subject to the general health of the aviation industry, which may be cyclical. During periods of economic expansion, when capital spending normally increases, we generally benefit from greater demand for our aviation products and services. During periods of economic contraction, when capital spending normally decreases, we generally are adversely affected by declining demand for our aerospace products and services. Similarly, the availability of aircraft from manufacturers has an impact on the orders received from customers requiring new aircraft. Such conditions may also inhibit our ability to obtain products and materials from our suppliers or may negatively impact the affordability of such products and materials. Aviation industry conditions are impacted by numerous factors over which we have no

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control, including political, regulatory, economic, technical staffing and military conditions, environmental concerns, weather conditions and fuel pricing. Any prolonged cyclical downturn may adversely affect customer demand in our Aerospace Products business and may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

Lack of regulatory approval may lead to difficulties or delays in the development, production, testing and marketing of products, which could adversely affect our business.

Our Aerospace Products business is subject, in part, to regulatory procedures enacted or administered by the Federal Aviation Administration (“FAA”). Accordingly, our business may be adversely affected in the event the Company is unable to comply with such regulations relative to its current products or if any new products or services to be offered by the Company are not formally approved by such agency. Proposed aviation modification products depend upon the issuance by the FAA of a Supplemental Type Certificate with related parts manufacturing authority. Such certifications for future aircraft modification products may not be issued within our expected time frames or issued at all, which may have a material adverse effect on our business. Similarly, the loss of one or more of our current licenses or certifications may also have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

We rely on highly skilled personnel and, if we are unable to retain or motivate key personnel or hire qualified personnel, our results of operations could be impacted.

Recruitment and retention of employees are important to the financial condition and business objectives of the Company. Our cost-effective and quality products and services depend on well-trained employees. The continued success of our gaming business depends upon our recruitment and retention of experienced personnel in the technology industry. The loss of such employees could result in significant disruptions to our business, and the integration of replacement personnel could be time-consuming and may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

Likewise, research and development to generate new products and services in our Aerospace Products business is dependent on trained personnel. The Company relies on various engineering resources, both internally and externally, to perform engineering and certification work to develop new products. The new products have been vital to our growth and sustained revenues and are critical to satisfying customer requirements. Certain individuals in the Company hold specific expertise in engineering. We devote significant resources to identifying, hiring, training, and successfully integrating and retaining these employees. A loss of consultants or engineers could adversely affect the financials of the Company. Additionally, key personnel are particularly important in maintaining relationships with the operations related to the FAA and the State of Kansas. Our airplane modification operations are dependent upon our Company Designated Engineering Representatives (“DERs”). If we are unable to obtain FAA approval for DERs to approve airplane modification work when our existing DERs retire or are unable to work, our business operations may suffer. The failure to recruit and retain such key employees may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

We also depend on a limited number of key personnel to manage and operate our businesses, including our executive officers. Our continued growth and success are dependent on the leadership of these key personnel. The Company does not have employment contracts with our executive officers. Several of the tasks each of our executive officers perform lack redundancy. The departure, death or disability of any one of our executive officers or other extended or permanent loss of any of their services, or any negative industry perception with respect to any of them or their loss, could have a material adverse effect on our business. Our success depends heavily upon the continued contributions of these key persons, whose knowledge, leadership and technical expertise would be difficult to replace, and on our ability to attract and retain experienced professional staff. The unexpected loss of services of any of our key personnel, or our failure to manage executive succession successfully, may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

We may face risks related to the geographic location of our casino.

Boot Hill Casino is located in Dodge City, Kansas. Consequently, a significant portion of our gaming business is dependent upon attracting local residents, for both patronage and employees, as well as out of town visitors and is subject to the general economic health of the region around Dodge City. The economy of Dodge City is significantly influenced by the agricultural sector of the national and local economy, which includes both agricultural farming and meat processing, and the oil and gas industry. As a result, changes in the economic climate, weather patterns, the availability of rural medical

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care, and market fluctuations for agricultural and petroleum products could cause our customers to see a decrease in discretionary income which may negatively impact our revenues from gaming. This may have a material adverse effect on our financial condition, results of operations, liquidity and cash flows.

Due to fixed contract pricing, increasing contract costs exposes us to reduced profitability.

We sell certain products and services to commercial, government, and defense customers under firm fixed-priced contracts, regardless of costs incurred by us. Our Aerospace Products business generated approximate ly 58% of its 2025 r evenue from fixed-price contracts. The costs of producing products or providing services may be adversely affected by increases in the cost of labor, materials, overhead, tariffs and other unknown variants, including manufacturing and other operational inefficiencies and differences between assumptions used by us to price a contract and actual results. Increased costs may result in cost overruns and losses on such contracts, which may adversely affect our financial condition, results of operations, liquidity and cash flows.

We are exposed to risks associated with our international sales.

We conduct our business in a number of foreign countries, some of which are politically unstable or subject to military or civil conflicts. International sales amount to 22% of total revenue in fiscal 2025. Consequently, we are subject to a variety of risks that are specific to international operations, including the following:

• Military conflicts, civil strife, and political risks;

• Export regulations that could erode profit margins or restrict exports;

• Export controls and financial and economic sanctions imposed on certain industry sectors, countries or products;

• The burden and cost of compliance with foreign laws, treaties, and technical standards and changes in those regulations;

• Contract award and funding delays;

• Potential restrictions on transfers of funds;

• Import and export duties and value added taxes;

• Foreign exchange risk;

• Transportation delays and interruptions;

• Uncertainties arising from foreign local business practices and cultural considerations; and

• Changes in U.S. policies on trade relations and trade policy, including implementation of or changes in trade sanctions, tariffs, and embargoes.

Any measures adopted to reduce the potential impact of losses resulting from the risks of doing business internationally may not be adequate, and the regions in which we operate might not continue to be stable enough to allow us to operate profitably or at all. Our international sales may be subject to local laws, regulations and procurement policies and practices which may differ from U.S. Federal Government regulation, including regulations related to products being installed on aircraft, and export and exchange controls. We are also exposed to risks associated with any relationships with foreign representatives, consultants, partners and suppliers for international sales and operations. Our ability to arrange safe travel to visit our international customers may put our ability to sell to such customers at risk, which may adversely affect our financial condition, results of operations, liquidity and cash flows.

Changing trade policy in the U.S. and other nations and the impact of recently announced tariffs may continue to adversely impact our Company.

Changing policies and priorities in the U.S. government and other nations’ administrations, including recently announced tariffs, may continue to adversely impact our operations. U.S. trade policy has recently been significantly changed. On April 2, 2025, the U.S. government implemented a baseline tariff of 10% on product imports from almost all countries and individualized higher tariffs on certain other countries. Following the announcement of the tariffs, limited exceptions and temporary pauses have been enacted, such as the 90-day pause on the country-specific tariffs for all countries except China, while maintaining the 10% baseline tariff. Certain foreign governments have either taken or are threatening to take retaliatory actions in response. These significant changes may continue to adversely affect our financial condition, results of operations, liquidity and cash flows.

These changes in U.S. trade policy and tariffs have caused uncertainty and volatility in financial markets. Tariffs (imposed or threatened), sanctions, embargoes, export and import controls, and other trade restrictions, along with any retaliatory measures, could increase our costs, decrease demand for our products and services, disrupt our supply chain, adversely

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affect our operations, or adversely affect our ability to meet contractual and financial obligations. Tariffs or other trade restrictions may also lead to continuing uncertainty and volatility in U.S. and global financial and economic conditions, declining consumer confidence, inflation or an economic slowdown. Tariffs or other trade restrictions could create adverse political relations with our global customers which could result in the termination of certain contracts or a decrease in international customers. These tariffs or other trade restrictions, including other countries’ retaliatory measures, could continue to cause a reduction in our profit margins. Tariffs or other trade restrictions may cause equipment prices to significantly increase, which could adversely affect our growth efforts. Tariffs or other trade restrictions imposed on the importation of parts, raw materials, and products may impact the sale and delivery of products and may increase our costs, which may adversely affect our financial condition, results of operations, liquidity and cash flows.

We may make future acquisitions and our business may suffer if we are unable to successfully integrate such acquisitions into our Company or otherwise manage the growth associated with investments and acquisitions.

We continually review, evaluate and consider potential investments and acquisitions in pursuing our business strategy. In evaluating such transactions, we are making difficult judgments regarding the value of business opportunities, technologies and other assets, and the risk and cost of potential liabilities. Acquisitions and investments involve certain other risks and uncertainties, including the difficulty in integrating newly-acquired businesses, the challenges in reaching our strategic objectives, benefits expected from acquisitions or investments, cost and revenue synergies, interest rates and financial conditions, and risk that markets do not evolve as anticipated and the targeted opportunity or technology do not prove to be those needed to be successful in those markets. Other risks include the diversion of our attention and resources from our current operations, the potential of impairment of acquired assets and the potential loss of key employees of acquired businesses. Acquisitions or other investments may also result in unanticipated costs or expenses, including post-closing asset impairment charges, expenses associated with eliminating duplicate facilities, employee retention, litigation and other liabilities. Failure to realize the benefits of an acquisition may adversely affect our financial condition, results of operations, liquidity and cash flows.

Operational challenges impacting our Aerospace Products business could result in failure to meet customer demand for new modifications.

Our aircraft modification business is extremely complex. Customer projects are often scheduled based upon the availability of certain components and specific airplane models. These components are frequently acquired by the customer or by our Avcon Industries, Inc. subsidiary. Our customers may desire modification to specific airplane models that may become scarce due to competing demand, and limited new aircraft availability, aircraft manufactured parts, manufacturing or labor challenges, among other factors. Operational issues, including delays or defects in parts or supplier components, failure to meet internal performance plans, or delays or failures to achieve required regulatory approval, could result in additional out-of-sequence work and increased production costs, as well as delayed deliveries to customers. We and our suppliers have been experiencing supply chain disruptions as a result of global supply chain constraints and labor instability. Supply chain issues could impact overall productivity and may adversely affect our financial condition, results of operations, liquidity and cash flows.

A decrease in customer demand, coupled with the rise of entities purchasing Avcon-modified airplanes and leasing them, may impact our business and operations.

Our aircraft modification business is dependent on customer demand for Avcon modifications. There are several entities that have purchased Avcon-modified planes and leased them as an alternative to potential customers purchasing a modification for their airplane. If customer demand for Avcon modifications decreases generally, from the issues we may face from being able to meet customer demand for new components, or from the leasing of Avcon-modified airplanes offered by other entities, this may adversely affect our financial condition, results of operations, liquidity and cash flows.

We may not carry sufficient insurance for our airplane modification services and liability stemming from these services could adversely affect our business.

We carry minimal amounts of liability insurance covering the Company for providing airplane modification services. We also expressly disclaim all expressed and implied warranties at law in most of our contracts in which we provide airplane modification services. While our airplane modification service contracts specifically disclaim certain warranties, and contain limitations on our liability, courts may still hold us liable for such claims if asserted against us. This may have a material adverse effect on our financial condition, results of operations, liquidity and cash flows.

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Cyber security attacks, internal system or service failures, and misappropriation of data or other breaches of information security may adversely impact our business and operations.

We increasingly rely on information technology and other systems, including our own systems and those of service providers and third parties, to manage our business and employee data and maintain and transmit customers’ personal and financial information, payment settlements, and payment funds transmissions. In addition, third-party service providers and other business partners process and maintain our proprietary business information and data. Our collection of such data is subject to extensive regulation by private groups, such as the payment card industry, as well as governmental authorities, including gaming regulatory authorities. Privacy regulations continue to evolve, and we have taken, and will continue to take, steps to comply by implementing processes designed to safeguard the confidential and personal information of our business, employees and customers. Our reliance on information technology and other systems may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

Our information and processes and those of our service providers and other third parties, including our contractors and contractors of our service providers and vendors, are subject to the ever-changing threat of compromised security, in the form of a risk of potential breach, system failure, computer virus, or unauthorized or fraudulent use by customers, Company employees, Company contractors and other third parties including employees and contractors of third-party vendors. The steps we take to deter and mitigate the risks of breaches may not be successful, and any resulting compromise or loss of data or systems could adversely impact operations or regulatory compliance and could result in remedial expenses, fines, litigation, disclosures, and loss of reputation, potentially impacting our financial results. Compromised security or loss of data or systems may also have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

Further, as cyber-attacks continue to evolve and become more sophisticated, we may incur significant costs in our attempts to modify or enhance our protective measures or investigate or remediate any actual or perceived vulnerability. Increased instances of cyber-attacks may also have a negative reputational impact that may result in a loss of customer confidence. Any failure to prevent or mitigate security breaches or cyber risk could result in interruptions to the services we provide and cause our customers to lose confidence in our products and services. The unauthorized access, acquisition or disclosure of consumer information could compel us to comply with disparate breach notification laws and otherwise subject us to proceedings by governmental entities, including gaming regulatory authorities, or others and substantial legal and financial liability. This could harm our business and reputation, disrupt our relationships with partners and diminish our competitive position. Cyber-attacks and costs expended on deterrence measures may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

Any system or service disruptions, including those caused by projects to improve our information technology systems, if not anticipated and appropriately mitigated, could disrupt our business, and impair our ability to effectively provide products and related services to our customers and could have a material adverse effect on our business. We could also be subject to systems failures, including network, software, or hardware failures, whether caused by us, third-party service providers, intruders or hackers, computer viruses, natural disasters, power shortages, or terrorist attacks. The failure or disruption of our communications or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business. Although we utilize various procedures and controls to monitor and mitigate the risk of these threats, there can be no assurance that these procedures and controls will be sufficient. Moreover, expenditures incurred in implementing cybersecurity and other procedures and controls, including rising insurance costs, could impact our financial condition. Any cybersecurity incident or breach of our data or information systems may adversely affect our financial condition, results of operations, liquidity and cash flows.

We face the risk of fraud, theft, and cheating.

We face the risk that gaming customers may attempt or commit fraud or theft or cheat in order to increase winnings. Such acts of fraud, theft, or cheating could involve the use of counterfeit chips or other tactics, which may or may not occur in collusion with our employees. Internal acts of cheating could also be conducted by employees through collusion with dealers, surveillance staff, floor managers, or other casino or gaming area staff. Additionally, we also face the risk that customers may attempt or commit fraud or theft with respect to our non-gaming offerings or against other customers. Such risks include stolen credit or charge cards or cash, falsified checks, theft of retail inventory and purchased goods, and unpaid or counterfeit receipts. Failure to discover such acts or schemes in a timely manner could result in losses in our operations. Negative publicity related to such acts or schemes could have an adverse effect on our reputation. Any incidents of fraud, theft or cheating may adversely affect our financial condition, results of operations, liquidity and cash flows.

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We are dependent on third-party platforms to offer sports wagering.

We have an agreement with DraftKings to facilitate online and mobile sports wagering. In September of 2022, we commenced mobile sports wagering with DraftKings. Our Sports Wagering Management Contract with DraftKings is scheduled to expire in September of 2027. If we cannot renew, we may have to enter into a similar contract with a different service provider. There is no guarantee that we will be able to negotiate favorable terms in any renewal or new contract. Our management contract with the Kansas Lottery also expires in 2027. Uncertainty in the future of Kansas’ sports betting market may interrupt our gaming business operations. In April 2025, the Kansas Legislature included a ban in the state budget bill prohibiting the Kansas Lottery from spending state money on negotiating any renewals, extensions or new contracts with sports wagering managers until July 2026. Termination of our Sports Wagering Management Contract with the State of Kansas or a failure to extend our relationship with DraftKings may adversely affect our financial condition, results of operations, liquidity and cash flows.

There can be no assurance our sports wagering operations will be continuous or remain profitable.

In 2022 Kansas legalized intra-state sports wagering and established extensive state licensing and regulatory requirements governing any such intra-state sports wagering. We offer the sports wagering on behalf of the Kansas Lottery pursuant to state statute and a sports wagering management contract that was effective September of 2022 and has a five-year term.

The Kansas legislature placed a proviso on a budget bill during the 2025 legislative session that restricts the renewal or extension of sports wagering management contracts for the next two years to approval by the legislature. We have no assurances with respect to the renewal or extension of our sports wagering management contract. We launched online and mobile sports wagering applications in the fall of 2022. Our contracted sports wagering platform competes in an evolving and highly competitive market against a number of competitors. The increasingly competitive market may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

Additionally, we have entered into an agreement with sports wagering vendor DraftKings, and may enter into additional agreements with strategic partners and other third-party vendors to provide market access. There can be no assurance that the Kansas audience will continue to engage in sports wagering and online gaming products to the extent that we expect. The success of our sports wagering activity is dependent on a number of additional factors, many of which are beyond our control, including the ultimate revenue share rates and license fees charged by the state of Kansas; our ability to maintain market share in Kansas; the access to online or mobile sports wagering in other states; the timeliness and the technological and popular viability of our products; new technology that may be used to facilitate sports wagering that may better appeal to our customers; our ability to compete with new entrants in the market; changes in consumer demographics and public tastes and preferences; cancellations and delays in sporting seasons and sporting matches as a result of events such as players strikes or lockouts; and the availability and popularity of other forms of entertainment. There can be no assurance that we will be able to compete effectively or that our offerings will be successful and generate sufficient returns on our investment. Any of the factors that impede sports wagering may adversely affect our financial condition, results of operations, liquidity and cash flows.

We are subject to certain change of control restrictions, which could make it more difficult to be acquired.

Some provisions of our Articles of Incorporation, our Bylaws and state of Kansas regulations could make it more difficult for a potential acquirer to acquire a majority of our outstanding voting stock. This includes, but is not limited to, provisions that: provide for a classified Board of Directors (which will remain until the 2027 Annual Meeting of Stockholders), prohibit stockholders from taking action by written consent, and restrict the ability of stockholders to call special meetings. We are also subject to provisions of Kansas law K.S.A. 17-6427 that prohibit us from engaging in any business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder, unless certain conditions are met, which could have the effect of delaying or preventing a change of control. In light of the highly regulated nature of our business and the authority of the regulatory agencies that monitor our business to monitor the composition of our shareholders, the Board has consistently believed these restrictions are appropriate. We are subject to the state of Kansas Lottery Gaming Facility management contract approval process. This process requires that any entity or person directly or indirectly owning five percent (5%) of the ownership interest of a management company must be found suitable to be an owner by the state of Kansas. If found unsuitable by any agency, the stockholder must offer all of the interest in Company stock held by such stockholder to the Company for cash at the current market bid price, less a fifteen percent (15%) administrative charge, and the Company must purchase such interest within six months of the offer. These restrictions may result in missed opportunities for the Company and could result in a reduced share price of our common stock, which could harm our business.

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Legal and Regulatory Risks

We are subject to significant government regulation and may need to incur significant expenses to comply with new or more stringent government regulation.

Our Aerospace Products business is subject to regulation by the FAA. We manufacture products and parts under FAA Parts Manufacturing Authority requiring qualification and traceability of all materials and vendors used by us. We make aircraft modifications pursuant to the authority granted by Supplemental Type Certificates issued by the FAA. We repair aircraft parts pursuant to the authority granted by our FAA Authorized Repair Station. Before we sell any of our products that are to be installed on an aircraft, they must meet certain standards of airworthiness established by the FAA or the equivalent regulatory agencies in certain other countries. New, more stringent government regulations, or different interpretations of current regulations may be adopted in the future. Changes in the availability of FAA resources to process approvals of modifications, such as a decrease in staffing and experience at FAA certification offices, may adversely affect our business. Changes in the regulations that impact our ability to export modifications may also harm our operations. Likewise, adverse determinations or policy directives from the United States government with respect to controls and classifications of our Avcon Industries, Inc. products could adversely affect the financial condition of the Company. Our failure to comply with applicable regulations could result in the termination of or our disqualification from some of our material contracts, licenses, certificates, authorizations, or approvals, which could have a material adverse effect on our operations and financial condition. Related costs of compliance with, or liability for violations of, existing or future regulations may adversely affect our financial condition, results of operations, liquidity and cash flows.

The online gaming industry is heavily regulated and the Company’s failure to obtain or maintain applicable licensure or approvals, or otherwise comply with applicable requirements, could be disruptive to our business and could adversely affect our operations.

We are subject to regulation in connection with our management of a State of Kansas-owned Lottery Gaming Facility. Kansas gaming authorities may require our management personnel, the Company and the managing subsidiaries, and key personnel of all entities to maintain a state-issued license or undergo background checks. Each State Gaming Agency has broad discretion in granting, renewing, and revoking licenses. Obtaining such licenses and approvals could be time consuming and may be unsuccessful or involve considerable expense, which could adversely affect our ability to successfully operate our business. Further, the failure of the Company or key personnel to obtain or retain a license could have a material adverse effect on the Company or on its ability to obtain or retain these licenses in other jurisdictions. Such licensing requirements may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

Our present and future stockholders are, and will continue to be, subject to review by regulatory agencies. We are subject to the Lottery Gaming Facility management contract approval process in the state of Kansas. This process requires that any entity or person directly or indirectly owning five percent (5%) of the ownership interest of a management company must be found suitable to be an owner by the state of Kansas. If found unsuitable by any agency, the stockholder must offer all of the interest in Company stock held by such stockholder to the Company for cash at the current market bid price, less a fifteen percent (15%) administrative charge, and the Company must purchase such interest within six months of the offer. The stockholder is required to pay all costs of investigation with respect to a determination of his, her or their suitability. Any such forced sale may negatively affect the trading price and liquidity of our shares. In addition, regardless of ownership, each member of the Board of Directors and certain officers of the Company are subject to a finding of suitability by any Agency on a regular basis. If a Board member or officer were found unsuitable, we may be forced to dissociate with such person. Such forced dissociation may adversely affect our financial condition, results of operations, liquidity and cash flows.

Gaming regulation and law is evolving, which may adversely affect our business.

Gaming management operations are and will be subject to extensive gaming laws and regulations, many of which were recently adopted and have not been the subject of definitive interpretations and are still subject to proposed amendments and regulation. The political and regulatory environment in which the Company is and will be operating with respect to gaming activities is dynamic and rapidly changing. For example, in April 2025, the Kansas Legislature included a ban in the state budget bill prohibiting the Kansas Lottery from spending state money on negotiating any renewals, extensions or new contracts with sports wagering operators until July 2026 .

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Some legislative efforts seek to enact a smoking ban that would impact our casino facility. Smoking is permitted in Native American casinos in the State of Kansas and in casinos in neighboring states. Such a ban, if enacted, would put us at a competitive disadvantage and may adversely affect our operations. Additionally, certain political efforts seek a significant regulatory change for Native American gaming that, if enacted, could lead to Native American casino gaming over the internet throughout the state. Propositions have also been made that would make it easier for Native American tribes to place land into trust that would enable the tribes to conduct gaming operations. Additional gaming would increase competition for discretionary income from our gaming patrons. The State of Kansas may enact new legislation involving the expansion of gaming including with respect to internet and mobile gaming. Furthermore, regulatory costs may continue to rise. We may not be able to respond quickly or effectively to regulatory, legislative, and other developments, and these changes may in turn impair our ability to offer our existing or proposed products and services or increase our expenses in providing these products and services. Adoption or changes in gaming laws and regulations could adversely affect our financial condition, results of operations, liquidity and cash flows.

We are subject to extensive taxation policies, which could adversely affect our business.

The federal government has, from time to time, considered a federal tax on casino revenues and may consider such a tax in the future. If such an increase were to be enacted, our ability to incur additional indebtedness in the future to finance casino development projects could be materially adversely affected. Additionally, gaming companies are currently subject to significant state and local taxes and fees, in addition to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. The Boot Hill Casino, pursuant to its Management Contract extension with the State of Kansas, pays a total revenue share of 29% of gross legacy gaming revenue (sports wagering revenue share is 10% to the State). T he Boot Hill Casino is contractually obligated to pay its proportionate share of certain expenses incurred by the Kansas Lottery Commission and the Kansas Racing and Gaming Commission, which amounted t o $2.7 million during fiscal year ended April 30, 2025. On December 15, 2024, the tax rate to the state increased by 2% and we begin our second 15-year management contract for traditional gaming at Boot Hill Casino. Such taxes and expenses may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

Changes in financial reporting regulations could have a materially adverse effect on our business.

The Company reports information to its stockholders and the general public pursuant to the regulations of various federal and state commissions and agencies. The Company is subject to guidance from the FASB (Financial Accounting Standards Board) and the Securities Exchange Commission. The political and regulatory environment in which the Company operates is dynamic and rapidly changing, and adoption or changes in regulations defining accounting procedures or reporting requirements could increase expenditures to report required financial information, which may adversely affect our financial condition, results of operations, liquidity and cash flows.

Financial Risks

Our business requires financing and financing is dependent upon the stability of economic markets.

Our ability to manage and grow our business and to execute our business strategy is dependent, in part, on the continued availability of financing. Access to financing may be limited by various factors, including the condition of overall credit markets, the current high interest rate environment, general economic factors, state of the aviation or gaming industry, our financial performance, and credit ratings. Financing may not continue to be available to us on favorable terms, or at all. If we are unable to obtain additional capital when required, or on satisfactory terms, we may be precluded from maintaining or enhancing our properties, taking advantage of future opportunities, growing our business, acquiring new properties, or responding to competitive pressures. Our dependence on financing may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

We may be required in the future to record impairment losses related to assets we currently carry on our balance sheet.

We own and distribute aircraft parts and components. Recurring losses in certain operations could require us to evaluate the recoverability of the carrying value of the related assets and recognize an impairment charge through earnings to reduce the carrying value. In addition, if aircraft for which we offer replacement parts, components, or supply maintenance services are retired and there are fewer aircraft that require these parts or services, our revenues in the future may decline from historical trends. Such losses may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

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We evaluate intangible assets for impairment annually during the fourth quarter and in any interim period in which circumstances arise that indicate our intangible asset may be impaired. Indicators of impairment include, but are not limited to, the loss of significant business or significant adverse changes in industry or market conditions. No events occurred during the periods presented indicating the existence of an impairment with respect to our intangible assets. Preparation of forecasts for use in the long-range plan and the selection of the discount rate involve significant judgments that we base primarily on existing firm orders, expected future orders and general market conditions. Significant changes in these forecasts or the discount rate selected could affect the estimated fair value and could result in an impairment charge in a future period. Significant changes in forecasts or the selected discount rate may also have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

We make a number of assumptions when determining the recoverability of our assets, including historical sales trends, current and expected usage trends, replacement values, residual values, future demand, and future cash flows. Differences between actual results and the assumptions utilized by us when determining the recoverability of our assets could result in impairment charges in future periods, which may adversely affect our results of operations, financial condition, liquidity and cash flows.

Risks Related to our Stock

Because our common stock is deemed a “penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.

Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Exchange Act, it will be more difficult for investors to liquidate their investment. Until the trading price of the common stock increases so that it no longer qualifies as a “penny stock,” if ever, trading in the common stock is subject to the penny stock rules of the Exchange Act. Those rules require broker-dealers, before effecting transactions in any penny stock, to:

• Deliver to the customer, and obtain a written receipt for, a disclosure document;

• Disclose certain price information about the stock;

• Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer;

• Send monthly statements to customers with market and price information about the penny stock; and

• In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules.

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future. Such penny stock rules may also have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

We may conduct a reverse stock split, which could expose us to certain risks.

The possibility of the Company undergoing a reverse stock split has been discussed at prior annual meetings as a means to increase the common stock share price. We operate in competitive industries and the Company must consider all strategies to increase our common stock share price for stockholders. A reverse stock split and subsequent increase in the common stock price could elicit a positive market reaction and attract new investors to the Company. There are also risks with a reverse stock split. The market could react negatively to the consolidation and our common stock could come under renewed selling pressure, which would negatively affect the trading price of our common stock. A reverse stock split may have a material adverse effect on the Company’s financial condition, results of operations, liquidity and cash flows.

General Risk Factors

We operate in competitive markets, and competitive pressures could adversely affect our business.

The markets for our Aerospace Products to our commercial, government, and defense customers are highly competitive, and we face competition from a number of sources, both domestic and international. While we believe that we have unique products and proprietary designs that provide a competitive advantage to other modification businesses, the risk exists that other businesses could expand into the marketplace of our Aerospace Products business. Some of our competitors have substantially greater financial and other resources than we have, and others may price their products and services below our

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selling prices. These competitive markets also create pressure on our ability to hire and retain qualified technicians and other skilled labor needs. These competitive pressures may adversely affect our financial condition, results of operations, liquidity and cash flows.

Additionally, because of the rapid rate at which the gaming industry has expanded, and continues to expand, the gaming industry may be at risk of market saturation, both as to specific areas and generally. Overbuilding of gaming facilities by others at particular sites in competitive markets may have a material adverse effect on our ability to compete and on our operations. Other forms of entertainment, such as television, movies, sporting events and the Kansas Lottery operating iLottery, are more well-established and may be perceived by our users to offer greater variety, affordability, interactivity and enjoyment. We compete with these other forms of entertainment for the discretionary time and income of our users. It is possible that these secondary competitors could reduce the number of visitors to our facilities or the amount they are willing to wager with us, which may adversely affect our financial condition, results of operations, liquidity and cash flows.

Acts of terrorism and war could disrupt our business.

Terrorist attacks and other acts of war or hostility create many economic and political uncertainties. We cannot predict the extent to which terrorism, security alerts, war, or hostilities throughout the world will continue to directly or indirectly impact our business and operating results. Because of the threat of terrorist attacks and other acts of war or hostility in the future, premiums for certain insurance products have increased, and some types of insurance are no longer available. Given current conditions in the global insurance markets, we are substantially uninsured for losses and interruptions caused by terrorist acts and acts of war. If any such event were to affect our properties, it may adversely affect our financial condition, results of operations, liquidity and cash flows.

Climate change, inclement weather, natural or human-caused disasters and other conditions could seriously disrupt our business and operations.

Our Company and our customers are vulnerable to the increasing impact of climate change. Climate change may increase the severity or frequency of extreme weather conditions. Volatile changes in weather conditions, including extreme heat or cold, could increase the risk of wildfires, floods, blizzards, hurricanes, tornadoes, storms and other weather-related disasters. Natural or human-caused disasters or other catastrophic events could adversely impact our business and operating results. Such events could lead to the loss of use of one or more of the facilities for which we provide management services for an extended period of time and disrupt our ability to attract customers to our gaming facilities. Such events could also result in loss or damage to employee homes or inability to relocate key employees. Additionally, damage from severe weather to our aircraft modification facilities could have an adverse impact on our business if we are unable to continue performing aircraft modifications. Our gaming operations are subject to the weather and other conditions that could disrupt or reduce the number of customers who visit our casino. If weather conditions limit access to our casino or otherwise adversely impact our ability to operate our casino at full capacity, our revenue could suffer, which may adversely affect our operations and cash flows. We also face risks that the weather and other conditions could adversely affect the local industries in Dodge City, Kansas, where the Boot Hill Casino is located. The local economy in Dodge City is primarily fueled by the agriculture, meat processing and oil and gas industries. In the event the weather or other conditions severely disrupt these industries, we could see a reduction in the number of customers who visit our casino, which may adversely affect our financial condition, results of operations, liquidity and cash flows.

Rising inflation has increased costs related to materials and labor, which has adversely impacted our operational capacity and lowered profitability.

The Bureau of Labor Statistics reported that the Consumer Price Index increased 2.4 percent in 2025 thus far . Many of our operating expenses are sensitive to increases in inflation including equipment prices, fuel costs, and employee-related costs. Insurance costs have also significantly increased with most major carriers. Furthermore, current inflationary pressures may increase costs for materials, supplies, and services. Rising inflation may also drive demand for increases in compensation for employees, which may result in increased labor costs. With increasing costs, we may have to increase our prices to maintain the same level of profitability. If we are unable to increase our prices sufficiently to offset increasing expenses, then inflation may have a material adverse effect on our financial condition, results of operations, liquidity and cash flows.

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management Discussion and Analysis (MD&A) is intended to help the reader understand our results of operations and financial condition for fiscal years 2025 and 2024 by discussing principle factors affecting the results of operations, liquidity and capital resources, as well as the critical accounting policies of the Company and its wholly-owned subsidiaries and affiliates. This MD&A should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements.

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Our fiscal year ends on April 30th. Fiscal years 2025 and 2024 consisted of 52 weeks and ended on April 30, 2025 and April 30, 2024, respectively. All references to years in this MD&A represent fiscal years unless otherwise noted.

Overview

We have two separate reporting segments: Aerospace Products and Professional Services. Aerospace Products and Professional Services do not share the same customers or 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 previously provided architectural services. These reporting segments operate through various subsidiaries and affiliates listed on Exhibit 21 to this Form 10-K.

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 revenues from product and service innovations, strategic acquisitions, and targeted marketing programs. Specifically, we actively work in the Aerospace Products segment to develop and promote new STC-approved airplane modifications and derivatives of our proprietary gun control design to open new market opportunities. In the Professional Services segment, we look for new ways to provide an enjoyable and entertaining experience to attract patrons to the gaming facility.

Butler National’s strategy is dependent on a number and viability of ongoing factors as discussed under “Forward-Looking Statements” and Part 1, Item 1A, “Risk Factors.” The key factors that affect our operating results are the customer headcount at Boot Hill, the number and viability of new STCs we are able to develop, our ability to market STCs in domestic and international markets, the growth of our new sports wagering platforms, and our ability to manage our cost structure for capital expenditures and operating expenses such as salaries, wages and benefits, claims and insurance expense, maintenance, and new equipment or raw materials.

Results Overview

Our fiscal 2025 revenue increased 7% to $84.0 million compared to $78.4 million in fiscal 2024. In fiscal 2025 the Professional Services revenue decreased less than 1% primarily due to a decrease in casino gaming revenue, offset by an increase in sportsbook revenue. There was an increase of 15% in the Aerospace Products revenue in fiscal 2025 which can be attributed to targeted marketing efforts for our new STC’s and special mission products.

Our fiscal 2025 net income was $12.6 million compared to net income of $12.5 million in fiscal 2024. Earnings per share was $0.19 fo r fiscal 2025 compared to $0.18 in fiscal 2024. We continue focusing on our margin expansion initiatives, including efficiencies in our implementation of improved operational processes and controlling general and administrative expenses. We have made a deliberate shift toward higher-margin product lines and improved operational alignment. We expanded our fabrication capabilities through the new facility in Newton, Kansas, and continued growth at our KC Machine location. At the same time, we’re optimizing our workforce by balancing production between Newton and New Century to address labor availability and demand. As a result, the fiscal 2025 operating income was $16.8 million, an increase of 27% from $13.2 million in fiscal 2024. This represents an operating margin of 20% in fiscal 2025, compared to 17% in fiscal 2024 (operating income as a percentage of revenue), an increase of approximately 18%.

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RESULTS OF OPERATIONS

Fiscal 2025 compared to Fiscal 2024

(dollars in thousands)

Percent of Total Revenue

Percent of Total Revenue

Percent Change 2024-2025

Revenue:

Professional Services

Aerospace Products

Total revenues

Costs and expenses:

Cost of professional services

Cost of aerospace products

Marketing and advertising

General, administrative and other

Total costs and expenses

Operating income

Revenue

Revenue increased to $84.0 million in fiscal 2025, compared to $78.4 million in fiscal 2024. See “Operations by Segment” below for a discussion of the primary reasons for the increase in revenue.

Professional Services derives its revenue from professional management services in the gaming industry through Butler National Service Corporation (“BNSC”) and BHCMC, LLC (“BHCMC”). Prior to the closure of BCS Design, Inc. (“BCS”) in January 2024, the Professional Services segment also included architectural and management support services. Revenue from Professional Services decreased by less than 1% to $38.3 million in fiscal 2025 compared to $38.6 million in fiscal 2024. Sports wagering through the DraftKings sports wagering platform brought in $5.8 million of revenue during fiscal 2025 compared to $4.6 million in fiscal 2024. Traditional casino gaming revenue decreased $1.5 million.

Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, servicing and repairing products for aircraft and military vehicles. Aerospace Products revenue increased by 15% to $45.7 million in fiscal 2025 compared to $39.7 million in fiscal 2024. The increase in revenue is primarily due to an increase in the aircraft modification business of $4.5 million and an increase in special mission electronics of $0.8 million.

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 3% in fiscal 2025 to $67.1 million, compared to $65.1 million in fiscal 2024. The increase was primarily driven by higher labor costs and increased costs of aerospace products, reflecting higher sales in the Aerospace Products segment. This was partially offset by a $1.3 million decrease in marketing and advertising expenses. Costs and expenses represented 80% of total revenue in fiscal 2025, compared to 83% in fiscal 2024. This represents an operating margin of 20.0% in fiscal 2025, compared to 16.9% in fiscal 2024 (operating income as a percentage of revenue), an increase of approximately 18%.

Costs of Professional Services increased 2% in the year ended April 30, 2025, to $16.0 million compared to $15.8 million in the year ended April 30, 2024. Costs were 42% of Professional Services revenue in the year ended April 30, 2025, as

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compared to 41% of Professional Services revenue in the year ended April 30, 2024. The increase is directly related to an increase in labor costs.

Costs of Aerospace Products increased 4% in the year ended April 30, 2025, to $29.9 million compared to $28.7 million for the year ended April 30, 2024. The increase is directly related to an increase in material and labor costs, impacted by our increased sales. Costs were 65% of Aerospace Products revenue in the year ended April 30, 2025, as compared to 72% of total revenue in the year ended April 30, 2024, reflecting increased efficiencies of our engineering and fabrication leading to improved operating profit margins.

While we continue to work to control costs, with the sales growth and expansion of aircraft modification installations at the New Century facility, the need for parts fabrication exceeded our existing shop capacity in Newton, Kansas. In response, in April, 2025, we purchased a building adjacent to our Newton airport campus for the primary purpose to expand our internal fabrication capabilities.

Marketing and advertising expenses decreased 26% to $3.7 million in fiscal 2025, from $5.0 million in fiscal 2024. Costs were 4% of total revenue in the year ended April 30, 2025 as compared to 6% of total revenue in the year ended April 30, 2024. The decrease in fiscal 2025 is due to a change in marketing strategy and methods to attract customers, with less focus on various media advertising and more focus on loyalty based promotions. Marketing and advertising expenses include advertising, sales and marketing labor, gaming development costs, and casino and product promotions.

General, administrative and other expenses increased 12% to $17.5 million in fiscal 2025, from $15.7 million in fiscal 2024. Costs were 21% of total revenue in the year ended April 30, 2025, compared to 20% of total revenue in the year ended April 30, 2024. The increase is primarily due to greater depreciation as a result of increased fixed assets, higher insurance premium costs, and higher administrative and overhead labor costs in fiscal 2025.

Other income (expense)

Other income (expense) was ($0.1) million in fiscal 2025 compared to $3.5 million in fiscal 2024, a change of $3.6 million from fiscal 2024 to fiscal 2025. Interest expense was ($2.2) mil lion in fiscal 2025 and ($2.4) million in fiscal 2024. Gain on sale of assets was $1.6 million in fiscal 20 25 compared to $5.7 million in fiscal 2024. Interest income was $0.5 million in fiscal 2025 and $0.3 million in fiscal 2024.

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 and management support services. Aerospace Products derives its revenue by designing, engineering, manufacturing, installing, modifying, servicing and repairing products for aircraft.

The following table presents a summary of our operating segment information for fiscal years 2025 and 2024:

(dollars in thousands)

Percent of Revenue

Percent of Revenue

Percent Change 2024-2025

Professional Services

Revenue

Boot Hill Casino

Other Professional Services

Revenue

Costs of Professional Services

Expenses

Total costs and expenses

Professional Services operating income

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(dollars in thousands)

Percent of Revenue

Percent of Revenue

Percent Change 2024-2025

Aerospace Products

Revenue

Costs of Aerospace Products

Expenses

Total costs and expenses

Aerospace Products operating income

Professional Services

Revenue from Professional Services decreased less than 1% to $38.3 million in fiscal 2025 from $38.6 million in fiscal 2024. Sports wagering through the DraftKings sports wagering platform brought in $5.8 million of revenue during fiscal 2025 compared to $4.6 million during fiscal 2024. Furthermore, traditional casino gaming revenue decreased $1.5 million due to a decrease in patron visits. We believe the decline of traditional casino gaming revenue was due primarily to economic factors impacting the region surrounding our casino in southwest Kansas. Factors influencing the local economy in the region surrounding our casino operations include reduced shifts and/or wages for Dodge City-based cattle processors and meat packing employees, increased inflation and drought conditions. Additionally, in December 2024, the revenue share paid to the State of Kansas under our Management Agreement increased by two percent. Our revenue is determined after the revenue share is distributed to the state and mandated regulatory expenses are paid.

The other Professional Services revenue of $63 in fiscal 2024 was from architectural services. Management dissolved the architecture business in January 2024.

Costs increased 2% in fiscal 2025 to $16.0 million compared to $15.8 million in fiscal 2024. Costs were 42% of segment total revenue in fiscal 2025, compared to 41% of segment total revenue in fiscal 2024. The increase is directly related to an increase in labor costs.

Expenses decreased 8% in fiscal 2025 to $13.1 million compared to $14.2 million in fiscal 2024. Expenses were 34% of segment total revenue in fiscal 2025, compared to 37% of segment total revenue in fiscal 2024. The decrease is due primarily to a decrease in marketing and advertising expenses, with less focus on various media advertising and more focus on loyalty based promotions.

Aerospace Products

Revenue increased 15% to $45.7 million in fiscal 2025 compared to $39.7 million in fiscal 2024. This increase was primarily due to an increase in our aircraft modification business of $4.5 million and an increase in special mission electronics of $0.8 million. The development of new STC’s and our marketing efforts in both domestic and international markets supported the increase.

During fiscal year 2025, we obtained new approvals for airplane modification including special configurations of the Avcon Special Mission Pod, the Avcon King Air Nose Extension, multiple configurations of sensor arrays on a King Air used for environmental research, and various provisions that may be installed to hang on the wing (hardpoints) of the Learjet Model 60, among other approvals. These products provide a foundation for sales and modifications in the future.

The $0.8 million increase in revenue with respect to special mission electronics is related to additional orders, which is also reflected in the increased backlog. We are focused on identifying and acquiring the staffing to efficiently decrease backlog. We continue to look at process opportunities to enhance the cable fabrication process in our expansion of that business. Additionally, special mission electronics delivered the first 20 new M134 Gun Control Units.

Costs increased 4% to $29.9 million in fiscal 2025 compared to $28.7 million in fiscal 2024. This increase is directly related to the increase in material and labor costs associated with higher revenues. Costs were 65% of segment total

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revenue in fiscal 2025, compared to 72% of segment total revenue in fiscal 2024, reflecting increased efficiencies of our engineering and fabrication labor leading to improved operating profit margins.

Expenses increased 25% in fiscal 2025 to $8.1 million compared to $6.5 million in fiscal 2024. Expenses were 18% of segment total revenue in fiscal 2025, compared to 16% of segment total revenue in fiscal 2024. The increase is primarily due to higher insurance premium costs, higher administrative and overhead labor costs, and greater depreciation as a result of increased fixed assets in fiscal 2025.

Outlook

Our outlook is dependent on a number of external factors, including U.S. and global financial and economic conditions, consumer confidence and strength of the U.S. economy, inflation, changes in regulatory conditions and international trade relations, including higher tariffs, labor availability, the disposable income of our patrons visiting or placing wagers through the Boot Hill Casino and Resort, and supply chain constraints. The potential impact of these factors on our operations, financial performance and financial condition, as well as the impact on our ability to successfully execute our business strategies and initiatives, remains difficult to predict.

The U.S. government has made significant changes in U.S. trade policy, including the imposition on April 2, 2025, of a baseline tariff of 10% on product imports from almost all countries and individualized higher tariffs on certain other countries. These changes in U.S. trade policy and tariffs have impacted demand for our services and could have a material adverse effect on our operating results, including as a result of the possibility of higher inflation, an economic slowdown or general economic uncertainty. Many of our operating expenses are sensitive to increases in inflation including equipment prices, fuel costs, and employee-related costs. Insurance costs have also significantly increased with most major carriers. Furthermore, the market is currently experiencing inflationary pressures that may increase costs for materials, supplies, and services. Rising inflation may also drive employee demand for increases in compensation which may result in increased labor costs. With costs increasing, we may have to increase our prices to maintain the same level of profitability.

With respect to Professional Services, we anticipate the impact of decreased cattle processing and meat packing operations near our Boot Hill Casino and Resort in Dodge City, Kansas will likely continue through fiscal year 2026 and put downward pressure on Professional Services revenue originating from traditional table games.

With respect to Aerospace Products, we continue to enjoy a strong backlog, especially with respect to special mission electronics. However, we have experienced and anticipate continuing to experience vigorous competition for skilled technicians and fabrication labor. We believe labor costs in Aerospace Products will continue to rise.

Liquidity and Capital Resources (in thousands, except where expressed in millions)

Overview

Butler National is a holding company. Our ability to fund our obligations depends on existing cash on hand, cash flow from our subsidiaries and our ability to raise capital. Our primary sources of liquidity and capital resources have been cash on hand, cash flow from operations, borrowings under our lines of credit and notes payable (as further described below) and proceeds from the issuance of debt and equity securities. We assess liquidity in terms of the ability to generate cash or obtain financing in order to fund operating, investing and debt service requirements. Our primary ongoing cash requirements include the funding of operations, capital expenditures, acquisitions and other investments in line with our business strategy and debt repayment obligations and interest payments. Our strategy has been to maintain moderate leverage and substantial capital resources in order to take advantage of opportunities, to invest in our businesses and develop new streams of income that may be profitable. As such, we have continued to invest in developing and marketing new aircraft modifications and marketing new STCs. 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 expressed an interest in funding our working capital needs to continue our operational growth in 2025 and beyond.

Notes Payable and Lines of Credit

At April 30, 2025, the Company has a $2 million line of credit with Kansas State Bank in the form of a promissory note with an interest rate of 8.4%. The unused line at April 30, 2025 was $2 million. There were no advances made on the line of credit during the year ended April 30, 2025. The line of credit is due on demand and is secured by a first and second position on all assets of the Company .

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One note payable with Academy Bank, N.A. had a balance of $27.4 million at April 30, 2025, secured by all of BHCMC’s assets and compensation under the State management contract with an interest rate of 5.32% payable over seven years with an initial twenty-year amortization and a balloon payment of $20.7 million in December 2027. A second note payable with Academy Bank, N.A. had a balance of $4.6 million at April 30, 2025, and is secured by all of BHCMC’s assets and compensation under the State management contract with an interest rate of 5.75%. This note matures in October 2026. These notes contain a covenant to maintain a debt service coverage ratio of 1.3 to 1.0. These notes also contain a liquidity covenant requiring the Company to maintain an aggregate sum of $1.5 million of unrestricted cash. We are in compliance with these covenants at April 30, 2025.

At April 30, 2025, there was a note payable with Bank of America, N.A. with a balance of $627. The interest rate on this note is SOFR plus 1.75%. The loan is secured by buildings and improvements having a net book value of $624. This note matures in March 2029.

At April 30, 2025, there was a note payable with Patriots Bank with an interest rate of 4.35% with a balance of $720. This loan is secured by aircraft security agreements with a net book value of $460. This note matures in March 2029.

At April 30, 2025, there is a note payable with an interest rate of 8.13% with a balance of $24 secured by equipment with a net book valu e of $20. Thi s note matures in October 2025.

We are compliant with the covenants and obligations of each of our notes as of April 30, 2025, and June 23, 2025.

Cashflow Summary

Our use of cash in the last fiscal year is in line with our overall fiscal strategy to use moderate leverage to facilitate growth in existing businesses and to develop new streams of income. During fiscal 2025 our cash position increased by $7.4 million . Net income was $12.6 million.

Operating Activities

Cash flows from operating activities provided $18.4 million. Non-cash activities consisting of depreciation and amortization contributed $6.7 million, deferred compensation contributed $320, stock awarded to director contributed $61, s upplemental type certificates work in progress adjustment contributed $529 and gain on sale of assets $1.6 million. Deferred income taxes decreased our cash position by $157. Accounts receivable and inventories decreased our cash position by $91 and $1.4 million, respectively. Accounts payable and accrued liabilities increased our cash position by $3.3 million and $731, respectively. Contract asset and lease liability increased our cash position by $819 and $220, respectively. Contract liability and prepaid expenses decreased our cash position by $392 and $77, respectively. Other liabilities increased our cash position by $309. Income taxes payable and gaming facility mandated payment decreased our cash position by $3.4 million and $158, respectively.

Investing Activities

Cash used in investing activities wa s $5.4 m illion. This was an increase o f $4.3 mi llion from last year. The increase was primarily attrib utable to the higher proceeds from the sale of airplanes in fiscal year 2024. We invested $1.6 million towards STCs, $1.6 million on a building and improvements, $2.8 million on the purchase of an airplane and airplane upgrades and $2.3 million on equipment and furnishings. We received $294 in proceeds from the sale of airplanes, $1.1 million in proceeds from the sales of land, and $1.5 million in proceeds from the sale of a product line.

Financing Activities

Cash used in financing activities was $5.6 m illion. This was a decrease o f $5.1 mi llion from last year. This use of cash was primarily attributable to $2 million in borrowing of long-term debt offset by the Company repurchasing $2.3 million of Company stock. Further, our uses consisted of repayments on our debt of $5.0 million and a reduction of our lease liability by $268. Th e stock acquired was placed in treasury.

Capital Expenditures

The Company anticipates capital expenditures in fiscal year 2026 to be approximatel y $12.5 million, consisting of $5 million on STCs, $4.5 million on equipment, and $3.0 million on buildings and improvements. The Company’s estimate is

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subject to adjustment based on market conditions and management’s discretion. We are in the process of moving our aircraft modification fabrication facilities to our newly acquired Newton, Kansas building, and we plan to acquire additional tooling/equipment to enhance our internal fabrication capabilities. We anticipate our cash balance will be sufficient to cover cash requirements through the current fiscal year.

Critical Accounting Estimates

We believe there are several accounting policies that are critical to understanding our historical and future performance, as these policies affect the reported amount of revenue and other significant areas involving management judgments and estimates. These significant accounting policies relate to revenue from contracts with customers, inventory valuation and long-lived assets. These policies and our procedures related to these policies are described in detail below and under specific areas within this "Management Discussion and Analysis of Financial Condition and Results of Operations." In addition, Note 1 to the consolidated financial statements expands upon discussion of our accounting policies.

Revenue from Contracts with Customers – Aerospace Contracts

Methodology

We recognize revenue and profit based upon either (1) the percent completion method, in which sales and profit are recorded based upon the ratio of labor costs incurred to date to estimated total labor costs to complete the performance obligation, or (2) the point-in-time method, in which sales are recognized at the time control is transferred to the customer. For aerospace contracts that involve airplane modifications based on customer specific requirements, we generally recognize revenue and income using the percent completion method because of continuous transfer of control to the customer. Revenue is generally recognized using the percent completion method based on the extent of progress towards completion of the performance obligation, which allows for recognition of revenue as work on a contract progresses. Our general contract term is between one to twelve months.

Management performs detailed quarterly reviews of all of our significant long-term contracts. Based upon these reviews, we record the effects of adjustments in profit estimates each period. If at any time management determines that in the case of a particular contract total costs will exceed total contract revenue, we record a provision for the entire anticipated contract loss at that time.

Judgment and Uncertainties

The percent completion revenue recognition model requires that we estimate future revenues and costs over the life of a contract. Revenues are estimated based upon the original contract price, with consideration being given to exercised contract options, change orders and, in some cases, projected customer requirements. Contract costs may be incurred over a period of several months, and the estimation of these costs requires significant judgment based upon the acquired knowledge and experience of program managers, engineers and financial professionals. Estimated costs are based primarily on anticipated purchase contract terms, historical performance trends, business base and other economic projections.

Effect if Actual Results Differ From Assumptions

While we do not believe there is a reasonable likelihood there will be a material change in estimates or assumptions used to calculate our revenue contracts and costs, estimating the percentage of work complete on certain programs is a complex task. As a result, changes to these estimates could have a significant impact on our results of operations. These products and services are an important element in our continuing strategy to increase operating efficiencies and profitability as well as broaden our business base. Management continues to monitor and update program cost estimates quarterly for these contracts. A significant change in an estimate on one or more of these contracts could have a material effect on our financial position and results of operations.

Inventory Valuation

Methodology

We have four types of inventory (a) raw materials, (b) contracts in process, (c) other work in process and (d) finished goods. Raw material includes certain general stock materials but primarily relates to purchases that were made in anticipation of specific programs that have not been started as of the balance sheet date. Raw materials are stated at the

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lower of the cost of the inventory or its fair market value. Contracts in process, other work in process and finished goods are valued at production cost comprised of material, labor and overhead. Contracts in process, other work in process and finished goods are reported at the lower of cost or net realizable value.

Judgment and Uncertainties

The process for evaluating inventory obsolescence or market value often requires the Company to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be sold in the normal course of business. We adjust our inventory by the difference between the estimated market value and the actual cost of our inventory to arrive at net realizable value. Changes in estimates of future sales volume may necessitate future write-downs of inventory value.

Effect if Actual Results Differ From Assumptions

Management reviews the inventory balance on an annual basis to determine whether any additional write-downs are necessary. Following the write-down of the inventory as discussed above, we believe this inventory is stated at net realizable value at April 30 2025, although an unanticipated lack of demand for aircraft or spare parts in the future could result in additional write-downs of the inventory value. Overall, management believes that our inventory is appropriately valued at April 30, 2025.

Long-lived Assets

Methodology

The Company accounts for its long-lived assets in accordance with ASC Topic 360-10, Impairment or Disposal of Long-Lived Assets. ASC Topic 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses the recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition.

Judgment and Uncertainties

In years that management performs a qualitative assessment we consider the following qualitative factors: general economic conditions in the markets served by the segment, relevant industry-specific performance statistics, and forecasted results of operations.

For the quantitative impairment tests, management estimated the fair value of the long-lived asset group using an income methodology based on management’s estimates of forecasted undiscounted cash flows over the estimated life of the assets. Changes in these estimates and assumptions could materially affect the results of our impairment testing.

An impairment loss is recognized for any excess of the carrying amount of the estimated undiscounted cash flows over the remaining life of the assets. No impairment charges were recorded in the fiscal year ended April 30, 2025.

Effect if Actual Results Differ From Assumptions

As with all assumptions, there is an inherent level of uncertainty and actual results, to the extent they differ from those assumptions, could have a material impact on fair value. For example, a reduction in customer demand would impact our assumed growth rate resulting in a reduced fair value. Potential events or circumstances could have a negative effect on the estimated fair value. The loss of a major customer or program could have a significant impact on the future cash flows associated with a long-lived asset group. We do not currently believe there to be a reasonable likelihood that actual results will vary materially from estimates and assumptions used to test our long-lived assets for impairment losses. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to additional impairment charges that could be material.