UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
---------------------------------- FORM 10-Q -----------------------------------
(Mark One) X	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (Fee Required)
For the quarter ended January 31, 2006
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (No Fee Required)
For the quarter ended January 31, 2006
Commission File Number 0-1678
BUTLER NATIONAL CORPORATION(Exact name of Registrant as specified in its charter)
Kansas (State of Incorporation)		41-0834293 (I.R.S. Employer Identification No.)
19920 West 161st Street, Olathe, Kansas 66062 (Address of Principal Executive Office)(Zip Code)
Registrant's telephone number, including area code: (913) 780-9595
Former name, former address and former fiscal year if changed since last report: Not Applicable
Common Stock $.01 Par Value (Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months and (2) has been subject to such filing requirements for the past ninety days: Yes X No ____
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act: Yes No X_
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act: Yes No X_
The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, as of February 24, 2006 was 52,576,044 shares.

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
INDEX
PART I.	FINANCIAL INFORMATION:	PAGE NO.
	Condensed Consolidated Balance Sheets - January 31, 2006 and April 30, 2005	3
	Condensed Consolidated Statements of Income - Three Months ended January 31, 2006 and 2005	4
	Condensed Consolidated Statements of Income - Nine months ended January 31, 2006 and 2005	5
	Condensed Consolidated Statements of Cash Flows - Nine months ended January 31, 2006 and 2005	6
	Notes to Condensed Consolidated Financial Statements	7-8
	Management's Discussion and Analysis Financial Condition and Results of Operations	8-12
	Item 3 Quantitative & Qualitative Disclosures about Market Risk	12
	Item 4 Controls and Procedures	12
PART II.	Other Information	13
	Signatures	14

BUTLER NATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS			01/31/06		4/30/05		LIABILITIES AND SHAREHOLDERS' EQUITY			01/31/06			4/30/05
			unaudited		audited					unaudited			audited
CURRENT ASSETS:							CURRENT LIABILITIES:
	Cash	$	815,925	$	1,066,955			Bank overdraft payable	$	127,670		$	216,301
	Accounts receivable, net of allowance for		752,974		1,330,283			Promissory notes payable		4,252,187			3,206,953
	doubtful accounts of $86,965 at Jan. 31, 2006 and							Current maturities of long-term debt and capital lease		461,525			485,011
	$88,250 at April 30, 2005							obligations
	Contracts in process		340,000			-		Accounts payable		792,803			1,046,651
								Customer deposits		114,614			124,614
	Inventories -							Accrued liabilities
	Raw materials		5,460,204		5,417,090			Compensation and compensated absences		409,641			429,682
	Work in process		463,360		974,584			Other		324,255			361,443
	Finished goods		33,775		42,549					--------------			--------------
	Aircraft		4,442,898		2,778,387			Total current liabilities		6,482,695			5,870,655
			--------------		--------------
			10,400,237		9,212,610			LONG-TERM DEBT, AND CAPITAL LEASE NET		1,779,470			2,088,932
								OF CURRENT MATURITIES
	Prepaid expenses and other current assets		56,169		31,489
			--------------		--------------					--------------			--------------
	Total current assets		12,365,305		11,641,337			Total liabilities		8,262,165			7,959,587
								COMMITMENTS AND CONTINGENCIES
	PROPERTY, PLANT AND EQUIPMENT:							SHAREHOLDERS' EQUITY:
	Land and building		2,152,800		2,152,800			Preferred stock, par value $5
	Machinery and equipment		1,491,358		1,466,759			Authorized 50,000,000 shares, all classes
	Office furniture and fixtures		684,301		680,300			Designated Classes A and B, 200,000 shares
	Leasehold improvements		4,249		4,249			$1,000 Class A, 9.8%, cumulative if earned			-			-
			--------------		--------------			liquidation and redemption value $100,
			4,332,708		4,304,108			no shares issued and outstanding
	Accumulated depreciation		(2,146,578)		(2,046,756)			$1,000 Class B, 6%, convertible cumulative,			-			-
			--------------		--------------			liquidation and redemption value $1,000
			2,186,130		2,257,352			no shares issued and outstanding
								Common stock, par value $.01:
	SUPPLEMENTAL TYPE CERTIFICATES		1,490,165		1,490,165			Authorized 100,000,000 shares		411,159			411,159
								issued and outstanding 41,115,871 shares at
								at Jan. 31 and 41,115,871 at April 30, 2005
	ADVANCES FOR INDIAN GAMING DEVELOPMENTS		1,806,551		1,806,551			Common stock, owed but not issued, 12,060,173 shares		120,602			120,602
	(net of reserves of $2,912,440)							Capital contributed in excess of par		10,472,834			10,472,834
								Treasury stock at cost (600,000 shares)		(732,000)			(732,000)
								Retained earnings		(603,209)			(953,377)
	OTHER ASSETS		83,400		83,400					--------------			--------------
								Total shareholders' equity		9,669,386			9,319,218
			--------------		--------------					--------------			--------------
	Total assets	$	17,931,551	$	17,278,805			Total liabilities and shareholders' equity	$	17,931,551		$	17,278,805
			========		========					========			========
The accompanying notes are an integral part of these financial statements

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENT
	THREE MONTHS ENDED
	January 31,
		2006		2005
		(unaudited)		(unaudited)
REVENUES
Aircraft / Modifications	$	1,705,395	$	5,164,601
Avionics / Defense		558,529		811,478
Management / Professional Services		807,377		1,035,038
		--------------		--------------
Net Revenues		3,071,301		7,011,117
COST OF SALES
Aircraft / Modifications		1,537,451		4,256,285
Avionics / Defense		258,968		426,729
Management / Professional Services		247,589		648,605
		--------------		--------------
Total Cost of Sales		2,044,008		5,331,619
		--------------		--------------
GROSS PROFIT		1,027,293		1,679,498
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		826,120		910,941
		--------------		--------------
OPERATING INCOME		201,173		768,557
OTHER INCOME (EXPENSE)
Interest expense		(129,190)		(81,886)
Other		4,769			-
		--------------		--------------
Other expense		(124,421)		(81,886)
INCOME BEFORE PROVISION FOR INCOME TAXES		76,752		686,671
PROVISION FOR INCOME TAXES		(39,257)		(20,500)
		--------------		--------------
NET INCOME	$	37,495	$	666,171
		========		========
BASIC EARNINGS PER COMMON SHARE	$	.00	$	.02
		========		========
Shares used in per share calculation		52,576,044		39,898,681
		========		========
DILUTED EARNINGS PER COMMON SHARE	$	.00	$	.01
		========		========
Shares used in per share calculation		52,722,056		48,505,192
		========		========
The accompanying notes are an integral part of these financial statements.

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENT
	NINE MONTHS ENDED
	January 31,
		2006		2005
		(unaudited)		(unaudited)
REVENUES
Aircraft / Modifications	$	6,318,358	$	12,603,655
Avionics / Defense		2,042,556		2,244,101
Management / Professional Services		3,875,852		3,265,700
		--------------		--------------
Net Revenues		12,236,766		18,113,456
COST OF SALES
Aircraft / Modifications		5,544,392		10,185,479
Avionics / Defense		1,044,890		1,405,157
Management / Professional Services		2,319,560		2,241,284
		--------------		--------------
Total Cost of Sales		8,908,842		13,831,920
		--------------		--------------
GROSS PROFIT		3,327,924		4,281,536
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		2,577,684		2,345,644
		--------------		--------------
OPERATING INCOME		750,240		1,935,892
OTHER INCOME (EXPENSE)
Interest Expense		(345,586)		(217,246)
Other		4,769		3,645
		--------------		--------------
Other expense		(340,817)		(213,601)
INCOME BEFORE PROVISION FOR INCOME TAXES		409,423		1,722,291
PROVISION FOR INCOME TAXES		(59,257)		(50,500)
		--------------		--------------
NET INCOME	$	350,166	$	1,671,791
		========		========
BASIC EARNINGS PER COMMON SHARE	$	.01	$	.04
		========		========
Shares used in per share calculation		52,576,044		39,898,681
		========		========
DILUTED EARNINGS PER COMMON SHARE	$	.01	$	.03
		========		========
Shares used in per share calculation		52,722,056		48,505,192
		========		========
The accompanying notes are an integral part of these financial statements.

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
			NINE MONTHS ENDED
			Jan. 31,
		2006					2005
		(unaudited)					(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$		350,166			$	1,671,791
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operations -
Depreciation			99,821				62,508
Changes in assets and liabilities:
Accounts receivable			577,310				(370,778)
Contracts in process			(338,540)
Inventories			(1,187,627)				(2,510,455)
Prepaid expenses and other current assets			(26,140)				48,928
Accounts payable			(342,479)				637,386
Customer deposits			(10,000)				5,015
Accrued liabilities			(57,227)				180,920
			--------------				--------------
Cash provided by (used in) operating activities			(934,716)				(274,685)
			--------------				--------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures, net			(28,600)				(1,365,708)
Advances for Indian Gaming Developments, net				-				-
Supplemental Type Certificates				-				-
			--------------				--------------
Cash provided by (used in) investing activities			(28,600)				(1,365,708)
			--------------				--------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock option exercises					-		61,874
Borrowings under promissory notes, net			1,045,234				847,018
Borrowings under long-term debt and capital lease obligations					-		713,728
Repayments of long-term debt and capital lease obligations			(332,948)					-
			--------------				--------------
Cash provided by (used in) financing activities			712,286				1,622,620
			--------------				--------------
NET INCREASE (DECREASE) IN CASH			(251,030)				(17,773)
CASH, beginning of period			1,066,955				1,160,914
			--------------				--------------
CASH, end of period	$		815,925			$	1,143,141
			========				========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$		345,585			$	217,246
Income taxes paid			69,257				10,500
The accompanying notes are an integral part of these statements.

BUTLER NATIONAL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of Regulation S-X and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the annual report on Form 10-K dated April 30, 2005. In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included. Operating results for the three months and nine months ended January 31, 2006 are not indicative of the results of operations that may be expected for the year ending April 30, 2006.

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

2. Advances for Indian Gaming Development: We are advancing funds for the establishment of Indian gaming. These funds have been capitalized in accordance with Statements of Financial Accounting Standards (SFAS) 67 "Accounting for Costs and Initial Rental Operations of Real Estate Projects." Such standard requires costs associated with the acquisition, development, and construction of real estate and real estate related projects to be capitalized as part of that project.

Our advances to the tribes for gaming developments are capitalized. These advances represent costs to be reimbursed upon approval of Indian gaming in several locations. We have agreements in place which require payments of advances to be made to us upon opening of Indian gaming facilities. Once gaming facilities have gained proper approvals, we will enter into a note receivable arrangement with the Tribe to secure reimbursement of advanced funds for that particular project. Reserves have been recorded for advances for the Indian gaming development costs when we are unable to determine whether reimbursement from the tribes will occur.
We have advanced and invested a total of $4,718,991 in Indian gaming developments. We have reserves of $2,912,440, at January 31, 2006 and $2,912,440 at April 30, 2005. Based on the information available to us we believe that our advances for Indian gaming developments will be totally reimbursed as casinos are opened. Due to the fact that all of the proposed casinos are involved in legal and governmental actions whose outcome is not certain nor is there any time frame for resolution we believe it is necessary to establish reserves against the advances. The reserve amount is an estimate of the value we would receive if a Tribal casino was not opened and we were forced to liquidate the assets that we have acquired with our advances. The assets were intended to be used with Tribal casinos and consist of the purchase of land, land improvements, professional design fees and other consulting and legal costs related to the development of Indian Gaming facilities. The land purchases are located adjacent to residential developments. We believe that these tracts could be developed and sold for residential and commercial use to recover advances if the gaming enterprises do not open.

3. Earnings Per Share: Earnings per common share is based on the weighted average number of common shares outstanding during the year. Stock options have been considered in the dilutive earnings per share calculation.

4. Research and Development: We charge to operations research and development costs. The amount charged in the quarters ended January 31, 2006 and 2005 were approximately $342,449 and $283,152 respectively.

5. Lease Agreements: On October 17, 2005, Avcon leased additional space at its current location on the Newton City-County Airport in Newton, Kansas. The ten-year lease is for hangars C, D and M and requires a monthly use payment of approximately $8,000 per month for approximately 30,000 square feet of hangar and office space. Approximately one-half of the current space will be released to the Airport and will reduce the monthly use payment by approximately $3,000. The additional space is expected to provide for expansion of Avcon business resulting from new product development.

6. Borrowings: During the nine months ended January 31, 2006 two notes payable to the same bank in the amount of $1,110,000 and $550,000 were entered into on July 11, 2005 at a fixed rate of 7.75%. These two notes were for the purchase of two Lear aircraft. The loan is due in five (5) quarterly payments beginning October 11, 2005 and ending January 11, 2007.

A note in the amount of $650,000 was paid off in December 2005 upon the sale of a set of GE engines.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

YEAR TO DATE JANUARY 31, 2006 COMPARED TO YEAR TO DATE JANUARY 31, 2005

Our sales for the nine months ended January 31, 2006 were $12,236,766, a decrease of 32.4% from the nine months ended January 31, 2005 with sales of $18,113,456. Our operating profit for the nine months ended January 31, 2006 were $750,240, compared to $1,935,892 for the nine months ended January 31, 2005.

Discussion of the specific changes by operation at each business segment follows:

Aircraft Modifications: Sales from the Aircraft Modifications business segment including modified aircraft decreased $6,285,297 (50%) from $12,603,655 in the first nine months of fiscal year 2005 to $6,318,358 in the current nine months of fiscal 2006. Revenues for the Aircraft Modification for Reduced Vertical Separation Minimums (RVSM) decreased by $8,194,510 (78%). Considerable time was spent on additions to the RVSM STC and certification of special mission STC's for modification customers. These events reallocated our current capacity and therefore reduced RVSM completions. Revenues generated from other modification services increased 89.7%. The modifications segment had an operating profit of $393,066 for the nine months ended January 31, 2006 compared to operating profit of $1,976,094 for the nine months ended January 31, 2005.

Looking forward to fiscal 2007, we anticipate continued revenues relating to RVSM installation. We have projected the installation and sales of approximately 50 to 100 Lear 20 series and Falcon 20 series RVSM kits during the next two years. In addition to the RVSM sales, we expect to experience some increase in our base modification sales. As the economy grows, aircraft owners may elect to update, modify, and purchase business aircraft. A shift to business aircraft ownership directly impacts our aircraft modification revenues. Although we cannot anticipate the future, we must always consider the negative impact of items such as the 9-11 event, hurricane Katrina, rapid raise in fuel prices or economic downturns.

Aircraft Acquisitions and Sales: We acquired four aircraft during the nine months ended January 31, 2006 and one aircraft for the nine months ended at January 31, 2005. Management expects this business segment to increase in future years due to increased aircraft acquisitions, modifications and resales. FAA required modifications to the business aircraft fleet may increase customer demand for company owned aircraft.

Avionics: Sales from the Avionics business segment were $2,042,556 for the nine months ended January 31, 2006 compared to $2,244,101 in the comparable period of the preceding year, a decrease of 9%. Operating profit for the nine months ended January 31, 2006 was $739,786 compared to an operating profit of $608,814 for the nine months ended January 31, 2005. Management expects this business segment to increase in future years due to the addition of new fuel system protection devices like the TSD and classic aviation defense products.

Services - SCADA Systems and Monitoring Services: Revenue from Monitoring Services increased from $907,228 for the nine months ended January 31, 2005 to $1,050,582 for the nine months ended January 31, 2006, an increase of 15.8%. During the nine months ended January 31, 2006 we maintained a relatively level volume of long-term contracts with municipalities. We had increased revenue due to significant hurricane activity during the nine months ended January 31, 2006. Revenue fluctuates due to the introduction of new products and services and the related installations of these products. Our contracts with our two largest customers have been renewed for fiscal 2006. An operating profit of $238,880 in Monitoring Services was recorded for the nine months ended January 31, 2006, compared to $167,626 for the nine months ended January 31, 2005.

Gaming: Revenues from management services related to gaming increased 9.6% from $786,069 for the nine months ended January 31, 2005, to $861,675 for the nine months ended January 31, 2006. This increase is related to the approval of Class III casino gaming in Oklahoma.

Corporate / Professional Services: These services include the architectural services of BCS Design, Inc., arrangements for financing, and on site contract management of establishments for Indian tribes and others. Flight and engineering services are also provided. Management consulting and professional fees were $1,963,597 for the nine months ended January 31, 2006 and $1,572,403 for the nine months ended January 31, 2005. The revenue from buildings completed during the nine months was $1,552,297 and the related costs were $1,505,120.

Selling, General and Administrative (SG&A): Expenses were $2,577,684 or 21% of revenues for the nine months ended January 31, 2006 and $2,345,644, or 13% of revenue for the nine months ended January 31, 2005. Business insurance in the first nine months of fiscal 2006 increased by 10% to approximately $600,000. In fiscal 2006 employee wages accounted for an approximate increase of $500,000. The sales per employee for the nine months ended January 31, 2006 were $152,960 compared to $186,737 for the nine months ended January 31, 2005. Additional rent and hangar space accounted for approximately $25,000 of the increase in general expenses. Fuel and aircraft maintenance increased by 5% to nearly $160,000. In an effort to increase our Avcon sales in Mexico and China additional travel and marketing expenses accounted for approximately $20,000 during the first nine months of fiscal 2006.

Other Income (Expense): Other expenses increased from $3,601 in the nine months ended January 31, 2005 to $340,817 for the nine months ended January 31, 2006. The additional interest expense was a result of financing activities related to inventory and asset purchases.

We employed 80 at January 31, 2006 and 97 at January 31, 2005.

Earnings: Our net income for the prior nine months period ended January 31, 2005 was $1,671,791. Our net income for the current nine months ended January 31, 2006 was $350,166. Income derived from our RVSM business declined from 2005 to 2006 because of the passing of the initial RVSM required date of January 20, 2005. RVSM sales have continued as we continue to equip the Lear 20 series fleet and work toward approval of the Lear 30 series airplanes.

THIRD QUARTER FISCAL 2006 COMPARED TO THIRD QUARTER FISCAL 2005

Our sales for the three months ended January 31, 2006 were $3,071,301, a decrease of 56% from the three months ended January 31, 2005 with sales of $7,011,117. Our operating profit for the three months ended January 31, 2006 were $201,173, compared to $768,557 for the three months ended January 31, 2005.

Discussion of the specific changes by operation at each business segment follows:

Aircraft Modifications: Sales from the Aircraft Modifications business segment including modified aircraft decreased $3,459,206 (67%) from $5,164,601 in the third quarter of fiscal year 2005 to $1,705,395 in the current quarter of fiscal 2006. Operating profit generated from modification services decreased 94%. The modifications segment had an operating profit of $42,262 for the three months ended January 31, 2006 compared to operating income of $718,099 for the three months ended January 31, 2005.

Aircraft Acquisitions and Sales: We acquired one aircraft during the three months ended January 31, 2006 and one aircraft for the three months ended at January 31, 2005.

Avionics: Sales from the Avionics business segment were $558,529 for the three months ended January 31, 2006 compared to $811,478 in the comparable period of the preceding year, a decrease of 31%. Operating profit for the three months ended January 31, 2006, was $242,779 compared to a profit of $267,647 for the three months ended January 31, 2005.

Services - SCADA Systems and Monitoring Services: Revenue from Monitoring Services increased from $310,228 for the three months ended January 31, 2005 to $357,082 for the three months ended January 31, 2006, an increase of 15%. An operating profit of $64,095 in Monitoring Services was recorded for the three months ended January 31, 2006, compared to a profit of $52,965 for the three months ended January 31, 2005.

Gaming: Revenues from management services related to gaming increased 29.3% from $244,833 for the three months ended January 31, 2005, to $316,612 for the three months ended January 31, 2006.
Corporate / Professional Services: These services include the architectural services of BCS Design, Inc., arrangements for financing, and on site contract management of establishments for Indian tribes and others. Flight and engineering services are also provided. Management consulting and professional fees were $133,683 for the three months ended January 31, 2006 and $479,977for the three months ended January 31, 2005.

Selling, General and Administrative (SG&A): Expenses were $826,120 or 26% of revenues for the three months ended January 31, 2006 and $910,642 or 12% of revenue for the three months ended January 31, 2005.

Other Income (Expense): Other expenses increased from $81,886 in the three months ended January 31, 2005 to $124,421 for the three months ended January 31, 2006.

Earnings: Our net income for the prior three months ended January 31, 2005 was $666,171. Our net income for the current three months ended January 31, 2006 was $37,495.


LIQUIDITY AND CAPITAL RESOURCES

Borrowed funds have been used primarily for working capital. Our first bank line of credit is $500,000. Our unused line of credit at January 31, 2006 was $196,313. Bank debt related to the Company's operating line was $303,687 at January 31, 2006, and $364,546 at January 31, 2005. The interest rate is prime plus two (with a floor of 7.0%). As of January 31, 2006, the interest rate was 9.5%. This note is collateralized by a first and second position on all assets of the Company.

We opened a second bank line of credit on February 10, 2004 of $1,500,000. This line of credit is used to support the additional inventory requirements of the RVSM product line. Debt relating to this line of credit at January 31, 2006 was $1,400,000. The interest rate is prime plus two (with a floor of 7.0%) As of January 31, 2006, the interest rate was 9.5%. This note is collateralized by a first and second position on all assets of the Company.

We believe both lines of credit will be extended when they are due and do not anticipate the repayment of these notes in fiscal 2006. Our first line of credit has been extended to September 2006 with no changes in the conditions of the terms. The second line of credit has been extended to September 2006. If the Bank were to demand repayment of all notes-payable, we currently do not have enough cash to pay off the notes without materially adversely affecting the financial condition of the Company.

Two notes payable to the same bank in the amount of $1,110,000 and $550,000 were entered into on July 11, 2005 at a fixed rate of 7.75%. The loan is in five (5) quarterly payments beginning October 11, 2005 and ending January 11, 2007. The note is secured by an Aircraft and Engine security agreement.

A note payable to a bank in the amount of $850,000 was entered into in December 2003, with interest of prime plus 2% (with a floor of 6%). At January 31, 2006 and January 31, 2005 the balance was $780,000 and $850,000 respectively. The note is collateralized by an Aircraft and Engine Security Agreement. Until June 2005, we had made interest payments only. Thereafter the note was extended for one year with monthly principal payments of $10,000 plus interest.

A note payable to a bank in the amount of $650,000 was entered into in December 2003, with interest at prime. At January 31, 2006 and 2005 we had borrowed $0 and $650,000 respectively on this note. The note was paid in full during the quarter.

We have unsecured demand notes to individuals totaling $108,500. Interest ranges from 12% to 14% on these notes.

We are not in default of any of our notes as of January 31, 2006.

We believe that our current banks will provide the necessary capital for our business operations. However, we continue to maintain contact with other banks that have an interest in funding our working capital needs to continue our growth in operations in 2006 and beyond.

We do not, as of January 31, 2006, have any material commitments for other capital expenditures other than the terms of the Indian gaming Management Agreements. Depending upon the development schedules, we will need additional funds to complete its currently planned Indian gaming opportunities. We will use current cash available as well as additional funds, for the start up and construction of gaming facilities. We anticipate initially obtaining these funds from internally generated working capital and borrowings. After a few gaming facilities become operational, gaming operations will generate additional working capital for the start up and construction of other gaming facilities. We expect that our start up and construction financing of gaming facilities will be replaced by other financial lenders, long term financing through debt issue, or equity issues.

Analysis and Discussion of Cash Flow

During the quarter our cash position decreased by $251,030. The decrease in the cash flow was attributed to a decrease in operating activities of $934,716. Aircraft inventory increased by $1,664,511 while all other inventory decreased by $476,884, of which $650,000 was the sale of the aircraft engines associated with debt of $650,000. Net change in borrowings in the first nine months was $1,045,234 while re-payments of loans were slightly over $332,948.

The increase in inventory is expected to cover less than four months of aircraft modifications. We believe all our inventory will be realized in the normal course of business. Lead-time for the components is dictated by the market place resulting in a build up of inventory to support sales and to avoid halting production because of material shortages.

Revenue Recognition: We perform aircraft modifications under fixed-price contracts. Revenues from fixed-price contracts are recognized on the percentage-of-completion method, measured by the direct labor costs incurred compared to total estimated direct labor costs.

Revenue for SCADA services, Gaming Management, and other Professional Services are recognized on a monthly basis as services are rendered. Payments for these services are received within 30 days of invoicing.

In regard to warranties and returns our products are special order and are not suitable for return. Our products are unique upon installation and tested prior to their release and have been accepted by the customers. In the rare event of a warranty claim, the claim is processed through the normal course of business; this may include additional charges to the customer. In our opinion any future warranty work would not be material to the financial statements.

Critical Accounting Policies

Our accounting estimates include bad debt of the accounts receivable and amortization of the Supplemental Type Certificates (STC). Bad debt is calculated on the historical write-off of bad debt of the individual subsidiaries. In addition to the historical value, invoices are considered a bad debt if no payment has been made in the past 90 days. Based on these estimates we believe we maintain adequate reserves. Although we review these policies on quarterly basis, we do not anticipate substantial changes to these estimates in the future. Over 99% of the aircraft modifications are sold based on cash on delivery terms, and the remaining subsidiaries customer base is stable business and repeat sales. These factors are presented in the financial statements.

Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Long-lived assets: Long-lived assets and identifiable intangibles to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment is measured by comparing the carrying value of the long-lived asset to the estimated undiscounted future cash flows expected to result from use of the assets and their eventual disposition. We determined that as of January 31, 2006, there had been no impairment in the carrying value of long-lived assets.

Supplemental Type Certificates: Supplemental Type Certificates (STCs) are authorizations granted by the Federal Aviation Administration (FAA) for specific modification of a certain aircraft. The STC authorizes us to perform modifications, installations and assemblies on applicable customer-owned aircraft. Costs incurred to obtain STCs are capitalized and subsequently amortized against revenues being generated from aircraft modifications associated with the STC. The costs are expensed as services are rendered on each aircraft through costs of sales using the units of production method. The legal life of an STC is indefinite.

Changing Prices and Inflation

From fiscal year 2004 to fiscal year 2005 we have experienced an increase in airplane and truck operating costs of approximately 100%. This is mainly related to increases in fuel costs. We anticipate long-term fuel costs to continue to rise in fiscal years 2006 and 2007.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.


FORWARD LOOKING INFORMATION

The information set forth below includes "forward-looking" information as outlined in the Private Securities Litigation Reform Act of 1995. The Cautionary Statements, filed by us as Exhibit 99 to its Form 10-K, are incorporated herein by reference and you are specifically referred to such Cautionary Statements for a discussion of factors which could affect our operations and forward-looking statements contained herein.

Part I Item 3:

Quantitative and Qualitative Disclosures about Market Risk.
None

Part I Item 4

Controls and Procedures
We maintain a set of disclosure controls and procedures and internal controls designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our principal executive and financial officers have evaluated our disclosure controls and procedures within 90 days prior to the filing of this Quarterly Report on Form 10-Q and have determined that such disclosure controls and procedures are effective.

PART II. OTHER INFORMATION
Item 1	Legal Proceedings None
Item 1A.	Risk Factors None
Item 2	Unregistered Shares of Equity Securities and Use of Proceeds None
Item 3	Defaults Upon Senior Securities None
Item 4	Submission of Matters to Vote of Security Holders None
Item 5	Other Information None
Item 6	Exhibits and reports on Form 8-K. (A) Exhibits.
	3.1	Articles of Incorporation, as amended and restated are incorporated by reference to Exhibit 3.1 of our Form DEF 14A filed on December 26, 2001.
	3.2	Bylaws, as amended, are incorporated by reference to Exhibit 3.2 of our Form DEF 14A filed on December 15, 2003.
	31.1	Certificate of Chief Executive Officer
	31.2	Certificate of Chief Financial Officer
	32.1	Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted to Section 906 of the Sarbanes-Oxley Act of 2002
	99	Exhibit Number 99 Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, are incorporated by reference to Exhibit 99 of the Form 10-K for the fiscal year ended April 30, 2005
	27.1	Financial Data Schedule (EDGAR version only). Filed herewith. We agree to file with the Commission any agreement or instrument not filed as an exhibit upon the request of the Commission.
	(B)	Reports on Form 8-K. We reported on November 16, 2005 on Form 8-K under Item 8.01 and Item 9.01 that we issued a press release announcing that the company had completed its first installation of the Avcon Reduced Vertical Separation Minimums (RVSM) for Learjet 35 and 36 airplanes. We reported on December 13, 2005 on Form 8-K under Item 2.02, Item 8.01 and Item 9.01 that we issued a press release regarding the filing of our quarterly report on Form 10-Q with the Securities and Exchange Commission for the period ending October 31, 2005.

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
	BUTLER NATIONAL CORPORATION (Registrant)
March 1, 2006 Date	/S/ Clark D. Stewart Clark D. Stewart (President and Chief Executive Officer)
March 1, 2006 Date	/S/ Angela D. Shinabargar Angela D. Shinabargar (Chief Financial Officer)