|UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549                                                                                                                                                                                                                   
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|----------------------------------FORM 10-Q-----------------------------------                                                                                                                                                                                                            
|(Mark One)
X                                                                                                                                                                                                                                                                              
|For the quarter ended July 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 July 31, 2006                                                                                                                                                                                                                                                       
|Commission File Number 0-1678                                                                                                                                                                                                                                                             
|BUTLER NATIONAL CORPORATION(Exact name of Registrant as specified in its charter)                                                                                                                                                                                                         
|Kansas(State of Incorporation)                                                                                                                                                                                                                                                            
|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 XNo ____
|Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act:  Yes  NoX_                                                                                                                                                           
|Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act:  
Yes  NoX_                                                                                                                                                               
|The number of shares outstanding of the Registrant's Common Stock, $0.01 par value, as of September 8, 2006 was 53,051,837 shares.                                                                                                                                                        

|BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
|--------------------------------------------
|                                            
|INDEX                                       
|                                            
|PART I.                                     
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|                                            
|PART II.                                    
|                                            





|BUTLER NATIONAL CORPORATION                                              
|-------------------------------------------------------------------------
|CONDENSED CONSOLIDATED BALANCE SHEETS                                    
|                                                                         
|ASSETS                                                                   
|                                                                         
|CURRENT ASSETS:                                                          
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|PROPERTY, PLANT AND EQUIPMENT:                                           
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|SUPPLEMENTAL TYPE CERTIFICATES                                           
|                                                                         
|                                                                         
|ADVANCES FOR INDIAN GAMING DEVELOPMENTS                                  
|                                                                         
|                                                                         
|                                                                         
|                                                                         
|OTHER ASSETS                                                             
|                                                                         
|                                                                         
|Total assets                                                             
|                                                                         
|                                                                         
|The accompanying notes are an integral part of these financial statements
|                                                                         

|BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENT
|------------------------------------------------------------------------------------
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|                                                                                    
|REVENUES                                                                            
|Aircraft / Modifications                                                            
|Avionics / Defense                                                                  
|Management / Professional Services                                                  
|                                                                                    
|Net Revenues                                                                        
|                                                                                    
|COST OF SALES                                                                       
|Aircraft / Modifications                                                            
|Avionics / Defense                                                                  
|Management / Professional Services                                                  
|                                                                                    
|Total Cost of Sales                                                                 
|                                                                                    
|GROSS PROFIT                                                                        
|                                                                                    
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                        
|                                                                                    
|OPERATING INCOME                                                                    
|                                                                                    
|OTHER INCOME (EXPENSE)                                                              
|Interest expense                                                                    
|Other                                                                               
|                                                                                    
|Other expense                                                                       
|                                                                                    
|INCOME BEFORE PROVISION FOR INCOME TAXES                                            
|PROVISION FOR INCOME TAXES                                                          
|                                                                                    
|NET INCOME                                                                          
|                                                                                    
|                                                                                    
|                                                                                    
|BASIC EARNINGS PER COMMON SHARE                                                     
|                                                                                    
|Shares used in per share calculation                                                
|                                                                                    
|DILUTED EARNINGS PER COMMON SHARE                                                   
|                                                                                    
|Shares used in per share calculation                                                
|                                                                                    
|                                                                                    
|The accompanying notes are an integral part of these financial statements.          





|BUTLER NATIONAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|--------------------------------------------------------------------------------------------
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|                                                                                            
|CASH FLOWS FROM OPERATING ACTIVITIES                                                        
|Net income (loss)                                                                           
|Adjustments to reconcile net income (loss) to net cash provided by                          
|(used in) operations -                                                                      
|Depreciation                                                                                
|                                                                                            
|Changes in assets and liabilities:                                                          
|Accounts receivable                                                                         
|Contracts in process                                                                        
|Inventories                                                                                 
|Prepaid expenses and other current assets                                                   
|Accounts payable                                                                            
|Accrued liabilities                                                                         
|                                                                                            
|Cash provided by (used in) operating activities                                             
|                                                                                            
|CASH FLOWS FROM FINANCING ACTIVITIES                                                        
|Borrowings under promissory notes, net                                                      
|Repayments of long-term debt and capital lease obligations                                  
|                                                                                            
|Cash provided by (used in) financing activities                                             
|                                                                                            
|NET INCREASE (DECREASE) IN CASH                                                             
|                                                                                            
|CASH, beginning of period                                                                   
|                                                                                            
|CASH, end of period                                                                         
|                                                                                            
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                           
|Interest paid                                                                               
|Income taxes paid                                                                           
|                                                                                            
|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, 2006.  In our opinion, all adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been included.  Operating results for the three months ended July 31, 2006 are not indicative of the results of operations that may be expected for the year ending April 30, 2007.
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 plan to 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 July 31, 2006 and April 30, 2006.  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 improvements.  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 July 31, 2006 and 2005 were approximately $498,631 and $421,524 respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|5.  Borrowings:  A line of credit of $1,224,285 was entered into on July 7, 2006 to be used for the BCS Design, Inc. developments.  We have borrowed $112,477 at July 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



|MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|RESULTS OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|FIRST QUARTER FISCAL 2007 COMPARED TO FIRST QUARTER FISCAL 2006Our sales for the three months ended July 31, 2006 were $3,076,062, a decrease of 25.2% from the three months ended July 31, 2005 with sales of $4,112,166.  Our operating profit for the three months ended July 31, 2006 was $163,905, compared to $308,861 for the three months ended July 31, 2005.
Discussion of the specific changes by operation at each business segment follows:Aircraft Modifications:  Sales from Aircraft Modifications including modified aircraft decreased $563,348 (21.6%) from $2,604,794 in the first three months of fiscal year 2006 to $2,041,446 in the current three months of fiscal 2007.  Revenues from non RVSM modification services increased $174,346 or 15% in the first three months of fiscal 2007.   RVSM revenues decreased by 67% in the first quarter of fiscal 2007, compared to the first quarter of fiscal 2006.
We believe we will sell and install approximately 50 to 100 Lear 20 & 30 series RVSM kits during the next few 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 positively 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, increases in fuel prices or general economic downturns.  
Considerable time was spent on additions to the RVSM STC and certification of special mission STC's for our modification customers.  These events reallocated used capacity and reduced RVSM completions.  The modifications segment had an operating profit of $129,584 for the three months ended July 31, 2006 compared to operating profit of $69,712 for the three months ended July 31, 2005.Aircraft Acquisitions and Sales:  There was no activity for the three months ended July 31, 2006 or July 31, 2005.   FAA required modifications to the business aircraft fleet may increase customer demand for company owned aircraft.
Avionics:  Sales were $204,595 for the three months ended July 31, 2006 compared to $797,524 in the comparable period of the preceding year, a decrease of 74.3%.  Operating losses for the three months ended July 31, 2006 were $188,997 compared to an operating profit of $219,629 for the three months ended July 31, 2005.  We expect this business segment to significantly increase in future years due to the addition of new fuel system protection devices like the TSD, GFI and other classic aviation defense products.  During the first quarter of 2007 we focused our efforts on the build up of product for several customers.  Services - SCADA Systems and Monitoring Services:  Revenue increased from $338,111 for the three months ended July 31, 2005 to $399,849 for the three months ended July 31, 2006, an increase of 18.3%.  During the three months ended July 31, 2006 we maintained a relatively level volume of long-term contracts with municipalities.  Revenue fluctuates due to the introduction of new products and services and the related installations of these products.  Our contract with one of our largest customers has been renewed through fiscal 2008.  We had an operating profit of $58,049 in Monitoring Services for the three months ended July 31, 2006, compared to $25,157 for the three months ended July 31, 2005.Gaming:  Revenues from management services related to gaming increased for the three months ended July 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 gaming establishments and engineering services.  Flight and engineering services are also provided.  Management consulting and professional fees were $69,762 for the three months ended July 31, 2006 and $114,232 for the three months ended July 31, 2005, a decrease of 39%.  Selling, General and Administrative (SG&A): Expenses were $821,146 or 27% of revenues for the three months ended July 31, 2006.  Business overhead expenses were maintained at relatively the same level as last year.  Other Income (Expense):  Other expenses increased from $93,252 in the three months ended July 31, 2005 to $119,930 for the three months ended July 31, 2006.  The additional interest expense was a result of financing activities related to inventory and asset purchases.
We employed 88 at July 31, 2006 and 89 at July 31, 2005.Earnings:Our net income for the prior three months period ended July 31, 2005 was $205,609.  Our net income for the current three months ended July 31, 2006 was $43,975.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|LIQUIDITY AND CAPITAL RESOURCESWe 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 fiscal 2007 and beyond.We do not, as of July 31, 2006, have any material commitments for other capital expenditures other than the terms of the Indian gaming Management Agreements should any additional casinos materialize.  We will need additional funds to complete our 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.Analysis and Discussion of Cash FlowDuring the quarter our cash position decreased by $361,628.  The decrease in the cash flow was attributed to an increase in inventory and work in process of $256,935 and a reduction in accounts payables and other liabilities of $264,226, and other general use for operations of $97,191.  Net increase in borrowings in the first three months was $173,787.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 RecognitionWe 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 off the shelf items and aircraft sales is recognized on the date of the sale.
Revenue from Avionics are recognized when shipped and payment for materials are due within thirty days of invoicing.  Revenue for SCADA services, Gaming Management, and other Corporate/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 PoliciesBad Debts:  Bad debts are calculated on the historical write-off of bad debts of the individual subsidiaries.  Invoices are considered a bad debt if no payment has been made in the past 90 days.  We review these policies on quarterly basis, and based on these reviews we believe we maintain adequate reserves.  We do not anticipate substantial changes to these estimates in the future.  
Use of 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 July 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.  We believe we have enough future sales to fully amortize our STC development costs.
Advances for Indian Gaming Developments:  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 represent costs to be reimbursed upon approval of Indian gaming in several locations.  We have agreements in place which require payments to be made to us for the respective projects upon opening of Indian gaming facilities.  Once gaming facilities have gained proper approvals, we plan to enter into a note receivable arrangement with the Tribe to secure reimbursement of advanced funds for that particular project.  
We have advanced and invested a total of $4,718,991 in Indian gaming developments.  We have reserves of $2,912,440, at July 31, 2006 and July 31, 2005.  We believe that our advances for Indian gaming developments will be totally reimbursed as casinos are opened.  We believe it is necessary to establish reserves against the advances 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.  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.  These assets were intended to be used with Tribal casinos and consist of the purchase of land and land improvements related to the development of Indian Gaming facilities.  We believe that these tracts could be developed and sold for residential and commercial use to recover our advances if the gaming enterprises do not open.Changing Prices and InflationWe did experience some pressure from inflation in fiscal 2007.  These include increases in airplane travel and transportation costs.  This additional cost may not be transferable to our customers resulting in lower income.  We anticipate long-term fuel costs and interest rates to continue to rise.
Off-Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements.FORWARD LOOKING INFORMATIONThe information set forth below includes "forward-looking" information as outlined in the Private Securities Litigation Reform Act of 1995.  The Risk Factors listed under Item 1A of our Form 10K and the Cautionary Statements, filed by us as Exhibit 99 to our Form 10-K, are incorporated herein by reference and you are specifically referred to such Risk Factors and 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.
NonePart I Item 4
Controls and ProceduresWe maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission'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                    
|Item 1A.                  
|Item 2                    
|Item 3                    
|Item 4                    
|Item 5                    
|Item 6                    
|                          
|                          
|                          
|                          
|                          
|                          
|                          
|                          
|                          



|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.
|                                                                                                                                                                                        
|September 13, 2006
Date                                                                                                                                                                 
|September 13, 2006
Date