Butler International 10-Q 2006 Q3 Quarterly report

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

For the quarterly period ended September 24, 2006

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission file Number: 0-14951

BUTLER INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization) 06-1154321
(I.R.S Employer
Identification No.)

New River Center 200 Las Olas Boulevard
Ft. Lauderdale, Florida 33301
(Address of principal executive offices and zip code)

(954) 761-2200
(Registrant’s telephone number, including area code)

                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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” (as defined in Rule 12b-2 of the Exchange Act): o Large accelerated filer o Accelerated filer x Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

                Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

	Class	Shares Outstanding, October 31, 2007
Common stock, $0.001 par value		12,839,392

BUTLER INTERNATIONAL, INC.
Form 10-Q for Period Ended September 24, 2006

TABLE OF CONTENTS

		Page No.
	PART I - FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 24, 2006 (unaudited) and December 25, 2005	3
	Condensed Consolidated Statements of Operations for the three and nine month periods ended September 24, 2006 and September 25, 2005 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the nine month periods ended September 24, 2006 and September 25, 2005 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
	PART II - OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Submission of Matters to a Vote of Security Holders	27
Item 5.	Other Information	27
Item 6.	Exhibits	27
Signatures		28
Exhibit Index		29

2

PART I - FINANCIAL INFORMATION
Item 1. Financial Statements

BUTLER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)

	As of
	September 24, 2006			December 25, 2005
	(Unaudited)
ASSETS
Current assets:
Cash	$	1,301		$	214
Accounts receivable, net		57,906			53,246
Deferred income taxes		3,787			4,687
Other current assets		1,393			1,431
Total current assets		64,387			59,578
Property and equipment, net		2,873			3,026
Assets held for sale		8,889			8,889
Long-term deferred income taxes		6,448			6,322
Other assets		3,473			2,345
Other intangibles, net		1,641			1,674
Goodwill		36,226			36,226
Total assets	$	123,937		$	118,060
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	32,417		$	28,279
Current portion of long-term debt		3,087			8,082
Total current liabilities		35,504			36,361
Revolving credit facility		36,466			30,799
Other long-term debt		24,619			25,687
Other long-term liabilities		5,977			5,085
Commitments and contingencies (see Note 5)
Stockholders’ equity:
Series B 7% cumulative convertible preferred stock		6			6
Common stock		12			12
Additional paid-in capital		100,769			99,941
Receivables from stockholders		(5,735	)		(5,735	)
Accumulated deficit		(72,890	)		(73,307	)
Accumulated other comprehensive loss		(791	)		(789	)
Total stockholders’ equity		21,371			20,128
Total liabilities and stockholders’ equity	$	123,937		$	118,060

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

3

BUTLER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(Unaudited)

	For the Three Months Ended				For the Nine Months Ended
	September 24, 2006		September 25, 2005		September 24, 2006		September 25, 2005
Net sales	$	81,139	$	73,392	$	239,916	$	210,320
Cost of sales		66,890		60,178		197,679		173,140
Gross margin		14,249		13,214		42,237		37,180
Depreciation and amortization		404		391		1,162		1,145
Selling, general and administrative expenses		10,826		10,391		33,543		28,929
Operating income		3,019		2,432		7,532		7,106
Interest expense		2,045		1,537		5,331		3,682
Income from continuing operations before income      taxes		974		895		2,201		3,424
Income tax expense		865		103		1,465		863
Income from continuing operations		109		792		736		2,561
Income from discontinued operations, net of tax		—		—		—		250
Net income	$	109	$	792	$	736	$	2,811
Income per share:
Basic:
Continuing operations	$	0.00	$	0.07	$	0.04	$	0.22
Discontinued operations		—		—		—		0.02
	$	0.00	$	0.07	$	0.04	$	0.24
Diluted:
Continuing operations	$	0.00	$	0.06	$	0.06	$	0.19
Discontinued operations		—		—		—		0.02
	$	0.00	$	0.06	$	0.06	$	0.21
Average number of common shares and common share   equivalents outstanding:
Basic		10,697		10,379		10,653		10,314
Diluted		11,895		12,055		11,951		13,695

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

4

BUTLER INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	For the Nine-Months ended
	September 24, 2006			September 25, 2005
	(unaudited)			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	736		$	2,811
Adjustments to reconcile net income to  net cash provided by (used in) operating activities:
Gain from discontinued operations, net of taxes		—			(250	)
Depreciation and amortization		1,162			1,145
Provision for doubtful accounts and notes		284			289
Provision for deferred taxes		1,465			1,379
Amortization of deferred financing charges		10			147
Issuance of common shares for amendment fee		273			289
Stock awards and grants		124			412
Amortization of stock-based compensation		193			—
Other changes that (used) provided cash:
Accounts receivable		(4,944	)		(16,466	)
Other assets		(907	)		(395	)
Other liabilities		4,046			6,270
Net cash provided by (used in) operating activities:
Continuing operations		2,442			(4,369	)
Discontinued operations		—			250
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES		2,442			(4,119	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(976	)		(1,460	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under credit facility		5,667			7,307
Proceeds from the issuance of long-term debt		2,500			—
Repayment of long-term debt		(8,565	)		(3,059	)
Financing fees paid					(100	)
Proceeds from exercise of stock options		21			215
Net cash provided by (used in) financing activities		(377	)		4,363
Effect of exchange rate changes on cash		(2	)		(3	)
Net increase (decrease) in cash		1,087			(1,219	)
Cash at beginning of period		214			1,288
Cash at end of period	$	1,301		$	69

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

5

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

Note 1 - Description of Business and Summary of Significant Accounting Policies

Description of Business

                Butler International, Inc. (the “Company” or “Butler”) provides outsourcing, project management and technical staff augmentation services that are performed onsite at the client’s facility, offsite at a Company-owned facility, or offshore at our facility in Hyderabad, India. Butler offers expertise in technical, information technology, and telecommunications disciplines including: engineering design support primarily used for aerospace, defense and heavy equipment manufacturing, software applications development and implementation, enterprise network design and implementation, and telecommunications network systems implementation.

Fiscal Year End

                The Company utilizes a 52-53 week fiscal period.

Basis of Presentation

                The unaudited condensed consolidated financial statements of the Company reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for a fair presentation of the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2006. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted under the Securities and Exchange Commission’s rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, presented in the Company’s Annual Report on Form 10-K for the year ended December 25, 2005 filed on October 11, 2007 with the Securities and Exchange Commission (“SEC”).

Segment Information

                The Company provides outsourcing, project management and technical staff augmentation services in technical, information technology, and telecommunications disciplines including: engineering design support primarily used for aerospace, defense and heavy equipment manufacturing, software quality assurance testing, software applications development and implementation, enterprise network design and implementation, telecommunications network systems implementation, and fleet maintenance and repair services to major ground fleet-holders nationwide. These services are provided through three business segments: Technical Services (“BTG”), Telecommunication Services (“BTI”) and Information Technology Services (“BTS”). The Technical Services segment involves skilled technical and engineering personnel providing services to companies in the aircraft/aerospace, defense, heavy equipment/machinery, research, energy, electronics and pharmaceutical industries. The Telecommunication Services segment provides telecommunications equipment manufacturers and service providers assistance with upgrading wireless and wireline network infrastructure for enhanced voice, high-speed data and video services The Information Technology Services segment helps companies implement business solutions that harness the power of technology to optimize business performance.

                The Company acquired Chief Executive Magazine in December 2005, which provides ideas, strategies and tactics to executive leaders for building more effective organizations.

The Company discloses segment information in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosure About Segments of an Enterprise and Related Information,” which requires us to report selected segment information on a quarterly basis and to report certain entity-wide disclosures about our products and services, major customers and material countries in which we holds assets and reports revenues. The company has three reportable segments as described above. The results of Chief Executive Magazine are considered immaterial and are reported in the “Other” segment.

6

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

Net sales and operating income by segment are as follows:

	For the Three Months Ended						For the Nine Months Ended
	September 24, 2006			September 25, 2005			September 24, 2006			September 25, 2005
Net Sales:
Technical Services	$	54,286		$	48,066		$	160,657		$	135,331
Telecommunication Services		21,327			19,356			61,997			57,471
Information Technology Services		5,042			5,640			15,834			16,593
Total reportable segments		80,655			73,062			238,488			209,395
Other/Unallocated amount		484			330			1,428			925
Consolidated total	$	81,139		$	73,392		$	239,916		$	210,320
Operating income:
Technical Services	$	4,416		$	4,670		$	13,098		$	12,568
Telecommunication Services		2,139			1,650			5,975			5,203
Information Technology Services		357			371			703			1,059
Total reportable segments		6,912			6,691			19,776			18,830
Other/Unallocated amount		(3,893	)		(4,259	)		(12,244	)		(11,724	)
Consolidated total	$	3,019		$	2,432		$	7,532		$	7,106

                The accounting policies of the business segments are the same as those described in Significant Accounting Policies in Note 2 of the Notes to the Consolidated Financial Statements in Company’s fiscal 2005 Annual Report on Form 10-K. Intercompany transactions and balances have been eliminated. Management reviews its assets on a consolidated basis, as it is not meaningful to allocate assets to the various segments. Management evaluates segment performance based on revenues and operating profits. Butler does not allocate certain corporate expenses, interest expense, income taxes or charges determined to be non-recurring in nature, such as restructuring and impairment charges that do not relate to a specific business segment. Butler primarily operates in the United States. Operations include the results of the India subsidiary, which are less than 1% of sales for all periods presented.

The numbers of clients individually representing 10% or more of each segments net sales and the percentage of their sales to total segment net sales are as follows:

		Number of	Percentage of
		Clients	Total Net Sales
Technical Services
	3 months ended September 24, 2006	4	56%
	3 months ended September 25, 2005	3	44%
	9 months ended September 24, 2006	4	56%
	9 months ended September 25, 2005	3	47%
Telecommunications Services
	3 months ended September 24, 2006	3	66%
	3 months ended September 25, 2005	3	69%
	9 months ended September 24, 2006	3	72%
	9 months ended September 25, 2005	3	69%
Information Technology Services
	3 months ended September 24, 2006	1	22%
	3 months ended September 25, 2005	3	59%
	9 months ended September 24, 2006	4	60%
	9 months ended September 25, 2005	3	52%

                No customer accounted for more than 10% of net accounts receivable as of September 24, 2006 and December 25, 2005.

Stock-Based Compensation

The Company maintains stock-based compensation plans which allow for the issuance of stock options and restricted common stock to executives and certain employees. Prior to fiscal year 2006, the Company accounted for the plans under the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. Accordingly, because stock options granted had an exercise price equal to the market value of the underlying common stock on the date of the grant, no expense related to employee stock options was recognized. However, expense related to the grant of restricted stock had been recognized in the statement of operations under APB Opinion No. 25. In

7

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

accordance with SFAS No. 123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, the Company provided pro forma net income/loss and net income/loss per share disclosures for each period prior to the adoption of SFAS No. 123R, (Revised 2004), “Share-Based Payment” as if it had applied the fair value-based method in measuring compensation expense for its share-based compensation plans.

                Effective December 26, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123R. This statement applies to all awards granted after the effective date and to modifications, repurchases or cancellations of existing awards. Additionally, under the modified prospective transition method of adoption, the Company recognizes compensation expense for the portion of outstanding awards on the adoption date for which the requisite service period has not yet been rendered based on the grant-date fair value of those awards calculated under SFAS No. 123 and SFAS No. 148. Because the Company used the modified prospective transition method, financial statements for prior periods have not been restated. The Company amortizes the fair value of awards granted both before and after December 26, 2005 on a straight-line basis.

                SFAS No. 123R requires that forfeitures be estimated over the vesting period of an award, rather than being recognized as a reduction of compensation expense when the forfeiture actually occurs. The cumulative effect of the use of the estimated forfeiture method for prior periods upon adoption of SFAS No. 123R was not material.

Comparable Disclosures

                The following table illustrates the effect on the Company’s net income and net income per share for the three and nine month periods ended September 25, 2005 as if it had applied the fair value recognition provisions of SFAS No. 123R to share-based compensation using the Black-Scholes valuation model (in thousands, except per share amounts):

	For the three month period ended September 25, 2005			For the nine month period ended September 25, 2005
Net income
As reported	$	792		$	2,811
Add: Stock-based employee compensation expense      included in reported net income, net of related tax effects		32			66
Deduct: Total stock-based employee compensation expense      determined under fair value based method for all awards,      net of related tax effects		(61	)		(157	)
Net income		763			2,720
Deduct: Preferred stock dividend		(101	)		(303	)
Net income - pro forma for basic earnings per share calculation		662			2,417
Add: Income impact of assumed conversions of convertible preferred stock dividends		—			303
Net income - pro forma for diluted earnings per share calculation	$	662		$	2,720
Income per share:
Basic - as reported	$	0.07		$	0.24
Basic - pro forma		0.06			0.23
Diluted - as reported		0.06			0.21
Diluted - pro forma		0.05			0.20

8

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

Determining Fair Value

                The fair value for the options granted during the three months ended September 24, 2006 and September 25, 2005 was estimated at the date of grant using the Black-Scholes option pricing model and the following assumptions:

	2006	2005
Risk-free interest rate	4.76%	4.08%
Expected life	5 years	5 years
Expected volatility	55%	66%
Expected dividend yield	0%	0%

                During the three and nine-month periods ended September 24, 2006, the Company recorded $0.1million and $0.3 million of stock based compensation expense related to restricted stock and stock options, respectively. During the three and nine-month periods ended September 25, 2005, the Company recorded $36,000 and $0.4 million of stock based compensation expense related to restricted stock and stock based compensation, respectively. As of September 24, 2006, there was $0.3 million of unrecognized compensation cost related to employee and director stock options, which is expected to be recognized through fiscal year 2009.

Earnings Per Share

                The Company presents both basic and diluted earnings per common share amounts. Basic earnings per common share is calculated by dividing net income (loss), adjusted for preferred stock dividends, by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated by dividing net income (loss) by the sum of the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect. The Company uses the treasury stock method to calculate the impact of outstanding stock options and warrants. Stock options and warrants for which the exercise price exceeds the average market price over the period have an anti-dilutive effect on earnings per common share and, accordingly, are excluded from the calculation.

                          For the three-month periods ended September 24, 2006 and September 25, 2005, the average number of options outstanding totaled 1,376,500 and 743,100 respectively where the exercise price was greater than the average market price of the common shares and therefore, were excluded from the computation of diluted income per share.

                          For the nine-month periods ended September 24, 2006 and September 25, 2005, the average number of options outstanding totaled 1,032,900 and 1,032,867, respectively where the exercise price was greater than the average market price of the common shares and therefore, were excluded from the computation of diluted income per share.

                          Warrants related to the Securities Purchase Agreement (see Note 11 – Subsequent Events), were excluded from the computation of diluted income per share for the three and nine-month periods ended September 24, 2006 as the warrants were cancelled in December 2006.

                          In addition, for the three-month and nine-month periods ended September 24, 2006, 1,786,000 potential common shares derived from convertible preferred stock have an anti-dilutive effect on earnings per share and accordingly are excluded from the calculation. For the three-month period ended September 25, 2005, there were potential common shares derived from convertible preferred stock that were considered anti-dilutive and accordingly excluded from the calculation.

9

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

                The following table presents the computation of basic and diluted earnings per common share:

	For the Three Months ended						For the Nine Months ended
	September 24, 2006			September 25, 2005			September 24, 2006			September 25, 2005
Net income (1)	$	109		$	792		$	736		$	2,561
Less: Preferred stock dividends		(107	)		(101	)		(319	)		(303	)
Net income for basic earnings per share calculation		2			691			417			2,258
Add: Income impact of assumed conversions            of convertible preferred stock dividends		—			—			—			303
Net income for diluted earnings per share calculations	$	2		$	691		$	417		$	2,561
Weighted average number of common shares:
Basic		10,697			10,379			10,653			10,314
Add: Incremental shares from assumed conversions
Restricted stock		1,137			1,140			1,133			1,140
Stock options and warrants		61			536			165			582
Convertible preferred stock		—			—			—			1,659
Diluted		11,895			12,055			11,951			13,695
Net income per share
Basic	$	0.00		$	0.07		$	0.04		$	0.24
Diluted	$	0.00		$	0.06		$	0.06		$	0.21

(1) Balance for the nine months ended September 25, 2005 reflects income from continuing operations.

Adoption of Accounting Standards

                On March 29, 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) which expresses the views of the SEC Staff regarding the interaction of SFAS 123R and certain SEC rules and regulations and provides the staff’s views regarding the valuation of share-based payment arrangements. Butler believes that the views provided in SAB 107 are consistent with the approach taken in the valuation and accounting associated with share-based compensation issued in prior periods as well as those issued during 2005 and 2006.

On June 1, 2005, the FASB issued Statement of Financial Accounting Standards No. 154, “Accounting Changes and Error Corrections – a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 changes the requirements for the accounting and reporting of a change in accounting principle. SFAS 154 applies to all voluntary changes in accounting principle as well as changes required by an accounting pronouncement that do not otherwise include specific transition provisions. Previously, most changes in accounting principle were required to be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS 154 requires retrospective application to prior periods’ financial statements of a change in accounting principle as if that principle had always been used. In addition, SFAS 154 requires that retrospective application of a change in accounting principle be limited to the direct effects of the change while indirect effects should be recognized in the period of the accounting change. SFAS 154 also states that any error in the financial statements of a prior period discovered subsequent to their issuance shall be reported as a prior-period adjustment by restating the prior period

10

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

financial statements. SFAS 154 is effective for fiscal years beginning after December 15, 2005. The impact upon the adoption of SFAS 154 was not material.

In September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” SAB No. 108 establishes an approach that requires quantification of financial statement misstatements based on the effects of the misstatement on each of a company’s financial statements and the related financial statement disclosures. This approach is commonly referred to as the “dual approach” because it requires quantification of errors under both the “rollover” and “iron curtain” methods. SAB No. 108 allows registrants to initially apply the dual approach either by (1) retroactively adjusting prior financial statements as if the dual approach had always been used or by (2) recording the cumulative effect of initially applying the dual approach as adjustments to the carrying values of assets and liabilities as of December 25, 2005 with an offsetting adjustment recorded to the opening balance of retained earnings. Use of this “cumulative effect” transition method requires detailed disclosure of the nature and amount of each individual error being corrected through the cumulative adjustment and how and when it arose. The adoption of SAB No. 108 in the fourth quarter of fiscal 2006 did not have a material impact on the Company’s financial position or results of operations.

Note 2 - Restatements and NASDAQ Delisting

                In compiling the Company’s results for the third quarter ended September 25, 2005, management identified certain errors that had occurred in previous financial periods. Management has evaluated the qualitative and quantitative impact of these errors in accordance with generally accepted accounting principals and has determined that the effect on previous periods was material to its consolidated financial statements taken as a whole and required restatements of our annual and quarterly consolidated financial statements.

                As a result, the Company restated its consolidated financial statements for the fiscal years ended December 31, 2004, 2003 and 2002 and the quarters ended March 31, 2003 through June 25, 2005. Please see the Company’s Annual Report on Form 10-K for the year ended December 25, 2005, Form 10-K/A for the year ended December 31, 2004, as filed on October 11, 2007, and its Quarterly Reports on Form 10-Q for the three and nine months ended September 25, 2005 as filed on October 15, 2007, for additional information regarding the restatement and adjustments.

                On November 15, 2005 the Company announced a delay in the filing of its quarterly report on Form 10-Q for the fiscal quarter ended September 25, 2005. On April 4, 2006, the Company announced a delay in the filing of its annual report on Form 10-K for the fiscal year ended December 25, 2005. On April 11, 2006 the Company was delisted from NASDAQ because the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 25, 2005 was not filed and as a result the Company failed to comply with the requirements for continued listing set forth in NASDAQ’s Marketplace Rule 4310 (c) (14). Butler may apply for re-listing on NASDAQ, although the company may not be successful in its efforts to obtain re-listing.

                On April 13, 2006, the Audit Committee of the Board of Directors, after consultation with management determined that based upon certain errors relating to income taxes, income tax liabilities, deferred tax assets and liabilities, the Company needed to revise its original calculations. In addition, the Company reviewed its tracking system for its employees’ compensated absences and noted that the Company did not accrue for all necessary compensated absences.

Lastly, the Company concluded that in accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, it should restate its Consolidated Statements of Cash Flows to appropriately classify cash flows from discontinued operations.

Note 3 – Recently Issued Financial Accounting Standards

In February 2006, FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”). SFAS 155 amends FASB Statements No. 133 and 140. This statement simplifies the accounting for certain hybrid financial instruments by permitting fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. This statement also permits a qualifying special-purpose entity to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 applies to all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of SFAS 155 is not expected to have a material impact on our consolidated financial statements.

11

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

On July 14, 2006, The FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes –an Interpretation of FASB Statement 109” (“FIN 48”) FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. Under FIN 48, the financial statements will reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the tax position and all relevant facts, but without considering time values. FIN 48 substantially changes the applicable accounting model and is likely to cause greater volatility in income statements as more items are recognized discretely within income tax expense. Liabilities resulting from FIN 48 are classified as long-term, unless payment is expected within the next twelve months. FIN 48 requires qualitative and quantitative disclosures, including discussion of reasonably possible changes that might occur in the recognized tax benefits over the next twelve months; a description of open tax years by major jurisdictions; and a rollforward of all unrecognized tax benefits, presented as a reconciliation of the beginning and ending balances of the unrecognized tax benefits on a worldwide aggregated basis. FIN 48 is effective for our fiscal 2007 year. Changes in net assets that result from the application of FIN 48 should be recorded as an adjustment to retained earnings. We are in the process of evaluating this guidance and therefore have not yet determined the impact that FIN 48 will have on our financial statements upon adoption.

                In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS 157”), which is intended to increase consistency and comparability in fair value measurements by defining fair value, establishing a framework for measuring fair value and expanding disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are in the process of evaluating this guidance and therefore have not yet determined the impact that SFAS 157 will have on our financial statements upon adoption.

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Obligations, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (“SFAS 158”). The standard requires companies to recognize in their balance sheets any over or under-funded benefit obligations of each defined benefit pension and other postretirement plans. The resulting balance sheet adjustment is offset by a corresponding adjustment to other comprehensive income, net of deferred tax effects. This change would apply to the Company’s financial statements for the year ended December 31, 2006. We do not expect that the adoption of SFAS 158 will have a material effect on our financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 will be effective for the Company on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS No. 159 on its financial position, cash flows, and results of operations.

Note 4 - Assets Held for Sale

                In February 2005, the Company’s Board of Directors authorized the sale of its Montvale, New Jersey facility and the establishment of worldwide headquarters in Ft. Lauderdale, Florida, where it currently leases office space. The Montvale, New Jersey facility had served as the Company’s worldwide headquarters. Butler has classified the Montvale, New Jersey building and associated land in its balance sheet as “Assets held for sale,” and is actively pursuing alternatives to sell the property. The net carrying value of the property is approximately $9.0 million at September 24, 2006. The net proceeds from the sale of the facility will be used to retire debt. Depreciation on the facility ceased when the facility was classified as held for sale in February 2005. The Company has identified several buyers and is in active negotiations for the sale of the facility.

12

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

Note 5 - Commitments and Contingencies

                The Company and its subsidiaries are parties to various legal proceedings and claims incidental to their normal business operations for which no material liability is expected beyond what is recorded. While the ultimate resolution is not known, management does not expect that the resolution of such matters will have a material adverse effect on the Company’s consolidated financial position and results of operations.

                Debt is summarized as follows:

	September 24, 2006			December 25, 2005
Revolving credit facility with average    interest rate of 8.56% for 2006 and 6.25% for 2005	$	36,466		$	30,799
Variable-rate Term Loan A with average    interest rate of 9.06% for 2006 and 6.75% for 2005		3,000			9,000
Variable-rate Term Loan B with average    interest rate of 9.06% for 2006 and 6.75% for 2005		18,000			18,000
6.85% mortgage note due 2012		6,706			6,769
		64,172			64,568
Less current portion		(3,087	)		(8,082	)
	$	61,085		$	56,486

                At September 24, 2006, the aggregate principal amounts of long-term debt scheduled for repayment for the years 2006 through 2010 were $3,087,000, $54,557,000, $100,000, $107,000, $115,000 and $6,206,000 due thereafter. In 2006, the Company obtained an amendment to its credit agreement extending its revolving credit facility and term loans to June 30, 2007. On August 29, 2007 the Company obtained an amendment to its credit agreement extending its revolving credit facility to February 1, 2008. The debt obligations of our subsidiaries, Butler Service Group, Inc. (“BSG”) and Butler New Jersey Realty Corporation (“BNJRC”), are reflected in the Company’s consolidated balance sheet. In order to obtain favorable terms, guarantees of subsidiary debt are issued to lending institutions requiring the parent company to repay the debt should BSG or BNJRC default on their debt obligations. At December 25, 2005, all of the Company’s consolidated debt is subject to these guarantees.

Revolving Credit Facility

                As of September 24, 2006, GECC provides Butler with a revolving credit facility for loans up to $47.0 million, including $9.0 million for letters of credit, Term Loan A for $20 million, and Term Loan B for $18 million. The sum of the aggregate amount of loans outstanding under the revolving credit facility plus the aggregate amount available for letters of credit may not exceed the lesser of (i) $47.0 million or (ii) an amount equal to 85% of eligible receivables plus 75% of eligible pending billed receivables. On March 25, 2005, Butler and GECC entered into an amendment to the Second Amended and Restated Credit Agreement, dated September 28, 2001. This amendment, among other things, extended the term of the credit facility and two term loans to April 1, 2006 and increased the quarterly principal payments due October 1, 2005 and thereafter on Term A by $1.0 million to $2.0 million. The interest rate on both term loans was based on the 30-day Commercial Paper Rate plus three hundred fifty basis points which is the same interest Butler pays on its Term Loan A. The agreed interest rate with respect to revolving credit advances is the 30-day Commercial Paper Rate plus three hundred basis points. Per the agreement with GECC, Butler is required to pay additional interest for the term loans and the revolving credit facility if it is unable to achieve certain reporting and ratio covenants. Interest rate reductions are available for the revolving credit facility based upon the Company achieving certain financial results. During the three month period ended September 24, 2006, Butler was obligated to pay an additional 2% in interest to secure maturity date extentions from GECC.

                At September 24, 2006, $36.5 million was outstanding under the revolving credit facility and an additional $5.7 million was used to collateralize letters of credit. The interest rate in effect at September 24, 2006 was 9.06%. At September 24, 2006, $3.0 million and $18.0 million were outstanding under Term Loan A and Term Loan B, respectively, each with an effective interest rate of 10.74%. Term Loans A and B were repaid in August 2007 with the $23.0 million Monroe Term Loan. See Note 11 “Subsequent Events – Debt Agreements” for further discussion of the Monroe Term Loan.

                In fiscal 2005 and 2006 the Company received a limited waiver to waive certain reporting and ratio covenants resulting in the compliance with its covenants. See Note 11 Subsequent Events– Debt Agreements for further discussion of the Company’s debt agreements with GECC.

Securities Purchase Agreement

                On June 30, 2006, we entered into a Securities Purchase Agreement with Levine Leichtman Capital Partners III, L.P. (“LLCP”). See “Note 11 — Subsequent Events” for details of the transaction.

13

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

Letters of Credit

                As of September 24, 2006, Butler had standby letters of credit in the amount of $3.7 million as collateral against its insurance program. These letters are renewed annually. We also have a $2.0 million letter of credit associated with the mortgage note discussed below.

Facility Mortgage

                Butler has a 10-year, $6.7 million mortgage for its corporate office facility. The mortgage note has a fixed interest rate at 6.85%. The mortgage note contains various financial and other covenants including the requirement to meet certain fixed charge coverage and liquidity amounts. We were in compliance with all covenants at September 24, 2006 and December 25, 2005.

Note 6 – Comprehensive Income (Loss)

                The following table sets forth the components of comprehensive income, net of tax:

	For the Three Month Period					For the Nine Month Period
	September 24, 2006		September 25, 2005			September 24, 2006			September 25 2005
Net income	$	109	$	792		$	736		$	2,811
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		1		(4	)		(2	)		(3	)
Comprehensive income	$	110	$	788		$	734		$	2,808

Note 7 – Stockholders’ Equity

                 Stockholder’s equity at September 24, 2006 totaled $21.4 million, approximately a $1.3 million increase from $20.1 million at December 25, 2005. This increase is primarily attributable to net income of $0.7 million for the nine months ended September 24, 2006, the issuance of common shares for an amendment fee related to the Company’s credit facility totaling $0.3 million, stock based compensation of $0.4 million. and the issurance of preferred stock $0.2, offset by dividends of $0.3.

Stock Incentive Plans

                Butler has in effect a number of stock-based incentive and benefit programs designed to attract and retain qualified directors, executives and management personnel. We have adopted a 1985 non-qualified Stock Option Plan, a 1989 Directors Option Plan, a 1992 Stock Option Plan, and a 1992 Stock Option Plan for Non-employee Directors. Options granted under the 1992 and 1985 stock plans expire ten years from the date they were granted and vest over service periods that range between zero to five years. There were a total of 3,950,000 shares authorized under these plans. Options granted under the 1989 and 1992 Directors Stock Option Plans expire five and ten years, respectively, from the date of grant and vest immediately. There were a total of 937,500 shares authorized under the director plans. In 2002, the stockholders approved the 2002 Stock Incentive Plan. In 2004, the stockholders approved an amendment to the 2002 Stock Incentive Plan to increase the number of shares authorized under this plan from 1,500,000 to 2,000,000. In 2003, the stockholders approved the 2003 Stock Incentive Plan. We may grant up to 5,000,000 shares of common stock under this plan. Upon the approval of the 2003 Stock Incentive Plan, the Board of Directors can no longer grant awards under our other stock option and stock bonus plans, except for the 2002 Stock Incentive Plan.

                During the three and nine-month periods ended September 24, 2006, zero and 5,000 stock options were granted to an employee of Butler through the 2002 Stock Incentive Plan. During the three and nine-month periods ended September 25, 2005, zero and 155,000 stock options were granted to employees of Butler through the 2002 Stock Incentive Plan. No stock options were granted to our non-employee directors during the three and nine-month periods ended September 24, 2006 and September 26, 2005. As of September 24, 2006, under the 2002 and 2003 Stock Incentive Plans there were 6,100,500 shares available for future issuance.

14

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

                Changes in our outstanding stock options for the nine-month period ended September 24, 2006 were as follows:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)
Balance at December 25, 2005	1,946,600		$	4.55
Granted	5,000		$	3.05
Exercised	(10,000	)	$	2.12
Forfeited or expired	(48,600	)	$	5.59
Outstanding at September 24, 2006	1,893,000		$	4.54	5.44
Exercisable at September 24, 2006	1,674,000		$	4.69	5.03

                The weighted-average grant date fair value of options granted during the three and nine-month periods ended September 24, 2006 was $1.60. There were zero and 10,000 stock options exercised during the three and nine-month periods ended September 24, 2006, respectively. The total intrinsic value of options exercised during the three and nine-month periods ended September 24, 2006 were zero and $8,600, respectively. The aggregate intrinsic value of 108,000 exercisable options totaling $77,000 represents the total pretax intrinsic value, (the difference between the Company’s closing stock price on the last trading day of the third quarter of fiscal 2006 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on September 24, 2006. This amount changes based on the fair market value of the Company’s stock.

Nonvested shares

                The Company may make nonvested share awards to employees, non-employee directors and consultants. A nonvested share award is an award of common shares that is subject to certain restrictions during a specified period, such as an employee’s continued employment combined with the Company achieving certain financial goals. The Company holds the common shares during the restriction period, and the grantee cannot transfer the shares before the termination of that period. The grantee is, however, generally entitled to vote the common shares and receive any dividends declared and paid on the company’s common shares during the restriction period.

                In March 2006, Butler granted 30,000 shares of restricted stock to five of its executive officers. The market value on the date of the grant was $91,500. The stock is restricted for three years, subject to forfeiture or acceleration of vesting upon certain events. We are amortizing the cost of these shares over a three-year period.

                Changes in the outstanding shares of restricted stock for the nine months ended September 24, 2006 were as follows:

	Shares		Weighted- Average Grant Price
Nonvested at December 25, 2005	1,190,100		$	1.27
Granted	30,000		$	3.05
Vested and issued	(16,667	)	$	5.00
Forfeited or expired	—		$	—
Nonvested at September 24, 2006	1,203,433		$	1.26

                Stock-based compensation of $44,000 and $124,000 for nonvested awards during the three and nine month periods ended September 24, 2006 are included in our accompanying condensed consolidated statements of operations. As of September 24, 2006, we had $0.2 million of total outstanding unrecognized compensation costs related to nonvested awards that are expected to be recognized over a weighted average period of 0.24 years.

15

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

Note 8 – Income Taxes

                The Company uses the asset and liability method of accounting for income taxes whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company periodically assesses recoverability of deferred tax assets. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company and its subsidiaries file a consolidated federal tax return. Where the Company believes that the deduction of an item is supportable for income tax purposes, the item is deducted in its income tax return. However, where treatment of an item is uncertain, tax accruals are established based upon potential exposure of different outcomes. These accruals are recorded in the accompanying consolidated balance sheet in other long-term liabilities, as the Company believes that these matters are more than one year away from any significant conclusiveness. Changes to these accruals may occur for varying reasons, such as, but not limited to, a settlement with relevant tax authority, the expiration of statutes of limitations for the subject tax year, changes in tax laws, rules and regulations, etc.

                The effective tax rate for the third quarter of 2006 was 88.7% as compared with 11.5% during the third quarter of 2005. The year-to-date effective tax rate at September 24, 2006 was 66.5% as compared with 25.2% at September 25, 2005. The higher 2006 effective tax rate reflects our estimate of 2006 profitability and the evaluation of our reserve for tax uncertainties and also our tax planning strategies related to the Company’s income tax position.

Note 9- Discontinued Operations

                On May 30, 2003, Butler sold its UK operations. The sale agreement included a provision that entitled Butler to additional cash payments for a two-year period ended May 31, 2005 if the sold business achieved certain minimum performance targets and utilized certain tax benefits. These contingent payments were recognized as income from discontinued operations. In fiscal year 2005 Butler received $250,000 of additional proceeds from its sale of the UK operations.

Note 10 – Related Party Transactions

                There were no material changes during the three months ended September 24, 2006 in the related party relationships from those reported on our Annual Report on Form 10-K for the year ended December 25, 2005

Note 11 – Subsequent Events

                 On October 11, 2007 we filed with the Securities and Exchange Commission (“SEC”) an amended annual report for the year ended December 31, 2004 on Form 10-K/A and an annual report for the year ended December 25, 2005 on Form 10-K.

                On October 15, 2007 we filed with the Securities and Exchange Commission (“SEC”) a quarterly report for the three months and nine months ended September 25, 2005 on Form 10-Q.

                On October 25, 2007 we filed with the Securities and Exchange Commission (“SEC”) a quarterly report on Form 10-Q for the three month period ended March 26, 2006.

                On November 14, 2007 we filed with the Securities and Exchange Commission (“SEC”) a quarterly report on Form 10-Q for the three months and six month period ended June 25, 2006.

Debt Agreements

                Butler has received quarterly amendments to its debt agreements with GECC. As part of one amendment with GECC extending the debt maturities, we were required to increase our quarterly loan payments from $1 million to $2 million. We have made all required increased payments since October 2005. The increased loan payments have reduced the availability of credit under our working capital revolver with GECC.

16

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

                On September 29, 2006, we entered into a Thirteenth Amendment to Credit Agreement with GECC, pursuant to which the termination date of the credit facility was extended from October 1, 2006 to October 31, 2006.

                On October 31, 2006, we entered into a Fourteenth Amendment to Credit Agreement with GECC whereby the termination date of the credit facility and term loans was extended from October 31, 2006 to April 30, 2007.

                On December 14, 2006, we entered into a Fifteenth Amendment to Credit Agreement with GECC, whereby the termination date of the credit facility and term loans was extended from April 30, 2007 to June 30, 2007.

                On April 30, 2007, Butler entered into a Sixteenth Amendment and Limited Waiver to Credit Agreement with GECC, whereby GECC waived defaults and events of defaults arising from the company’s failure to deliver financial statements, certifications, statements and other reporting requirements as agreed.

                On June 30, 2007, we entered into an amendment with GECC, whereby GECC agreed to forbear from the exercise of any of their rights and remedies available under the Credit Agreement and the Loan Documents on account of specified events of default for the period ending July 31, 2007. Effective July 31, 2007, Butler entered into an amendment with GECC, whereby GECC agreed to extend the forbearance period to August 14, 2007.

                On July 3, 2007, effective June 30, 2007, Butler entered into an amendment with GECC, whereby GECC agreed to forbear from the exercise of any of their rights and remedies available under the Credit Agreement and the Loan Documents through July 31, 2007, as a result of Butler’s failure (i) to deliver to GECC certain of our financial information from fiscal years 2004, 2005 and 2006; (ii) to deliver to GECC a fully executed commitment letter for a $60 million revolving credit facility by April 30, 2007; and (iii) to repay GECC all principal, interest and other amounts due on the Loans prior to June 30, 2007.

                On August 29, 2007, Butler obtained a $23.0 million term loan (the “Monroe Term Loan”) from Monroe Capital Management Advisors LLC (“Monroe”). The proceeds of the Monroe Term Loan were used to pay off the existing term loan with GECC, to pay off a portion of the existing revolving credit facility with GECC (the “GECC Revolving Line of Credit”), to provide cash collateral for an existing letter of credit, and to provide additional working capital for Butler and its subsidiaries. The Monroe Term Loan matures August 29, 2012 unless the Series A Mandatorily Redeemable Preferred Shares or the GECC Revolving Line of Credit expires prior to August 29, 2012. As a result of obtaining the Monroe Term Loan, GECC extended the expiration date of the Revolving Line of Credit to February 1, 2008. The Series A Mandatorily Redeemable Preferred Shares are redeemable July 11, 2011. Pursuant to the agreement, there are certain events that can require the Company to prepay a portion of the outstanding Monroe Term Loan. The Monroe Term Loan bears interest at the per annum rate of LIBOR plus 4.25% to 6.0%. The interest rate may also be adjusted depending upon the syndication of the Monroe Term Loan. No warrants were issued in connection with the Monroe Term Loan. Additionally, the Monroe Term Loan is subject to the lien of Butler’s secured lender, GECC.

                On November 6, 2007, Butler entered into a Consent and Waiver to Third Amended and Restated Credit Agreement with GECC effective October 31, 2007, whereby GECC waived defaults and events of defaults arising from Butler’s failure to deliver 2006-year end financial information. Also, on November 6, 2007 Butler entered into a Consent and Waiver to Second Lien Credit Agreement with Monroe effective October 31, 2007 whereby Monroe waived defaults and events of default arising from Butler’s failure to deliver 2006-year end financial information. Both consents provide that defaults will be reinstated if 2006 year end financial information is not provided by November 30, 2007. Butler is subject to a $25,000 per month penalty if the 2006 year end financial information is not provided by November 30, 2007.

Securities Purchase Agreement

                On June 30, 2006, we entered into a Securities Purchase Agreement (“Securities Purchase Agreement) for $35 million of senior and subordinated debt financing with Levine Leichtman Capital Partners III, L.P. (“LLCP”). Under the terms of the Securities Purchase Agreement, $2.5 million of the $35 million was funded on June 30, 2006, with the remaining $32.5 million to be funded when we completed the filings of our restated and delinquent Securities and Exchange Commission (“SEC”) reports and satisfy other customary closing conditions.

                Pursuant to the first funding of the Securities Purchase Agreement, we issued to LLCP an unsecured note in the original principal amount of $2.5 million (the “Unsecured Note”) with a 15% interest rate and a maturity date of August 14, 2006. Also in connection with the $35 million Securities Purchase Agreement, we granted LLCP the right to purchase an aggregate of 1,041,254 shares of the Company’s common stock pursuant to a warrant (the “Warrant”) which would have been exercisable for a period of ten years at an exercise price of $2.13 per share. The common shares that would have been issuable upon conversion of the Warrants would have been covered by a Registration Rights Agreement (the “Registration Rights Agreement”). If the $35 million funding were

17

BUTLER INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular Information in Thousands, except Per Share Amounts)

to have been completed, we would have outstanding to LLCP $10 million aggregate principal amount of Secured Senior Term Notes with an interest rate of LIBOR plus 6.75% and $25 million aggregate principal amount of Secured Senior Subordinated Notes with an interest rate of LIBOR plus 9.75%, both with a maturity date of June 30, 2011. Pursuant to the terms of a Letter Agreement with LLCP, we would have agreed to pay an increased rate of interest on these Term Notes and Subordinated Notes if we had not paid at least $7 million of indebtedness to LLCP by June 31, 2007.

                We repaid $1 million of the $2.5 million Unsecured Note on August 14, 2006. The remaining $1.5 million was repaid on August 25, 2006.

                On October 6, 2006, we announced the termination of the Securities Purchase Agreement with LLCP.

                On December 27, 2006, the Company, along with certain of its subsidiaries and principal shareholders, entered into a Settlement Agreement and Mutual Release with Levine Leichtman Capital Partners III, L.P. (“Levine Leichtman”), in full and final settlement of litigation between the parties. The agreement provides for a payment by the Company to Levine Leichtman in the sum of $1,265,000, which was paid in full, as provided for in the Securities Purchase Agreement dated June 30, 2006 among Levine Leichtman, the Company and certain of its subsidiaries. The agreement also confirmed the termination of the warrant for the purchase of 1,041,254 shares of Common Stock that the Company had issued to Levine Leichtman.

Sale of Preferred Stock

                On December 21, 2006, we announced the closing on the sale to certain institutional and non-institutional investors (the “Investors”) of $8,500,000 in shares of Series A 7% Mandatorily Redeemable Preferred Stock (the “Shares”) and warrants to purchase 2,125,000 shares of the Company’s Common Stock at $2.00 per share in a private placement (the “Offering”). The redeemable warrants are callable under certain circumstances. Each share of Preferred Stock, along with warrants to purchase 250 shares of the Company’s Common Stock, was issued at a price of $1,000. The Preferred Stock shares are not convertible into Common Stock.

                In connection with the Offering, the Company entered into a Registration Rights Agreement with the Investors, pursuant to which the Company granted the Investors certain registration rights with respect to the Shares. The Shares sold to the Investors have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements.

                On July 18, 2007, in connection with the Offering, Butler issued additional vested warrants to each Series A Preferred Stock holder to purchase up to 187,500 shares of the Company’s common stock at an exercise price of $2.00 per share. The warrants were issued as the Company did not refinance its debt with GECC by June 30, 2007.

Other Items

                On January 8, 2007, the Company announced that the employment of Thomas J. Considine, Jr. as Senior Vice President and Chief Financial Officer of the Company was terminated effective December 31, 2006. The Company’s Senior VP – Finance assumed additional responsibilities as a result of this organizational change. An accrual of $300,000 was made in December 2006 relating to severance payments due to Mr. Considine pursuant to his employment agreement. Mr. Considine’s severance was paid in the first quarter of fiscal 2007.

18

Forward-Looking Statements

                In the financial review that follows, our results of operations, financial condition and certain other information are discussed. Certain statements in this report may constitute “forward-looking” statements within the meaning of the Private Litigation Reform Act of 1995. Words such as “expects,” “intends,” “plans,” “projects,” “believes,” “estimates,” and similar expressions are used to identify these forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or forecasted in these forward-looking statements. As a result, these statements speak only as of the date they were made and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The actual results and future trends may differ materially depending on a variety of factors, including, without limitation: (i) unemployment and general economic conditions associated with the provision of engineering services and solutions and placement of temporary staffing personnel, particularly in the telecommunication services and information technology divisions; (ii) possible additional gross margin pressure; (iii) possible slowdown in accounts receivable collections; (iv) possible loss of key employees and executive officers; (v) our ability to continue to attract, train and retain personnel qualified to meet the requirements of its clients; (vi) possible adverse effects on the market price of our common stock due to the resale into the market of significant amounts of common stock; (vii) the potential adverse effect a decrease in the trading price of our common stock would have upon our ability to acquire businesses through the issuance of our securities; (viii) our ability to obtain financing on satisfactory terms; (ix) our ability to remain competitive in the markets which we serves; (x) our ability to maintain our unemployment insurance premiums and workers compensation premiums; (xi) the risk of claims being made against us associated with providing temporary staffing services; (xii) our ability to manage significant amounts of information, and periodically expand and upgrade its information processing capabilities; (xiii) our to remain in compliance with federal and state wage and hour laws and regulations including legal requirements associated with the definition of independent contractors; (xiv) predictions as to the future need for our services; (xv) uncertainties relating to the allocation of costs and expenses to each of our operating segments; (xvi) the costs of conducting and the outcome of litigation involving Butler; (xvii) competition, (xviii) the spending of our key customers returning to more normal levels; (xix) the likelihood of us increasing our share of the market in which we competes; (xx) the success of our plans for offshore service delivery; (xxi) the risk of doing business in foreign countries; (xxii) the Company’s ability to timely file its financial statements and (xxiii) other economic, competitive and governmental factors affecting our operations, markets and services. Additional information regarding these factors is contained in our SEC filings, including, without limitation, our Annual Report on Form 10-K for the year ended December 25, 2005 filed on October 11, 2007.

                Butler International, Inc. (the “Company” or “Butler”) provides domestic and international outsourcing, project management and technical staff augmentation services in technical, information technology, and telecommunications disciplines including: engineering design support primarily used for aerospace, defense and heavy equipment manufacturing, software quality assurance testing, software applications development and implementation, enterprise network design and implementation, and telecommunications network systems implementation, and provides fleet maintenance and repair services to major ground fleet-holders primarily in the telecommunications industry. Aerospace/aircraft, satellite, defense, and telecommunications are Butler’s largest and fastest growing industries served. Companies primarily utilize Butler’s services to help them execute projects quickly and more affordably. Services are provided to clients on a contractual basis. Many of the Company’s major clients are large, well known U.S.-based companies, or their various divisions and subsidiaries.

                This discussion should be read in conjunction with the accompanying condensed consolidated financial statements and notes thereto and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 25, 2005.

19

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Comparison of the three-month and nine-periods ended September 24, 2006 and September 25, 2005

                Net sales for the third quarter of 2006 were $81.1 million, a $7.7 million or 10.6% increase compared to $73.4 million for the third quarter of 2005. A key strategy is to pursue growth by focusing on key customer needs. Sales to the top ten (10) customers accounted for 64.9% and 64.4% of sales in the third quarter of 2006 and 2005, respectively, as the increase in sales was across the entire customer base. Sales to the top ten customers for the third quarter of 2006 were $5.4 million above a year ago. One customer accounted for more than 10 % of sales in the third quarter of 2006 and 2005.

                Net sales for the first nine months of 2006 were $239.9 million, a $29.6 million or 14.1% increase compared to $210.3 million for the first nine months of 2005. Sales to the top ten (10) customers accounted for 65.0% and 66.2% of sales in the first nine months of 2006 and 2005, respectively, as increase in sales was across the entire customer base. Sales to the top ten customers for the nine months grew $16.7 million or 12.0% above a year ago. One customer accounted for more than 10 % of sales in the first nine months of 2006 and 2005.

                As of September 24, 2006 the Company had approximately 3,800 employees, of which 3,400 billable employees provided services generally at client facilities. At the end of the third quarter in 2005, the Company had approximately 3,400 employees, of which approximately 3,100 were billable employees. The sales increase in the third quarter and the first nine months of 2006 resulted from the increase in the average number of billable employees as well as an increase in new business at both existing and new customers. The sales increase was predominantly from the Technical Services business segment.

                Third quarter 2006 gross margin was $14.2 million, a 7.8% increase compared to the third quarter 2005 results of $13.2 million. The improvement in gross margin dollars was caused by higher sales. The gross margin percentage for the third quarter of 2006 was 17.6% compared with 18.0% for the third quarter of 2005. The increase in gross margin dollars and decrease in gross margin percentage is a result of higher billable headcount to support sales growth at a slightly higher cost.

                Gross margin for the first nine months of 2006 was $42.2 million; a 13.6% increase compared to 2005 first nine months results of $37.2 million. The improvement in gross margin was primarily attributable to increased sales volume. The gross margin percentage for the first nine months of 2006 was 17.6% compared with 17.7% for the first nine months 2005.

                Third quarter 2006 operating income was $3.0 million, a 24.1% increase compared to $2.4 million for the third quarter of 2005. The operating income expressed as a percentage of net sales for the third quarter of 2006 was 3.7% compared with 3.3% for the third quarter of 2005. Operating income for the first nine months of 2006 was $7.5 million or 3.1% of net sales compared to $7.1 million or 3.4% of net sales and for the first nine months of 2005. The increase in operating income for the third quarter and first nine months of 2006 was the results of increased gross margin dollars from increased sales volume, offset by increased selling, general and administrative expenses (“SG&A) of $0.4 million and $4.6 million, respectively.

                The 2006 third quarter SG&A expense increase is attributable to $0.8 million higher indirect labor and associated payroll related expenses, an increase in commission expense of $0.2 million due to higher sales offset by lower professional fees and legal fees. Similarly, the 2006 nine-month increase of SG&A expenses is attributable to an increase in indirect labor costs and payroll related expenses of $3.0 million, an increase in commission expense of $1.0 million, and increase of office expenses of $0.5 million.

                Third quarter 2006 interest expense was $2.0 million compared with $1.5 million during the third quarter of 2005. Interest expense was $5.3 million for the first nine months of 2006 compared to $3.7 million in 2005. Interest expense increased primarily as a result of amendment fees paid to General Electric Capital Corporation (GECC), and higher interest rates on the Company’s floating rate debt.

                 Income tax expense was $0.9 million for the three months ended September 24, 2006, a $0.8 increase from income tax expense of $0.1 million for the three months ended September 25, 2005. Income tax expense was $1.5 million for the nine months ended September 24, 2006, a $0.6 million increase from income tax expense of $0.9 million for the nine months ended September 25, 2005. Our income tax expense increased in the current periods as compared to the prior periods, and the effective tax rate significantly increased from fiscal 2005 primarily as a result of an increase in reserves for uncertain tax positions, the effect of recording of nondeductible items under Section 162(m) of the Internal Revenue Code Section (executive compensation) and the effect of certain state income taxes.

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Comparison of Results of Operations by Segment

                The Technical Services (“BTG”) segment involves skilled technical and engineering personnel providing services to companies in the aircraft/aerospace, defense, heavy equipment/machinery, research, energy, electronics and pharmaceutical industries. The Telecommunication Services (“BTI”) segment provides telecommunications equipment manufacturers and service providers’ assistance with upgrading wireless and wireline network infrastructure for enhanced voice, high-speed data and video services The Information Technology Services (“BTS”) segment helps companies implement business solutions that harness the power of technology to optimize business performance.

                BTG and BTI experienced third quarter and nine-month sales growth compared with 2005. BTG had 2006 third quarter and nine month sales of $54.3 million and $160.7 million respectively, an increase of $6.2 million (12.9%) and $25.3 million (18.7%) over 2005. BTI 2006 third quarter and nine month sales were $21.3 million and $62.0 million, respectively, an increase of $2.0 million (10.2%) and $4.5 million (7.9%) over the comparable 2005 periods. BTS sales were $5.0 million, a decrease of $0.6 million (10.6%) during the current quarter and $15.8 million for the nine-month period, a decrease of $0.8 million (4.6%) compared to 2005.

                BTG and BTI sales increases were mostly due to higher sales to a number of key customers. BTI had increasing sales at a number of customers, but experienced a significant decline in sales at its largest customer due to a shift in the customer’s business strategy. BTI expects to regain sales as the customer executes the new strategy. BTS sales declines were due to competative pricing pressures at it’s largest customer.

                BTG 2006 third quarter operating profit was $4.4 million, $0.3 million (5.4%) less than the 2005 third quarter $4.7 million operating profit. BTG operating profit for the first nine months of 2006 was $13.1 million, $0.5 million (4.2%) greater than 2005 first nine month $12.6 million operating profit. BTG operating profit for the first nine months of 2006 did not experience the same growth as its sales due to increased billable headcount costs and increased SG&A expenses as described in the gross margin and SG&A discussions in the “Comparison of three-month and nine months periods ended September 24, 2006 and September 25, 2005” section above.

                BTI 2006 third quarter operating profit was $2.1 million, $0.5 million (29.6%) greater than the 2005 third quarter $1.6 million operating profit. BTI operating profit for the first nine months of 2006 was $6.0 million, $0.8 million (14.8%) greater than 2005 first nine month $5.2 million operating profit. BTI operating profit for the third quarter and first nine months were also impacted by increased billable headcount costs and SG&A expenses as described in the gross margin and SG&A discussion in the “Comparison of three-month and nine months periods ended September 24, 2006 and September 25, 2005” section above.

                BTS 2006 operating profit for the three and nine month periods were $0.4 million and $0.7 million, respectively, representing a $14,000 and $0.4 million decrease from 2005. BTS operating profit decline is also due to increased billable headcount costs and SG&A expenses as described in the gross margin and SG&A discussions in the “Comparison of three-month and nine months periods ended September 24, 2006 and September 25, 2005” above.

Outlook

                Based on current business trends, we anticipate continued sales and gross margin growth. Broad economic and customer trends influence our growth prospects. The pace of customer capital spending programs, government spending on defense programs, telecommunication capital spending, and new product launches, and customers’ desire to become more efficient has a direct impact on demand for our services. Recent industry statistics generally support management’s observations of a stronger business environment including an improvement in the rate of economic activity, capital spending and job creation in the United States. Management believes that the Company is pursuing a more focused business strategy, and should be able to capitalize on the improving marketplace. Growth will be dependent upon the Company’s key customers continuing to grow and strive for efficiency, an increase in Butler’s share of that business, an increase in the demand for offshore services, and opportunities to develop new customer business

                Should the United States economy decline in future quarters, our operating performance could be adversely impacted resulting in the need for future cost reductions, change in strategy and capital infusion. Additionally, changes in government regulations could result in prohibition or restriction of certain types of employment services or the imposition of new or additional benefits, licensing or tax requirements with respect to the provision of employment services that may reduce Butler’s future earnings. Butler may not be able to increase the fees charged to its clients in a timely manner and in a sufficient amount to cover increased costs as a result of any of the foregoing risks.

                The technical and technology outsourcing services industry is very competitive and highly fragmented. There are limited barriers to entry and new competitors frequently enter the market. A significant number of its competitors are financially stronger than

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Butler. The Company competes in national, regional and local markets with numerous technical and technology outsourcing consulting firms. Price competition in the technical and technology outsourcing industry is significant, and pricing pressures from competitors and customers are increasing. Butler expects that the level of competition will remain high in the future, which could limit the Company’s ability to maintain or increase its market share or profitability.

LIQUIDITY AND CAPITAL RESOURCES

                At September 24, 2006, Butler had $36.5million of variable interest rate revolving credit facility loans plus $5.7 million of letters of credit under its revolving credit facility with General Electric Capital Corporation (“GECC”), leaving approximately $4.8 million of availability. At September 24, 2006 we also had two variable interest rate term loans with GECC. The September 24, 2006 balance outstanding under GECC Term Loan A was $3.0 million and under Term Loan B was $18.0 million. As a result of our failure to timely file our financial statements with the Securities and Exchange Commission and as a result of our recent financial performance, we were in violation of certain terms and covenants contained in our debt agreement with GECC. We have received several waivers of these covenants and have negotiated several amendments to the agreements with GECC for extensions of time to meet the covenants. We also have a mortgage maturing in 2012 for our Montvale office building with a balance of $6.7 million at September 24, 2006.

                On April 30, 2007, Butler entered into a Sixteenth Amendment and Limited Waiver to Credit Agreement with GECC, whereby GECC waived defaults and events of defaults arising from the company’s failure to deliver Restated Financial Statements, 2005 Year End Financial Information and the annual Financial Statements and all other documentation required for the fiscal year ended December 31, 2006.

                Our current financing arrangement (as amended) with GECC terminated on June 30, 2007 at which time we entered into an amendment with GECC, whereby GECC agreed to forbear from the exercise of any of their rights and remedies available under the Credit Agreement and the Loan Documents as a result of specified events of default through July 31, 2007. We entered into several subsequent amendments with GECC whereby GECC agreed to further forbear from the exercise of such rights and remedies through August 28, 2007.

On August 29, 2007, Butler obtained a $23.0 million term loan (the “Monroe Term Loan”) from Monroe Capital Management Advisors LLC. The proceeds of the Monroe Term Loan were used to pay off the existing term loan with GECC, to pay off a portion of the existing revolving credit facility with GECC (the “GECC Revolving Line of Credit”), to provide cash collateral for an existing letter of credit, and to provide additional working capital for Butler and its subsidiaries. The Monroe Term Loan matures August 29, 2012 unless the Series A Mandatorily Redeemable Preferred Shares or the GECC Revolving Line of Credit expires prior to August 29, 2012. The GECC Revolving Line of Credit expires February 1, 2008. The Series A Mandatorily Redeemable Preferred Shares are redeemable July 11, 2011. Pursuant to the agreement, there are certain events that can require the Company to prepay a portion of the outstanding Monroe Term Loan. The Monroe Term Loan bears interest at the per annum rate of LIBOR plus 4.25% to 6.0%. The interest rate may also be adjusted depending upon the syndication of the Monroe Term Loan. No warrants were issued in connection with the Monroe Term Loan.

                Additionally, the Monroe Term Loan is subject to the lien of Butler’s secured lender, GECC, with whom Butler has also reached an agreement to extend the maturity date of its secured line of credit of $45 million to February 1, 2008.

                On December 21, 2006, we announced the closing on the sale to certain institutional and non-institutional investors (the “Investors”) of $8,500,000 in shares of Series A 7% Mandatorily Redeemable Preferred Stock (the “Shares”) and warrants to purchase 2,125,000 shares of the Company’s Common Stock at $2.00 per share in a private placement (the “Offering”). The redeemable warrants are callable under certain circumstances. Each share of Preferred Stock, along with warrants to purchase 250 shares of the Company’s Common Stock, was issued at a price of $1,000. The Preferred Stock shares are not convertible into Common Stock.

                On November 6, 2007, Butler entered into a Consent and Waiver to Third Amended and Restated Credit Agreement with GECC effective October 31, 2007, whereby GECC waived defaults and events of defaults arising from Butler’s failure to deliver 2006-year end financial information. Also, on November 6, 2007 Butler entered into a Consent and Waiver to Second Lien Credit Agreement with Monroe effective October 31, 2007 whereby Monroe waived defaults and events of default arising from Butler’s failure to deliver 2006-year end financial information. Both consents provide that defaults will be reinstated if 2006-year end financial information is not provided by November 30, 2007.

                As we approach the maturity of the GECC loan, we will be required to either refinance with GECC or to find a new lender. If we are unable to obtain new financing upon the termination of our current financing arrangement, it would have a material adverse effect on our business, financial condition and results of operations.

                We fund operations primarily with cash generated by operations and borrowings under our existing revolving credit facility with GECC. The ability to borrow under the existing revolving credit facility varies weekly and depends on the amount of eligible collateral, which, in turn, depends on certain advance rates applied to the value of accounts receivable. Daily cash collected from customers is deposited into bank accounts controlled by GECC and is transferred to pay down our borrowings. Our cash requirements

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are funded daily by GECC provided there are available funds. Butler has borrowed under the revolving credit facility to pay required quarterly term loan payments.

                Revenue, and gross margin levels, and selling, general, and administrative expenses, along with working capital requirements affect operating cash flow and any deterioration in our performance on these financial measures would have a negative impact on our liquidity. Additionally, capital spending activity and letters of credit required by insurance companies or lenders reduce the availability of borrowing from GECC. We are in compliance with required covenants, as amended and/or waived as described under Financing Activities below.

                Management anticipates that the existing resources and working capital should be sufficient to satisfy our foreseeable cash requirements. Of course, such expectations may prove to be incorrect. Moreover, GECC’s Senior Revolving facility matures on February 1, 2008 and we are also required to make mandatory term loan repayments to Monroe. The inability to obtain additional financing, if needed, would have a material adverse effect on our business, financial condition and results of operations.

                We have no off-balance sheet arrangements and have not entered into any transactions involving unconsolidated, limited purpose entities or commodity contracts.

Operating Activities

                Net cash provided from operating activities was $2.4 million for the nine-month period ended September 24, 2006, compared to net cash used in operating activities of $4.1 million for the nine-month period ended September 25,2005. Cash flows from operating activities increased $6.6 million primarily due to decreases in our outstanding accounts receivable offset by decreases in other assets and net income.

Investing Activities

                During the first nine months of 2006, capital expenditures were approximately $1.0 million, as compared with approximately $1.5 million during the first nine months of 2005.

Financing Activities

                Cash used by financing activities was $.4 million in the first nine months of 2006 as compared with approximately $4.4 million provided in the first nine months of 2005. The decrease in financing activity during the current year resulted from repayment of long-term debt from increased collections.

                On March 25, 2005, Butler and GECC entered into an amendment to the Second Amended and Restated Credit Agreement, dated September 28, 2001 (the “Credit Agreement”). This amendment, among other things extended the term of the credit facility and two term loans to April 1, 2006 and increased the quarterly principal payments due October 1, 2005 and thereafter on Term A by $1.0 million to $2.0 million. The interest rate on both term loans was based on the 30-day Commercial Paper Rate plus three hundred fifty basis points which is the same interest Butler pays on its Term Loan A. The current interest rate with respect to revolving credit advances is the 30-day Commercial Paper Rate plus three hundred basis points. Interest rate reductions are available for the revolving credit facility based upon the Company achieving certain financial results. The Company has entered into several amendments to the credit facility with GECC.

                Butler has received quarterly amendments to its debt agreements with GECC. As part of one amendment with GECC extending the debt maturities, we were required to increase our quarterly loan payments from $1 million to $2 million. We have made all required increased payments since October 2005. The increased loan payments reduced the availability of credit under our working capital revolver with GECC.

                On June 30, 2006, we received $2.5 million from Levine Leichtman Capital Partners III, L.P. per a Securities Purchase Agreement. On August 14, 2006 we repaid Levine Leichtman Capital Partners III, L.P. $1.0 million. On August 25, 2006 we repaid Levine Leichtman Capital Partners III, L.P. $1.5 million. See “Note11 – Subsequent Events” for details of the transaction.

                On September 29, 2006, we entered into a Thirteenth Amendment to Credit Agreement with GECC, pursuant to which the termination date of the credit facility was extended from October 1, 2006 to October 31, 2006.

                On October 31, 2006, we entered into a Fourteenth Amendment to Credit Agreement with GECC whereby the termination date of the credit facility and term loans was extended from October 31, 2006 to April 30, 2007.

                On December 14, 2006, we entered into a Fifteenth Amendment to Credit Agreement with GECC, whereby the termination date of the credit facility and term loans was extended from April 30, 2007 to June 30, 2007.

                On December 21, 2006, we announced the closing on the sale to certain institutional and non-institutional investors (the “Investors”) of $8,500,000 in shares of Series A 7% Preferred Stock (the “Shares”) and warrants to purchase 2,125,000 shares of the Company’s Common Stock at $2.00 per share in a private placement (the “Offering”). The warrants are callable under certain circumstances. Each share of Preferred Stock, along with warrants to purchase 250 shares of the Company’s Common Stock, was issued at a price of $1,000. The Preferred Stock shares are not convertible into Common Stock. From the proceeds of the transaction,

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we retired $6.0 million in long-term debt with GECC and applied the balance of $2.5 million to the Revolving Credit Facility, also with GECC.

                On April 30, 2007, we entered into a Sixteenth Amendment and Limited Waiver to Credit Agreement with GECC, whereby GECC waived defaults and events of defaults arising from the company’s failure to deliver Restated Financial Statements, 2005 Year End Financial Information and the annual Financial Statements and all other documentation required for the fiscal year ended December 31, 2006.

                On June 30, 2007, we entered into an amendment with GECC, whereby GECC agreed to forbear from the exercise of any of their rights and remedies available under the Credit Agreement and the Loan Documents as result of specified events of default through July 31, 2007. Effective July 31, 2007, Butler entered into an amendment with GECC, whereby GECC agreed to extend the forbearance period to August 14, 2007.

                On July 3, 2007, effective June 30, 2007, Butler entered into an amendment with GECC, whereby GECC agreed to forbear from the exercise of any of their rights and remedies available under the Credit Agreement and the Loan Documents through July 31, 2007, as a result of Butler’s failure (i) to deliver to GECC certain of our financial information from fiscal years 2004, 2005 and 2006; (ii) to deliver to GECC a fully executed commitment letter for a $60 million revolving credit facility by April 30, 2007; and (iii) to repay GECC all principal, interest and other amounts due on the Loans prior to June 30, 2007.

                On August 29, 2007, we entered into another amendment with GECC to extend the maturity of its secured line of credit of $45 million to February 1, 2008.

                On August 29, 2007, Butler obtained a $23.0 million term loan (the “Monroe Term Loan”) from Monroe Capital Management Advisors LLC. The proceeds of the Monroe Term Loan were used to pay off the existing term loan with GECC, to pay off a portion of the existing revolving credit facility with GECC (the “GECC Revolving Line of Credit”), to provide cash collateral for an existing letter of credit, and to provide additional working capital for Butler and its subsidiaries. The Monroe Term Loan matures August 29, 2012 unless the Series A Mandatorily Redeemable Preferred Shares or the GECC Revolving Line of Credit expires prior to August 29, 2012. As a result of obtaining the Monroe Term Loan, GECC extended the expiration date of the Revolving Line of Credit to February 1, 2008. The Series A Mandatorily Redeemable Preferred Shares are redeemable July 11, 2011. Pursuant to the agreement, there are certain events that can require the Company to prepay a portion of the outstanding Monroe Term Loan. The Monroe Term Loan bears interest at the per annum rate of LIBOR plus 4.25% to 6.0%. The interest rate may also be adjusted depending upon the syndication of the Monroe Term Loan. No warrants were issued in connection with the Monroe Term Loan. Additionally the Monroe Term Loan is subject to the lien of Butler’s secured lender, GECC.

                On November 6, 2007, Butler entered into a Consent and Waiver to Third Amended and Restated Credit Agreement with GECC effective October 31, 2007, whereby GECC waived defaults and events of defaults arising from Butler’s failure to deliver 2006-year end financial information. Also, on November 6, 2007 Butler entered into a Consent and Waiver to Second Lien Credit Agreement with Monroe effective October 31, 2007 whereby Monroe waived defaults and events of default arising from Butler’s failure to deliver 2006-year end financial information. Both consents provide that defaults will be reinstated if 2006 year end financial information is not provided by November 30, 2007. Butler is subject to a $25,000 per month penalty if the 2006 year end financial information is not provided by November 30,2007.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

                There were no material changes during the three months ended September 24, 2006 to the critical accounting policies reported in our Annual Report on Form 10-K for the year ended December 25, 2005

NEW ACCOUNTING STANDARDS

                

In February 2006, FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”). SFAS 155 amends FASB Statements No. 133 and 140. This statement simplifies the accounting for certain hybrid financial instruments by permitting fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. This statement also permits a qualifying special-purpose entity to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS 155 applies to all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The adoption of SFAS 155 is not expected to have a material impact on our consolidated financial statements.

On July 14, 2006, The FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement 109” (“FIN 48”) FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. Under FIN 48, the financial statements will reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the tax position and all relevant facts, but without considering time values. FIN 48 substantially changes the applicable

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accounting model and is likely to cause greater volatility in income statements as more items are recognized discretely within income tax expense. Liabilities resulting from FIN 48 are classified as long-term, unless payment is expected within the next twelve months. FIN 48 requires qualitative and quantitative disclosures, including discussion of reasonably possible changes that might occur in the recognized tax benefits over the next twelve months; a description of open tax years by major jurisdictions; and a rollforward of all unrecognized tax benefits, presented as a reconciliation of the beginning and ending balances of the unrecognized tax benefits on a worldwide aggregated basis. FIN 48 is effective for our fiscal 2007 year. Changes in net assets that result from the application of FIN 48 should be recorded as an adjustment to retained earnings. We are in the process of evaluating this guidance and therefore have not yet determined the impact that FIN 48 will have on our financial statements upon adoption.

                In September 2006, the FASB issued Statement No. 157, “Fair Value Measurements” (“SFAS 157”), which is intended to increase consistency and comparability in fair value measurements by defining fair value, establishing a framework for measuring fair value and expanding disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are in the process of evaluating this guidance and therefore have not yet determined the impact that SFAS 157 will have on our financial statements upon adoption.

In September 2006, the FASB issued Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Benefit Obligations, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (“SFAS 158”). The standard requires companies to recognize in their balance sheets any over or under-funded benefit obligations of each defined benefit pension and other postretirement plans. The resulting balance sheet adjustment is offset by a corresponding adjustment to other comprehensive income, net of deferred tax effects. This change would apply to the Company’s financial statements for the year ended December 31, 2006. We do not expect that the adoption of SFAS 158 will have a material effect on our financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 will be effective for the Company on January 1, 2008. The Company is currently evaluating the impact of adopting SFAS No. 159 on its financial position, cash flows, and results of operations.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

                Butler uses financial instruments, including fixed and variable interest rate debt, to finance operations, for capital spending programs and for general corporate purposes. Since, most of our debt is variable interest rate debt; we are exposed to market risk primarily from changes in interest rates, and to a lesser extent, changes in foreign currency rates. As of September 24, 2006, we had approximately $57.5 million of variable interest rate debt outstanding. A 1% increase in the interest rate would increase interest expense by approximately $0.7 million for an annual period. In managing exposure to these fluctuations, we may engage in various hedging transactions that have been authorized according to documented policies and procedures. We do not use derivatives for trading purposes. We are not engaged in any hedging transactions as of the current balance sheet date. Our capital costs are directly linked to financial and business risks.

Butler’s international operations are directed from its office in Hyderabad, India. International operations accounted for less than 1% of our sales for the three-month periods ended September 24, 2006 and September 25, 2005, respectively. In the third three months of 2006, changes in foreign currency rates had an immaterial impact on sales and earnings per share.

Item 4. Controls and Procedures

Internal Control over Financial Reporting

                        Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems have inherent limitations. Therefore, internal controls over financial reporting, no matter how well designed may not prevent or detect misstatements. Also, controls may become inadequate in future periods because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

                        As described in Note 2 of the Condensed Consolidated Notes to Financial Statements, we have restated our previously issued financial statements as of December 31, 2004 and for each of the years ended December 31, 2004, 2003 and 2002 included in the 2004 Annual Report on Form 10-K/A and the quarters ended March 27, 2005 and June 25, 2005, to reflect the correction of certain errors related to (i) income tax expense, related tax assets and liabilities, (ii) employee compensated absences, and (iii) the omission of separately identified cash flows from discontinued operations in the consolidated statement of cash flows.

               The Public Company Accounting Oversight Board’s auditing standards provide that a restatement is a strong indicator of a material weakness. A material weakness is a significant deficiency or combination of deficiencies, that results in there being more than a remote likelihood that a material misstatement in financial statements will not be prevented or detected on a timely basis by employees in the normal course of their work. Considering this guidance, we carried out an evaluation under the supervision and with

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the participation of our Chief Executive Officer and our Chief Financial Officer, of the errors that resulted in the restatement and concluded that the restatement resulted from a material weakness in our internal controls. In particular, and as identified by our independent registered public accountants and communicated to our Audit Committee and senior management, we concluded that the design and operation of our disclosure controls and procedures were ineffective and because of the material weaknesses in our internal control over financial reporting, our disclosure controls and procedures were not effective as of December 31, 2004 and December 25, 2005 for the items discussed above. Based on this, the financial statements for the years ended December 25, 2005 and December 31, 2004 and the quarters ended March 27, 2005 and June 25, 2005 were prepared without the appropriate analysis and documentation of certain balance sheet and income statement accounts resulting in errors in the related financial statements. The material weaknesses existed in our internal control over financial reporting in the following areas:

• We had not designed and implemented appropriate controls relating to the calculation of income tax expense and related tax assets and liabilities as of September 25, 2005, which resulted in certain errors related to income tax expense and related tax assets and liabilities and contributed to the restatement reflected in our fiscal 2004 Form 10-K/A. Our management disclosed this to the Audit Committee and to our independent registered public accountants.

• We had not designed and implemented appropriate controls relating to the calculation of certain employee compensated absences as of September 25, 2005, as a result of not accruing necessary employee compensated absences and contributed to the restatement reflected in our fiscal 2004 Form 10-K/A. Our management disclosed this to the Audit Committee and to our independent registered public accountants.

                Based on the material weakness described above, we have concluded that, as of December 25, 2005, our internal control over financial reporting was not effective. We have started to remediate this material weakness in our internal controls and procedures during the first quarter of 2006. Our remedial steps included implementing a more detailed analysis and documentation of certain of our balance sheet and income statement accounts. Management added certain additional reconciliations, analysis and documentation of balance sheet accounts created in fiscal years 2005, 2004 and prior years as the initial steps in our plan to remediate the aggregate internal control deficiencies identified above. These actions have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. The remediation was completed during the financial close and reporting processes by the first quarter of fiscal 2006. We expect to take additional remedial measures to address the material weakness, as determined appropriate by our Audit Committee with the advice of our management. We have not yet tested such controls to ensure their effectiveness. Any of these additional measures may materially affect our internal control over financial reporting.

Changes in Internal Control

                        Except as discussed above, there have been no changes in our internal controls that occurred during the quarter ended September 24, 2006, that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

Evaluation of Disclosure Controls and Procedures

                We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate, to allow timely decisions regarding required financial disclosure.

                        Management, with the participation of the Chief Executive Officer and Chief Financial Officer, carried out an evaluation, as required by Rule 13a-15(b) under the Exchange Act of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of September 24, 2006.

                        Based on this evaluation by management, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 24, 2006, our disclosure controls and procedures were not effective as a result of the material weaknesses in our internal control over financial reporting noted above. While these material weaknesses do not have an effect on our results reported in this Quarterly Report on Form 10-Q, they nevertheless constituted deficiencies in our disclosure controls. In light of these material weaknesses and the requirements enacted by the Sarbanes-Oxley Act of 2002 and the related rules and regulations adopted by the SEC, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures needed improvement and were not effective at a reasonable assurance level. Despite those deficiencies in our disclosure controls, management believes that there are no material inaccuracies or omissions of material facts in this Report. It should be noted that no system of controls can provide complete assurance of achieving its objectives.

                        When in certain of the Company’s prior filings under the Exchange Act officers of the Company provided conclusions regarding the effectiveness of our disclosure controls and procedures, they believed that their conclusions were accurate. However, after receiving and assessing additional advice regarding our internal control over financial reporting, our Chief Executive Officer and Chief Financial Officer have reached the conclusions set forth above.

26

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

                None

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Annual Report on Form 10-K for the year ended December 25, 2005, which could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results. There have been no material changes from the risk factors disclosed in the “Risk Factors” sections of the Company’s Annual Report on Form 10-K for the year ended December 25, 2005.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

                None

Item 3. Defaults upon Senior Securities

                See “Management’s Discussion and Analysis of Financial Condition and Results of Operations “Liquidity Capital Resources” – first paragraph for a discussion of certain defaults (none of which were payment related), all of which have been cured.

Item 4. Submission of Matters to a Vote of Security Holders

                None

Item 5. Other Information

                None

Item 6. Exhibits

                Exhibit Index is included after signatures.

27

SIGNATURES

                Pursuant to the requirements of Section 13 or 15(d) 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.

Date: November 27, 2007	BUTLER INTERNATIONAL, INC.
	(Registrant)
		By: /s/ Edward M. Kopko
		Edward M. Kopko
		Chairman of the Board of Directors
		(Chief Executive Officer)
		By: /s/ Mark Koscinski.
		Mark Koscinski
		Senior Vice President -Finance
		(Principal Accounting Officer)
		(Acting Chief Financial Officer)

28

BUTLER INTERNATIONAL, INC.
EXHIBIT INDEX

Exhibit No.	Description
3.1	Articles of Incorporation of the Registrant, as amended, filed as Exhibit No. 3(a) to the Registrant’s Registration Statement on Form S-4, Registration No. 33-10881 (the “S-4”), and hereby incorporated by reference.
3.2	Amended and Restated By-laws of the Registrant, as filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated December 13, 2004 and hereby incorporated by reference.
3.3	Articles Supplementary to the Articles of Incorporation (Series B 7% Cumulative Convertible Preferred Shares), as filed with the Department of Assessments and Taxation of the State of Maryland on September 29, 1992, filed as Exhibit No. 4.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 27, 1992, and hereby incorporated by reference.
3.4	Amendment to Articles Supplementary to the Articles of Incorporation (Series B 7% Cumulative Convertible Preferred Shares) as filed with the Department of Assessments and Taxation of the State of Maryland on July 12, 1993, filed as Exhibit No. 3.4 to the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2001, and hereby incorporated by reference.
3.5	Articles Supplementary dated December 18, 2006 establishing and fixing the rights and preferences of a series of shares of preferred stock filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated December 21, 2006 and hereby incorporated by reference.
3.6	Articles Supplementary to the Articles of Incorporation (Series A Preferred Stock) filed with the Maryland State Department of Assessments and Taxation on August 31, 2007, filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K dated September 4, 2007 and hereby incorporated by reference.
4.1	Specimen Stock Certificate for the Registrant’s common stock, par value $.001 per share, filed as Exhibit No. 4.1 to the Registrant’s Registration Statement on Form S-1, Registration No. 33- 2479 (the “S-1”), and hereby incorporated by reference.
4.2	Specimen Stock Certificate representing the Registrant’s Series B 7% Cumulative Convertible Preferred Stock, par value $.001 per share, filed as Exhibit No. 4.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, and hereby incorporated by reference.
10.1*	Incentive Stock Option Plan of the Registrant, as amended, filed as Exhibit No. 10.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.2*	Stock Option Plan of the Registrant, as amended, filed as Exhibit No. 10.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.3*	1989 Directors Stock Option Plan of the Registrant, dated November 1, 1988, as amended, filed as Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.4*	Stock Purchase Agreement, dated September 19, 1990, between North American Ventures, Inc. and Edward M. Kopko, filed as Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.5*	Plan Pledge Agreement, dated September 19, 1990, between North American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No. 10.32 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.6*	Plan Promissory Note, dated January 16, 1991, executed by Edward M. Kopko, and made payable to the order of North American Ventures, Inc. in the amount of $445,000, filed as Exhibit No. 10.33 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.

_______________

* Denotes compensatory plan, compensation arrangement, or management contract.

29

BUTLER INTERNATIONAL, INC.
EXHIBIT INDEX (continued)

Exhibit No.	Description
10.7*	Pledge Agreement, dated January 16, 1991, between North American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No. 10.34 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.8*	Promissory Note, dated January 16, 1991, executed by Edward M. Kopko and made payable to the order of North American Ventures, Inc. in the amount of $154,999.40, filed as Exhibit No. 10.35 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.9*	Form of Plan Pledge Agreement, dated September 19, 1990, between North American Ventures, Inc. and each of John F. Hegarty, Hugh G. McBreen, and Frederick H. Kopko, Jr. (“Outside Directors”), filed as Exhibit No. 10.36 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.10*	Form of Plan Promissory Note, dated September 19, 1990, each executed by an Outside Director and each made payable to the order of North American Ventures, Inc. in the amount of $185,000, filed as Exhibit No. 10.37 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.11*	Form of Stock Purchase Agreement, dated November 4, 1988, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit No. 10.38 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.12*	Form of Pledge Agreement, dated January 16, 1991, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit No. 10.39 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.13*	Form of Promissory Note, dated January 16, 1991, executed by each of the Outside Directors and each payable to the order of North American Ventures, Inc., in the amount of $63,000, filed as Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.14*	Form of Pledge Agreement, dated January 16, 1991, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit No. 10.41 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.15*	Form of Promissory Note, dated January 16, 1991, executed by each of John F. Hegarty and Hugh G. McBreen and each made payable to the order of North American Ventures, Inc. in the amount of $54,000, filed as Exhibit No. 10.42 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.16*	Form of Promissory Note, dated January 16, 1991, executed by each of the Outside Directors and each payable to the order of North American Ventures, Inc., in the amount of $225,450, filed as Exhibit No. 10.43 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.17*	Form of Pledge Agreement, dated January 16, 1991, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit No. 10.44 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.18*	Form of Security Agreement, dated January 16, 1991, between North American Ventures, Inc. and each of the Outside Directors, filed as Exhibit No. 10.45 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.
10.19*	1990 Employee Stock Purchase Plan of the Registrant, as amended, filed as Exhibit No. 10.46 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1990, and hereby incorporated by reference.

_______________

* Denotes compensatory plan, compensation arrangement, or management contract.

30

BUTLER INTERNATIONAL, INC.
EXHIBIT INDEX (continued)

Exhibit No.	Description
10.20(a)*	Second Amended and Restated Employment Agreement, dated December 12, 2002 among Butler International, Inc., Butler Service Group, Inc. and Edward M. Kopko, filed as exhibit 10.20(a) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 and hereby incorporated by reference.
10.21*	Stock Purchase Agreement, dated December 17, 1991, between North American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No. 10.34 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991, and hereby incorporated by reference.
10.22*	Plan Pledge Agreement, dated December 17, 1991, between North American Ventures, Inc. and Edward M. Kopko, filed as Exhibit No. 10.35 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991, and hereby incorporated by reference.
10.23*	Plan Promissory Note, dated December 17, 1991, executed by Edward M. Kopko, and made payable to the order of North American Ventures, Inc. in the amount of $84,000, filed as Exhibit No. 10.36 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991, and hereby incorporated by reference.
10.24*	Form of Stock Purchase Agreement, dated December 17, 1991, between North American Ventures, Inc. and each of John F. Hegarty and Hugh G. McBreen, filed as Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991, and hereby incorporated by reference.
10.25*	Form of Plan Pledge Agreement, dated December 17, 1991, between North American Ventures, Inc. and each of John F. Hegarty and Hugh G. McBreen, filed as Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991, and hereby incorporated by reference.
10.25*	Form of Plan Promissory Note, dated December 17, 1991, executed each of John F. Hegarty and Hugh G. McBreen, and each made payable to the order of North American Ventures, Inc., in the amount of $42,000, filed as Exhibit No. 10.39 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1991, and hereby incorporated by reference.
10.27*	1992 Stock Option Plan, filed as Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, and hereby incorporated by reference.
10.28*	1992 Incentive Stock Option Plan, filed as Exhibit 10.41 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, and hereby incorporated by reference.
10.29*	1992 Stock Bonus Plan, filed as Exhibit No. 10.42 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, and hereby incorporated by reference.
10.30*	1992 Stock Option Plan for Non-Employee Directors, filed as Exhibit 10.43 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, and hereby incorporated by reference.
10.31*	Butler Service Group, Inc. Employee Stock Ownership Plan and Trust Agreement, filed as Exhibit No. 19.2 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1987, and hereby incorporated by reference.
10.32*	Form of Promissory Note dated May 3, 1995 in the original principal amount of $142,500 executed by Frederick H. Kopko, Jr. and Hugh G. McBreen, and made payable to the order of Butler International, Inc., filed as Exhibit 10.43 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995, and hereby incorporated by reference.
10.33*	Form Pledge Agreement dated May 3, 1995 between Butler International, Inc. and each of Frederick H. Kopko, Jr. and Hugh G. McBreen, filed as Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1995, and hereby incorporated by reference.

_______________

* Denotes compensatory plan, compensation arrangement, or management contract.

31

BUTLER INTERNATIONAL, INC.
EXHIBIT INDEX (continued)

Exhibit No.	Description
10.34	Second Amended and Restated Credit Agreement dated September 28, 2001, between Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, and hereby incorporated by reference.
10.35(a)	First Amendment Agreement, dated as of February 27, 2002, between Butler Service Group, Inc. and General Electric Corporation, filed as Exhibit 10.37(a) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001, and hereby incorporated by reference.
10.35(b)	Second Amendment and Waiver, dated November 14, 2002, between Butler Service Group, Inc. and General Electric Corporation, filed as Exhibit 10.36(b) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, and hereby incorporated by reference.
10.35(c)	Third Amendment and Waiver, dated March 27, 2003, between Butler Service Group, Inc. and General Electric Corporation, filed as Exhibit 10.36(c) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002 and hereby incorporated by reference.
10.35(d)	Fourth Amendment and Waiver, dated May 14, 2003, between Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.36(d) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003 and hereby incorporated by reference.
10.35(e)	Fifth Amendment and Waiver, dated November 14, 2003, between Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.36(e) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003 and hereby incorporated by reference.
10.35(f)	Sixth Amendment and Waiver, dated March 30, 2004, between Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.36(f) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003, and hereby incorporated by reference.
10.35(g)	Seventh Amendment, dated July 1, 2004, between Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.35(g) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 and hereby incorporated by reference.
10.35(h)	Eighth Amendment, dated November 10, 2004, between Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.35(h) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004 and hereby incorporated by reference.
10.35(i)	Ninth Amendment, dated March 25, 2005, among the Registrant, Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.35(i) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, and hereby incorporated by reference.
10.35(j)	Tenth Amendment and Limited Waiver, dated July 19, 2005, among the Registrant, Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.35(j) to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004, and hereby incorporated by reference.
10.35(k)	Eleventh Amendment and Limited Waiver, dated September 1, 2005, among the Registrant, Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.35(k) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2005 and hereby incorporated by reference.
10.35(l)	Twelfth Amendment, dated November 30, 2005, between Butler Service Group, Inc. and General Electric Capital Corporation, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated December 1, 2005 and hereby incorporated by reference.
10.35(m)	Thirteenth Amendment to Credit Agreement dated September 29, 2006, executed on October 2, 2006, by and between Registrant, certain of its subsidiaries, and GECC, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on October 6, 2006 and hereby incorporated by reference.

32

BUTLER INTERNATIONAL, INC.
EXHIBIT INDEX (continued)

Exhibit No.	Description
10.35(n)	Fourteenth Amendment to Credit Agreement dated October 31, 2006, 2006, by and between Registrant, certain of its subsidiaries, and GECC, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on November 3, 2006 and hereby incorporated by reference.
10.35(o)	Fifteenth Amendment to Credit Agreement dated December 14, 2006, 2006, by and between Registrant, certain of its subsidiaries, and GECC, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 14, 2006 and hereby incorporated by reference.
10.35(p)	Sixteenth amendment and Limited Waiver to Credit Agreement dated as of April 30, 2007, by and between Registrant, certain of its subsidiaries, and GECC, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 22, 2007 Articles Supplementary dated December 18, 2006 establishing and fixing the rights and preferences of a series of shares of preferred stock filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated December 21, 2006 and hereby incorporated by reference.
10.35(q)	Amendment dated as of June 30, 2007 by and among Butler Service Group, Inc., certain of its subsidiaries, and GECC, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated July 10, 2007, and hereby incorporated by reference.
10.35(r)	Amendment dated as of July 31, 2007, by and among Butler Service Group, Inc., certain of its subsidiaries, and GECC, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated August 9, 2007, and hereby incorporated by reference
10.35(s)	Second Amendment dated as of August 14, 2007, by and among Butler Service Group, Inc., certain of its subsidiaries, and GECC, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated August 22, 2007, and hereby incorporated by reference.
10.35(t)	Third Amendment dated as of August 20, 2007, by and among Butler Service Group, Inc., certain of its subsidiaries, and GECC, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated August 22, 2007, and hereby incorporated by reference.
10.35)(u)	Third Amended and Restated Credit Agreement dated as of August 29, 2007, among BSG, as Borrower, the other Credit Parties signatory thereto, as Credit Parties, the Lenders signatory thereto from time to time, as Lenders, and GECC, as Agent and Lender, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K dated September 4, 2007, and hereby incorporated by reference.
10.35(v)	Amendment to Credit Agreement, dated as of August 29, 2007, among BSG, as Borrower, and GECC, as Agent and Lender, filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K dated September 4, 2007, and hereby incorporated by reference.
10.35(w)	Consent and Waiver to Third Amended and Restated Credit agreement, dated October 31, 2007 among BSG as borrower, and GECC, as lenders, filed as Exhibit 10.82 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 2006, and hereby incorporated by reference.
10.36*	Form of Promissory Note dated January 28, 1998 in the original amount of $168,278.74 executed by Hugh G. McBreen and made payable to the order of Butler International, Inc., filed as Exhibit 10.40 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, and hereby incorporated by reference.
10.37*	Form Pledge Agreement dated January 28, 1998 between Butler International, Inc. and Hugh G. McBreen, filed as Exhibit 10.41 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, and hereby incorporated by reference.
10.38*	Form of Promissory Note dated October 13, 1998 in the original amount of $181,000 executed by Frederick H. Kopko, Jr. and made payable to Butler International, Inc. filed as Exhibit 10.48 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, and hereby incorporated by reference.

10.39* Form Pledge Agreement dated October 13, 1998 between Butler International, Inc. and Frederick H. Kopko, Jr., filed as Exhibit 10.49 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1998, and hereby incorporated by reference.

33

BUTLER INTERNATIONAL, INC.
EXHIBIT INDEX (continued)

10.40*	Form of Promissory Note dated March 2, 1999 in the original amount of $890,625 executed by Edward M. Kopko and made payable to Butler International, Inc. filed as Exhibit 10.50 to the Registrant��s Annual Report on Form 10-K for the year ended December 31, 1999, and hereby incorporated by reference.
10.41*	Form Pledge Agreement dated March 2, 1999 between Butler International, Inc. and Edward M. Kopko, filed as Exhibit 10.51 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, and hereby incorporated by reference.
10.42*	Form of Promissory Note dated March 2, 1999 in the original amount of $822,441 executed by Edward M. Kopko and made payable to Butler International, Inc. filed as Exhibit 10.52 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1999, and hereby incorporated by reference.
10.43*	Form of Promissory Note dated September 12, 2000 in the original amount of $367,000 executed by Edward M. Kopko and made payable to Butler International, Inc. filed as Exhibit 10.48 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, and hereby incorporated by reference.
10.44*	Form Pledge Agreement dated September 12, 2000 between Butler International, Inc. and Edward M. Kopko, filed as Exhibit 10.49 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, and hereby incorporated by reference.
10.45*	1992 Stock Option Plan for Non-Employee Directors, filed as Exhibit 10.43 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1992, and hereby incorporated by reference.

_______________

* Denotes compensatory plan, compensation arrangement, or management contract.

34

BUTLER INTERNATIONAL, INC.
EXHIBIT INDEX (continued)

Exhibit No.	Description
10.47*	Form of Promissory Note dated January 2, 2002 in the original amount of $362,250 executed by Bridge Financing Partners LLC and made payable to Butler International, Inc. filed as Exhibit 10.53 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, and hereby incorporated by reference.
10.48*	Form Pledge Agreement dated January 2, 2002 between Butler International, Inc. and Bridge Financing Partners LLC filed as Exhibit 10.54 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, and hereby incorporated by reference.
10.49*	Form of Promissory Note dated March 12, 2002 in the original amount of $219,750 executed by Frederick H. Kopko, Jr. and made payable to Butler International, Inc. filed as Exhibit 10.55 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, and hereby incorporated by reference.
10.50*	Form Pledge Agreement dated March 12, 2002 between Butler International, Inc. and Frederick H. Kopko, Jr. filed as Exhibit 10.56 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, and hereby incorporated by reference.
10.51*	Form of Promissory Note dated March 12, 2002 in the original amount of $186,180 executed by Hugh G. McBreen and made payable to Butler International, Inc. filed as Exhibit 10.57 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, and hereby incorporated by reference.
10.52*	Form Pledge Agreement dated March 12, 2002 between Butler International, Inc. and Hugh G. McBreen filed as Exhibit 10.58 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, and hereby incorporated by reference.
10.53	Mortgage and Security Agreement dated September 30, 2002, between Butler of New Jersey Realty Corp. and GMAC Commercial Mortgage Corp., filed as Exhibit 10.58 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, and hereby incorporated by reference.
10.53(a)	Promissory Note dated September 30, 2002, between Butler of New Jersey Realty Corp. and GMAC Commercial Mortgage Corp., filed as Exhibit 10.58(a) to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002, and hereby incorporated by reference.
10.54*	Notification of Default Letter date May 12, 2003 to Board of Directors, Butler International, Inc. regarding Edward M. Kopko’s employment agreement, filed as Exhibit 10.55 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003, and hereby incorporated by reference.
10.55*	Senior Management Employment Agreement between Butler Technology Solutions and Ivan Estes filed as Exhibit 10.56 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, and hereby incorporated by reference.
10.56*	Senior Management Employment Agreement between Butler Technical Group and James Beckley filed as Exhibit 10.57 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2000, and hereby incorporated by reference.
10.57	Settlement and Release Agreement, dated May 5, 2004, filed as Exhibit 10.57 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004 and hereby incorporated by reference.
10.58*	Employment Agreement dated April 11, 2005 between the Registrant and Thomas J. Considine, Jr. filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated April 15, 2005.

_______________

* Denotes compensatory plan, compensation arrangement, or management contract.

35

BUTLER INTERNATIONAL, INC.
EXHIBIT INDEX (continued)

Exhibit No.	Description
10.59	Securities Purchase Agreement dated June 30, 2006, by and among Registrant, certain of its subsidiaries, and Levine Leichtman Capital Partners II, L.P., a California limited partnership (“LLCP”), filed as Exhibit 10.1 to the Registrant’s Current Report on form 8-K filed on July 7, 2006 and hereby incorporated by reference.
10.60	Unsecured Note due 2006, dated June 30, 2006, in the original principal amount of $2,500,000, from BI and certain of its subsidiaries in favor of LLCP, filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 7, 2006 and hereby incorporated by reference.
10.61	Warrant to purchase 1,041,254 shares of common stock, dated June 30, 2006 from Registrant in favor of LLCP, filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on July 7, 2006 and hereby incorporated by reference.
10.62	Registration Rights Agreement dated June 30, 2006 between Registrant and LLCP, filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on July 7, 2006 and hereby incorporated by reference.
10.63	Letter Agreement dated June 30, 2006 between Registrant and LLCP, filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on July 7, 2006 and hereby incorporated by reference...
10.64	Investor Rights Agreement dated June 30, 2006 by and among Registrant, Edward M. Kopko and Frederick H. Kopko, Jr., filed as Exhibit 10.6 to the Registrant’s Current Report on Form 8-K filed on July 7, 2006 and hereby incorporated by reference.
10.65	Intercompany Subordination Agreement dated June 30, 2006 by and among Registrant, certain of our subsidiaries and LLCP, filed as Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed on July 7, 2006 and hereby incorporated by reference.
10.66	General and Continuing Guaranty dated June 30, 2006, by certain subsidiaries of Registrant in favor of LLCP, filed as Exhibit 10.8 to the Registrant’s Current Report on Form 8-K filed on July 7, 2006 and hereby incorporated by reference.
10.67	Noncompetition Agreement dated June 30, 2006, by and between Registrant and Edward M. Kopko, filed as Exhibit 10.9 to the Registrant’s Current Report on Form 8-K filed on July 7, 2006 and hereby incorporated by reference.
10.68	Personal Guaranty dated June 30, 2006, by Edward M. Kopko in favor of LLCP, filed as Exhibit 10.10 to the Registrant’s Current Report on Form 8-K filed on July 7, 2006 and hereby incorporated by reference.
10.69	First Amendment to Securities Purchase Agreement and to Unsecured Note Due 2006 dated August 14, 2006, by and among Registrant, certain of its subsidiaries, and LLCP, filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on August 16, 2006 and hereby incorporated by reference.
10.70*	Senior Management Employment Agreement dated February 1, 2006, between the Registrant and mark Koscinski, filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on September 22, 2006 and hereby incorporated by reference.
10.71	Form of Registration Rights Agreement dated December 15, 2006, between Registrant and certain non-institutional investors, filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed on December 21, 2006 and hereby incorporated by reference.
10.72	Form of Registration Rights Agreement dated December 15, 2006, between Registrant and certain non-institutional investors, filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed on December 21, 2006 and hereby incorporated by reference.

_______________

* Denotes compensatory plan, compensation arrangement, or management contract.

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BUTLER INTERNATIONAL, INC.
EXHIBIT INDEX (continued)

Exhibit No.	Description
10.73	Form of Warrant dated December 15, 2006, between Registrant and certain institutional investors, filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed on December 21, 2006 and hereby incorporated by reference.
10.74	Form of Warrant dated December 15, 2006, between Registrant and certain non-institutional investors, filed as Exhibit 10.5 to Registrant’s Current Report on Form 8-K filed on December 21, 2006 and hereby incorporated by reference.
10.75	Form of Subscription Agreement dated December 15, 2006, between Registrant and certain institutional investors, filed as Exhibit 10.6 to Registrant’s Current Report on Form 8-K filed on December 21, 2006 and hereby incorporated by reference.
10.76	Settlement and Mutual Release by and among Registrant, certain of its subsidiaries, and LLCP, dated December 27, 2006, filed as exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on January 4, 2007 and hereby incorporated by reference.
10.77	Second Lien Credit Agreement dated as of August 29, 2007, among Butler Service Group, Inc. (“BSG”), as Borrower, the other Credit Parties signatory thereto, as Credit Parties, the Lenders signatory thereto from time to time, as Lenders, and Monroe Capital, as Agent and Lender, filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K dated September 4, 2007, and hereby incorporated by reference.
10.78	Intercreditor Agreement, dated as of August 29, 2007, among GECC and Monroe Capital, acknowledged and agreed to by BSG, filed as Exhibit 10.4 to the Registrant’s Current Report on Form 8-K dated September 4, 2007, and hereby incorporated by reference.
10.79	Mortgage Subordination Agreement, dated as of August 29, 2007, by and among Butler of New Jersey Realty Corp. (“BNJRC”), a New Jersey corporation, GECC and Monroe Capital, filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K dated September 4, 2007, and hereby incorporated by reference.

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BUTLER INTERNATIONAL, INC.
EXHIBIT INDEX (continued)

Exhibit No.	Description
10.80	Subordinate Mortgage Security Agreement and Fixture Filing, dated as of August 29, 2007, by and among BNJRC and Monroe Capital, filed as Exhibit 10.6 to the Registrant’s Current Report on Form 8-K dated September 4, 2007, and hereby incorporated by reference.
10.81	Consent and Waiver to Second Lien Credit Agreement, dated as of October 31, 2007, among BSG, as borrower and Monroe Capital, as agent for the lenders, filed as Exhibit 10.83 to the Registrant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 25, 2006, and hereby incorporated by reference.
22.1	List of subsidiaries
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer, filed herewith as Exhibit 31.1.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer filed herewith as Exhibit 31.2.
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer, filed herewith as Exhibit 32.1.
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Financial Officer filed herewith as Exhibit 32.2.
99.1	Commitment letter, dated August 9, 2007 from Monroe Capital, LLC to BSG, filed as Exhibit 99.1 to the Registrant’s current report in Form 8-K dated August 9, 2007 and hereby incorporated by reference.

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