What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-12 · 139 added, 76 removed, 84 unchanged (72% of the section changed)

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We evaluate the performance of our business segments based on operating income and Adjusted EBITDA.

Due to insignificance, the Company combined the previous printing and equipment segment into corporate and other during the quarter ended September 30, 2020.

We have presented prior periods based on the current presentation.

Results of Operations

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Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a substantial number of disruptions, and we experienced and continue to experience a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods.

Many of our businesses may continue to generate reduced operating cash flow and may operate at a loss during at least the first half of fiscal 2022.

Many of our businesses may continue to generate reduced operating cash flow and may continue to operate at a loss from time to time during the remainder of fiscal 2022.

We expect that the impact of COVID-19 will continue to some extent.

The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions and our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.

First Quarter Fiscal 2022 Compared to First Quarter Fiscal 2021

Consolidated revenue for the three-month period ended June 30, 2021 was relatively flat compared to the same quarter in the prior fiscal year.

Following is a table detailing revenue by segment, net of intercompany during the three months ended June 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Second Quarter Fiscal 2022 Compared to Second Quarter Fiscal 2021

Consolidated revenue for the three-month period ended September 30, 2021 increased by $7.6 million (21%) compared to the same quarter in the prior fiscal year.

Following is a table detailing revenue by segment, net of intercompany during the three months ended September 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

June 30, Change

September 30, Change

Overnight Air Cargo $ 18,847 $ 17,295 $ 1,552 9 %

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$ 43,238 $ 35,604 $ 7,634 21 %

Revenues from the air cargo segment for the three-month period ended June 30, 2021 increased by $2.7 million (17%) compared to the first quarter of the prior fiscal year.

The increase was principally attributable to higher pass-through revenue from FedEx as a result

of increased business activity versus the prior year quarter as well as higher maintenance revenue from customers outside of FedEx.

The ground equipment sales segment contributed approximately $8.2 million and $15.8 million to the Company’s revenues for the three-month periods ended June 30, 2021 and 2020 respectively, representing a $7.6 million (48%) decrease in the current quarter.

The decrease was primarily driven by a lower volume of commercial truck sales and ultimate deicers this quarter compared to prior year comparable quarter.

At June 30, 2021, the ground equipment sales segment’s order backlog was $7.1 million compared to $48.7 million at June 30, 2020.

GGS had a contract to supply deicing trucks to the United States Air Force ("USAF"), which expired on July 13, 2020.

GGS has submitted its bid for contract renewal.

As of June 30, 2021, the USAF has not yet responded to the bid.

The commercial jet engines and parts segment contributed $9.6 million of revenues in the quarter ended June 30, 2021 compared to $4.7 million in the comparable prior year quarter which is an increase of $4.9 million (104%).

Revenues from the air cargo segment for the three-month period ended September 30, 2021 increased by $1.6 million (9%) compared to the second quarter of the prior fiscal year.

The increase was principally attributable to higher maintenance revenue from customers outside of FedEx.

The ground equipment sales segment contributed approximately $9.2 million and $12.1 million to the Company’s revenues for the three-month periods ended September 30, 2021 and 2020 respectively, representing a $2.9 million (24%) decrease in the current

The decrease was primarily driven by a lower sales volume of ultimate deicers this quarter compared to prior year comparable quarter.

At September 30, 2021, the ground equipment sales segment’s order backlog was $10.9 million compared to $36.8 million at September 30, 2020.

On October 22, 2021, GGS was awarded a new contract valued at approximately $34.0 million to supply deicing trucks to the United States Air Force ("USAF").

The contract award is for two years with four additional one-year extension options that may be exercised by the USAF.

The commercial jet engines and parts segment contributed $14.9 million of revenues in the quarter ended September 30, 2021 compared to $6.1 million in the comparable prior year quarter, which is an increase of $8.8 million (144%).

The increase is primarily attributable to the fact that all the companies within this segment had higher component sales as the aviation industry started to see more activity in the current year quarter as COVID-19 related restrictions continued to loosen.

Following is a table detailing operating income (loss) by segment during the three months ended June 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Following is a table detailing operating income (loss) by segment during the three months ended September 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

June 30, Change

September 30, Change

Overnight Air Cargo $ 857 $ 573 $ 284

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$ 704 $ (3,684) $ 4,388

Consolidated operating loss for the quarter ended June 30, 2021 was $4.0 thousand, compared to an operating loss of $0.3 million in the comparable quarter of the prior year.

The ground equipment sales segment operating income for the quarter ended June 30, 2021 decreased by $0.8 million from the prior year comparable quarter to $1.4 million.

Consolidated operating income for the quarter ended September 30, 2021 was $0.7 million, compared to an operating loss of $3.7 million in the comparable quarter of the prior year.

The air cargo segment's operating income for the three-month period ended September 30, 2021 increased by $0.3 million compared to the second quarter of the prior fiscal year.

The increase was primarily driven by higher maintenance revenue from customers outside of FedEx offset by higher salaries.

The ground equipment sales segment's operating income for the quarter ended September 30, 2021 decreased by $0.9 million from the prior year comparable quarter to $43.0 thousand.

This decrease was primarily attributable to the decreased sales noted in the segment revenue discussion above.

The commercial jet engines and parts segment generated an operating loss of $0.2 million in the current-year quarter compared to an operating loss of $0.9 million in the prior-year quarter.

The commercial jet engines and parts segment generated an operating income of $1.9 million in the current-year quarter compared to an operating loss of $2.3 million in the prior-year quarter.

The change was primarily attributable to the increased component sales at the companies within this segment as explained in the segment revenue discussion above.

Following is a table detailing non-operating income (loss) during the three months ended June 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):

The corporate and other segment's operating loss was $0.8 million less this quarter compared to prior year's comparable quarter.

The decrease was primarily attributable to lower health insurance claims during the three months ended September 30, 2021 compared to September 30, 2020.

Following is a table detailing non-operating income (loss) during the three months ended September 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

June 30, Change

September 30, Change

Interest expense (1,167) (1,081) (86)

Gain (Loss) from equity method investments 14 (498) 512

Gain on forgiveness of Paycheck Protection Program (“PPP”) loan 8,331 — 8,331

Other 159 359 (200)

$ 7,337 $ (1,220) $ 8,557

The Company had a net non-operating income of $0.3 million for the quarter ended June 30, 2021, compared to a net non-operating loss of $1.0 million in the prior-year quarter.

In the first quarter 2020, the Company recorded $0.6 million of net loss pick-up from the investments of Insignia and CCI whereas in the current quarter, we only recorded $0.3 million of net loss pick-up from these investments.

Further, in the current quarter, the Company recorded $0.2 million of gain from fair value adjustment related to our Warrants, and $0.5 million of gain from the liquidation of Delphax France, a subsidiary of Delphax Technologies, Inc., in June 2021.

During the three-month period ended June 30, 2021, the Company recorded $5.0 thousand in income tax benefit at an effective tax rate ("ETR") of (1.6)%.

The Company had a net non-operating income of $7.3 million for the quarter ended September 30, 2021, compared to a net non-operating loss of $1.2 million in the prior-year quarter.

In the second quarter 2020, the Company recorded $0.5 million of net loss from our equity investments whereas in the current quarter, we recorded $14.0 thousand of net income pick-up.

Further, in the current quarter, the Company recorded $8.3 million of gain from the SBA's forgiveness of our PPP loan.

During the three-month period ended September 30, 2021, the Company recorded $38.0 thousand in income tax expense at an ETR of 0.5%.

The Company records income taxes using an estimated annual effective tax rate for interim reporting.

benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the three-month period ended June 30, 2020, the Company recorded $0.3 million in income tax benefit at an ETR of 23.9%.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2021 were the change in valuation allowance related to Delphax and other capital losses, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, and the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.

During the three-month period ended September 30, 2020, the Company recorded $1.5 million in income tax benefit at an ETR of 31.5%.

First Six Months of Fiscal 2021 Compared to First Six Months of Fiscal 2020

Following is a table detailing revenue by segment (in thousands):

Six Months Ended

September 30, Change

Overnight Air Cargo $ 37,697 $ 33,466 $ 4,231 13 %

Ground Equipment Sales 17,371 27,888 (10,517) (38) %

Commercial Jet Engines and Parts 24,510 10,808 13,702 127 %

Corporate and Other 628 414 214 52 %

$ 80,206 $ 72,576 $ 7,630 11 %

Revenues from the air cargo segment for the six months ended September 30, 2021 increased by $4.2 million (13%) compared to the six months ended September 30, 2020.

The increase was principally attributable to higher pass-through revenue from FedEx as a result of increased business activity versus the prior year quarter as well as higher maintenance revenue from customers outside of FedEx.

The ground equipment sales segment contributed approximately $17.4 million and $27.9 million to the Company’s revenues for the six-month periods ended September 30, 2021 and 2020 respectively, representing a $10.5 million (38)% decrease in the current six-month period.

The decrease was primarily driven by a lower sales volume of ultimate deicers and catering trucks in the current year compared to prior year.

The commercial jet engines and parts segment contributed $24.5 million of revenues in the six months ended September 30, 2021 compared to $10.8 million in the comparable prior year six months.

The increase is primarily attributable to the fact that all the companies within this segment had higher component sales as the aviation industry started to see more activity in the current year as COVID-19 related restrictions continued to loosen.

Following is a table detailing operating income (loss) by segment during the six months ended September 30, 2021 compared to the same six months in the prior fiscal year (in thousands):

Six Months Ended

September 30, Change

Overnight Air Cargo $ 1,589 $ 1,127 $ 462

Ground Equipment Sales 1,465 3,140 (1,675)

Commercial Jet Engines and Parts 1,664 (3,177) 4,841

Corporate and Other (4,019) (5,039) 1,020

$ 699 $ (3,949) $ 4,648

Consolidated operating income for the six months ended September 30, 2021 was $0.7 million compared to an operating loss of $3.9 million for the comparable six months of the prior year.

Operating income for the air cargo segment for the six months ended September 30, 2021 increased by $0.5 million versus the prior year comparable period primarily due to the revenue increase noted above.

The ground equipment sales segment operating income decreased by $1.7 million to $1.5 million in the six-month period ended September 30, 2021 versus the prior year comparable period.

This decrease was primarily attributable to the revenue decrease noted above.

The commercial jet engines and parts segment generated an operating income of $1.7 million in the current-year six month period compared to an operating loss of $3.2 million in the prior-year six-month period.

The change was primarily attributable to the increased component sales as the aviation industry started to see more activity as explained in the segment revenue discussion above.

Following is a table detailing non-operating income (loss) during the six months ended September 30, 2021 compared to the same six months in the prior fiscal year (in thousands):

Three Months Ended

September 30, Change

Interest expense (2,105) (2,242) $ 137

Gain (Loss) from equity method investments 97 (1,056) 1,153

Gain on forgiveness of PPP loan 8,331 — 8,331

Other 1,340 1,086 254

7,663 (2,212) $ 9,875

The Company had a net non-operating income of $7.7 million for the six months ended September 30, 2021 compared to a net non-operating loss of $2.2 million in the prior-year six-month period.

The increase was primarily attributable to the $8.3 million gain recognized on the SBA's forgiveness of the Company's PPP loan.

In addition, in the prior year, the Company recorded $1.1 million of net loss from our equity investments whereas in the current year, we recorded $97.0 thousand of net income from these investments.

During the six-month period ended September 30, 2021, the Company recorded $33.0 thousand in income tax expense at an effective rate of 0.4%.

The Company records income taxes using an estimated annual effective tax rate for interim reporting.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 2021 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.

During the six-month period ended September 30, 2020, the Company recorded $1.8 million in income tax benefit which resulted in an effective tax rate of 30.0%.

The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the six-month period ended September 30, 2020 were related to the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

Critical Accounting Policies and Estimates

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Accordingly, actual results could differ materially from estimates.

There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended June 30, 2021.

There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended September 30, 2021.

The ground equipment sales segment business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season.

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Liquidity and Capital Resources

As of June 30, 2021, the Company held approximately $11.4 million in cash and cash equivalents and restricted cash, $4.1 million of which related to restricted cash collateralized for Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC (the "Opportunity Zone Funds"), each a Minnesota limited liability company and a subsidiary of the Company.

As of September 30, 2021, the Company held approximately $6.3 million in cash and cash equivalents and restricted cash, $4.1 million of which related to restricted cash collateralized for Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC (the "Opportunity Zone Funds"), each a Minnesota limited liability company and a subsidiary of the Company.

The Company also held $0.8 million in restricted investments held as statutory reserve of SAIC.

The Company has approximately $2.4 million of marketable securities and an aggregate of $54.5 million in available funds under its lines of credit as of June 30, 2021.

As of June 30, 2021, the Company’s working capital amounted to $79.2 million, an increase of $1.6 million compared to March 31, 2021.

The Company’s Credit Agreement with MBT includes several covenants that are measured once a year at March 31, including, but not limited to, a financial covenant requiring a debt service coverage ratio of 1.25.

The AirCo 1 Credit Agreement contains an affirmative covenant relating to collateral valuation.

The Contrail Credit Agreement contains affirmative and negative covenants, including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates.

The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum TNW of $15 million.

On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with ONB.

The material changes within the Third Amendment are:

(a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to $0 for at least thirty consecutive days to September 5, 2021;

and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.

As of June 30, 2021, the Company, AirCo 1 and Contrail were in compliance with all financial covenants.

The revolving line of credit at Air T with MBT has a due date or expires within the next twelve months.

We are currently seeking to refinance this obligation prior to August 31, 2021;

however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance this obligation, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.

Contrail and ONB are also in discussions to reduce the minimum TNW covenant to $8 million, in exchange for certain amendments to its credit agreement, including renewing its revolving line of credit at a lower amount than the current agreement.

However, there is no assurance that Contrail will be successful in reducing the minimum TNW financial covenant.

In April 2020, the Company obtained loans under the PPP loan, backed by the SBA, as authorized by the CARES Act, of $8.2 million to help pay for payroll costs, mortgage interest, rent and utility costs.

As of June 30, 2021, the Company has applied to the SBA for forgiveness of the PPP Loan;

however, forgiveness is not fully assured.

The Company has approximately $2.8 million of marketable securities and an aggregate of $37.2 million in available funds under its lines of credit as of September 30, 2021.

As of September 30, 2021, the Company’s working capital amounted to $96.8 million, an increase of $19.2 million compared to March 31, 2021.

On August 31, 2021, Air T entered into a Third Amended and Restated Credit Agreement with MBT.

The terms of the Amended and Restated Credit Agreement were revised to extend the Air T revolver's termination date to August 31, 2023.

The maximum amount available under the revolving facility remains at $17 million and interest will be due on the outstanding balance at the rate of 2.5% or the prime rate plus 1%, whichever is greater.

At September 30, 2021, there was $12.3 million available under this revolving credit agreement.

Air T and MBT also revised Term Note A to extend the maturity date to August 30, 2031 and to increase the principal amount to $9 million.

The revised note utilizes a fixed 3.42% interest rate.

Air T and MBT also revised Term Note B to extend the maturity date to August 30, 2031.

The principal balance was set at the then current balance amount of $3.2 million.

The interest rate on Term Note B is fixed at 3.42%.

A prepayment penalty provision was added to Term Note A and Term Note B that provides for a 3% premium payment if prepayment occurs in year 1, 1% in years 2-3 and 0% thereafter.

20% of the loan amount can be prepaid without penalty each year and no penalty payment is due for prepayments made to cure a covenant violation.

Term Note E was restated to set the principal amount of the note at the then current balance due amount ($3.7 million), which amount reflects principal payments through August 31, 2021.

The parties also agreed to add the Company’s indirect subsidiary, Jet Yard as a co-Borrower.

Jet Yard entered into a promissory note with MBT in the principal amount of $2 million.

The Jet Yard Note matures on August 30, 2031, has a fixed interest rate of 4.14% and amortizes over a 15 year period.

Jet Yard intends to use the proceeds of the note for leasehold improvements at Jet Yard’s facility in Marana, AZ.

On September 2, 2021, Contrail entered into a Fourth Amendment to Supplement #2 to Master Loan Agreement and Third Amended and Restated Promissory Note Revolving Note with ONB.

The principal revisions to Contrail’s existing credit facility with ONB as contained in the Amendment and the Restated Promissory Note Revolving Note are summarized below:

The termination date of the facility was extended to September 5, 2023;

The Revolving Note principal amount was revised from $40 million to $25 million;

The net worth covenant was amended and the definition of “net worth” was revised.

The net worth covenant now requires that the borrower maintain a net worth of at least:

(i) $8 million at all times prior to March 31, 2023;

(ii) $10 million at all times during the period beginning March 31, 2023 and ending on March 30, 2024;

and (iii) $12 million at all times on or after March 31, 2024.

At September 30, 2021, there was $24.9 million available under this ONB revolving credit facility.

On April 13, 2020, the Company entered into a loan with MBT with a principal amount of $8.2 million pursuant to the Payroll Protection Program ("PPP Loan"), backed by the Small Business Administration ("SBA"), under the CARES Act.

As of September 30, 2021, the Company's PPP Loan was fully forgiven by the SBA.

As such, the Company accounted for its then outstanding principal and accrued interest as a gain on extinguishment in accordance with ASC 470.

As mentioned in Note 13 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, in 2016, Contrail entered into an Operating Agreement with the Seller providing for the put and call options with regard to the 21% non-controlling interest retained by the Seller.

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The Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on the fifth anniversary of the acquisition, which was on July 18, 2021.

As of the date of this filing, neither the Seller nor Air T has indicated the intent to exercise the put and call options.

As of the date of this filing, neither the Seller nor Air T has indicated an intent to exercise the put and call options.

If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date.

The Company currently expects that it would fund any required payment from cash provided by operations.

As mentioned in Note 13 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, on May 5, 2021, the Company formed a new aircraft asset management business called CAM and a new aircraft capital joint venture called CJVII.

called CJVII.

The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly.

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CAM has an initial commitment to CJVII of approximately $53 million, which is comprised of an $8.0 million initial commitment from the Company and an approximately $45.0 million initial commitment from MRC.

As of June 30, 2021, CAM's unfunded capital commitments are approximately $6.9 million from the Company and $43.9 million from MRC.

As of September 30, 2021, CAM's unfunded capital commitments are approximately $6.9 million from the Company and $43.9 million from MRC.

CJVII will initially be capitalized with up to $408.0 million of equity from the Company and three institutional investor partners, consisting of $108.0 million in initial commitments and $300.0 million in upsize capacity, contingent on underwriting and transaction appeal.

As of the date of this filing, no capital has been deployed to CJVII and the timing of capital deployment is not yet known at this time.

The Company believes it is probable that the cash on hand (including that obtained from the PPP and other current financings), net cash provided by operations from its remaining operating segments, together with its current revolving lines of credit, as amended or replaced, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued.

Following is a table of changes in cash flow for the three months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended June 30,

The Company believes it is probable that the cash on hand (including amounts forgiven under the PPP loan and other current financings), net cash provided by operations from its remaining operating segments, together with amounts available under our current revolving lines of credit, as amended, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued.

Following is a table of changes in cash flow from continuing operations for the six months ended September 30, 2021 and 2020 (in thousands):

Six Months Ended September 30,

Net Cash Used in Operating Activities (22,753) (5,626)

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Effect of foreign currency exchange rates on cash and cash equivalents 51 (127)

Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash (4,500) 1,085

Net cash used in operating activities was $8.8 million for the three-month period ended June 30, 2021 compared to net cash used in operating activities of $3.3 million in the prior year three-month period.

The change in net cash used in operating activities was primarily driven by a net change in accounts receivable of ($7.3 million), partially offset by $1.3 million of change in net income (loss).

In the current quarter, the Company had a net increase in accounts receivable of $4.7 million compared to a net decrease of $2.6 million in the prior quarter.

In addition, the Company had a net income of $0.3 million in the current quarter and a net loss of $1 million in the prior quarter.

Both the increase in accounts receivable and net income in the current quarter are attributable to increased sales in the commercial jet engines and parts segment and the air cargo segment as a result of increased activity in the aviation industry due to loosen COVID-19 related restrictions.

Net cash used in investing activities for the three-month period ended June 30, 2021 was $1.4 million compared to net cash used in investing activities of $0.5 million in the prior-year period.

Cash was used in the current-year period primarily to invest in CAM, the Company's new aircraft asset management business.

Net cash provided by financing activities for the three-month period ended June 30, 2021 was $5.8 million compared to net cash provided by financing activities of $5.0 million in the prior-year period.

Net Decrease in Cash and Cash Equivalents and Restricted Cash (9,653) (2,706)

Net cash used in operating activities was $22.8 million for the six-month period ended September 30, 2021 compared to net cash used in operating activities of $5.6 million in the prior year six-month period.

The change in net cash used in operating activities was primarily driven by a net change in accounts receivable of $12.8 million, in addition to a net change in inventories of $8.2 million and the gain on forgiveness of PPP loan of $8.3 million, partially offset by $12.6 million of change in net income (loss).

In the current period, the Company had a net increase in accounts receivable of $10.6 million compared to a net decrease of $2.2 million in the prior period.

In addition, the Company had a net increase in inventories of $10.1 million in the current period and a net increase of $1.9 million in the prior period.

Both the increase in accounts receivable and inventories in the current period are attributable to increased sales in the commercial jet engines and parts segment and the air cargo segment as a result of increased activity in the aviation industry due to the loosening of COVID-19 related restrictions.

Net cash used in investing activities for the six-month period ended September 30, 2021 was $2.4 million compared to net cash used in investing activities of $0.6 million in the prior-year period.

Cash was used in the current-year period primarily to invest in CAM, the Company's new aircraft asset management business and to make improvements on Jet Yard's ground hardening.

Net cash provided by financing activities for the six-month period ended September 30, 2021 was $15.4 million compared to net cash provided by financing activities of $3.7 million in the prior-year period.

The increase was primarily driven by higher net cash proceeds from the Company's lines of credit and issuance of TruPs, partially offset by lower net cash proceeds from the Company's term loans.

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The Company calculates Adjusted EBITDA by removing the impact of specific items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes.

When calculating Adjusted EBITDA, the Company does not add back depreciation expense for aircraft engines that are on lease, as the Company believes this expense matches with the corresponding revenue earned on engine leases.

Depreciation expense for leased engines totaled $0.1 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively.

When calculating Adjusted EBITDA, the Company does not add back depreciation expense for aircraft engines that are on lease, as the Company believes this expense matches with the corresponding

revenue earned on engine leases.

Depreciation expense for leased engines totaled $18.3 thousand and $0.8 million for the three months ended September 30, 2021 and 2020, respectively.

Management believes that Adjusted EBITDA is a useful measure of the Company's performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability.

Adjusted EBITDA is not intended to replace or be an alternative to operating income (loss), the most directly comparable amounts reported under GAAP.

The tables below provide a reconciliation of operating loss to Adjusted EBITDA and Adjusted EBITDA by segment for the three months ended June 30, 2021 and 2020 (in thousands):

Three months ended

The tables below provide a reconciliation of operating income (loss) from continuing operations to Adjusted EBITDA and Adjusted EBITDA by segment for the three and six months ended September 30, 2021 and 2020 (in thousands):

Three months ended Six months ended

9/30/2021 9/30/2020 9/30/2021 9/30/2020

Operating loss $ (4) $ (266)

Operating income (loss) from continuing operations $ 704 $ (3,684) $ 699 $ (3,949)

Depreciation and amortization (excluding leased engines depreciation) 304 305 584 658

Loss on disposition of assets 3 —

Amortization of security issuance expenses 5 —

Asset impairment, restructuring or impairment charges — 664 — 664

Loss/(Gains) on disposition of assets — (3) 3 (4)

Security issuance expenses 60 — 65 —

Adjusted EBITDA $ 1,068 $ (2,718) $ 1,351 $ (2,631)

Three months ended

Three months ended Six months ended

9/30/2021 9/30/2020 9/30/2021 9/30/2020

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Adjusted EBITDA $ 1,068 $ (2,718) $ 1,351 $ (2,631)

Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to various risks, including interest rate risk.

As interest rates are projected to increase and can be volatile, the Company has designated a risk management policy which permits the use of derivative instruments to provide protection against rising interest rates on variable rate debt.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis