What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-02-14 compared with 2021-11-12 · 138 added, 123 removed, 100 unchanged (72% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD-LOOKING STATEMENTS

This section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results.

The MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition during the period from the most recent fiscal year-end, March 31, 2021, to and including December 31, 2021 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year.

This Quarterly Report on Form 10-Q, including the MD&A, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements reflect our current views with respect to future events and financial performance.

The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” "will," "continue" and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Any and all forecasts and projections in this document are “forward looking statements” and are based on management’s current expectations or beliefs.

From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by us.

Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results.

Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of us are subject to uncertainties and other factors that could cause actual results to differ materially from such statements.

We also wish to caution investors that other factors might in the future prove to be important in affecting our results of operations.

New factors emerge from time to time;

it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended March 31, 2021 (including the information presented therein under Risk Factors), as well other publicly available information.

(the “Company,” “Air T,” “we” or “us”) is a holding company with a portfolio of operating businesses and financial assets.

14 unchanged sentences

COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations.

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 continue to operate at a loss from time to time during the remainder of fiscal 2022.

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 continue to operate at a loss from time to time during the remainder of fiscal 2022 and beyond.

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.

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):

Third Quarter Fiscal 2022 Compared to Third Quarter Fiscal 2021

Consolidated revenue for the three-month period ended December 31, 2021 decreased by $10.4 million (19%) 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 December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

September 30, Change

December 31, Change

Overnight Air Cargo $ 18,248 $ 16,322 $ 1,926 12 %

3 unchanged sentences

$ 45,433 $ 55,819 $ (10,386) (19) %

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 September 30, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Revenues from the air cargo segment for the three-month period ended December 31, 2021 increased by $1.9 million (12%) compared to the third quarter of the prior fiscal year.

The increase was principally attributable to higher administrative fees and maintenance labor revenue from FedEx.

The ground equipment sales segment contributed approximately $15.2 million and $20.8 million to the Company’s revenues for the three-month periods ended December 31, 2021 and 2020 respectively, representing a $5.5 million (27%) decrease in the current quarter.

The decrease was primarily driven by lower sales volume of deicing trucks this quarter due to the ongoing effects of COVID-19 compared to prior year comparable quarter.

At December 31, 2021, the ground equipment sales segment’s order backlog was $3.7 million compared to $17.3 million at December 31, 2020.

Finished Goods inventory increased to $8.7 million as of December 31, 2021 from $1.8 million as of December 31, 2020, as we added additional trucks ready for sale to capitalize on opportunistic sales that may arise as customers continue to recover from the impacts of the pandemic.

The commercial jet engines and parts segment contributed $11.4 million of revenues in the quarter ended December 31, 2021 compared to $18.1 million in the comparable prior year quarter, which is a decrease of $6.7 million (37%).

The decrease was primarily driven by the fact that Contrail had 3 asset sales with no profit margin in the prior-year quarter that did not recur in the current-year quarter.

Following is a table detailing operating income (loss) by segment during the three months ended December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

September 30, Change

December 31, Change

Overnight Air Cargo $ 475 $ 490 $ (15)

3 unchanged sentences

$ 25 $ 1,068 $ (1,043)

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.

Consolidated operating income for the quarter ended December 31, 2021 was $25.0 thousand, compared to operating income of $1.1 million in the comparable quarter of the prior year.

The air cargo segment's operating income for the three-month period ended December 31, 2021 was relatively flat compared to the third quarter of the prior fiscal year.

The ground equipment sales segment's operating income for the quarter ended December 31, 2021 decreased by $2.8 million from the prior year comparable quarter to $1.5 million.

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 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.

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):

The commercial jet engines and parts segment generated operating income of $0.3 million in the current-year quarter compared to an operating loss of $1.6 million in the prior-year quarter.

The change was primarily attributable to the increased component sales at the companies within this segment.

The corporate and other segment's operating loss was relatively flat this quarter compared to prior year's comparable quarter.

Following is a table detailing non-operating income (expense) during the three months ended December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

September 30, Change

December 31, Change

Interest expense (1,236) (1,172) (64)

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

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

Income (Loss) from equity method investments 99 510 (411)

Other-than-temporary impairment loss on investments (348) — (348)

Other (11) 1,039 (1,050)

(1,496) 377 (1,873)

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 had a net non-operating loss of $1.5 million during the quarter ended December 31, 2021, compared to net non-operating income of $0.4 million in the prior-year quarter.

In the third quarter 2020, the Company recorded $0.5 million of net income from our equity investments whereas in the current quarter, we recorded $0.1 million of net income pick-up.

In addition, during the current-year quarter, the Company also recorded an impairment loss of $0.3 million on the equity investment of CCI.

Also in the current-year quarter, the Company recorded $1.0 million of investment loss driven by decreases in the fair value of our investments, which was reflected in the change in the Other non-operating income (expense).

During the three-month period ended December 31, 2021, the Company recorded $0.3 million in income tax benefit at an effective tax rate ("ETR") of 19.2%.

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 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

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 December 31, 2021 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc.

and Delphax Technologies, Inc.

(collectively known as "Delphax"), the estimated 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 the Company's 79%-owned subsidiary ("Contrail").

During the three-month period ended December 31, 2020, the Company recorded $0.3 million in income tax benefit at an ETR of (22.0)%.

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 December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, 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.

First Nine Months of Fiscal 2022 Compared to First Nine Months of Fiscal 2021

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

Six Months Ended

September 30, Change

Nine Months Ended

December 31, Change

Overnight Air Cargo $ 55,946 $ 49,789 $ 6,157 12 %

3 unchanged sentences

$ 125,640 $ 128,394 $ (2,754) (2) %

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.

Revenues from the air cargo segment for the nine months ended December 31, 2021 increased by $6.2 million (12%) compared to the nine months ended December 31, 2020.

The increase was principally attributable to higher pass-through revenue and maintenance

labor 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 $32.6 million and $48.7 million to the Company’s revenues for the nine-month periods ended December 31, 2021 and 2020 respectively, representing a $16.1 million (33)% decrease in the current nine-month period.

The decrease was primarily driven by a lower sales volume of deicing trucks due to the ongoing effects of COVID-19 in the current year compared to prior year as well as higher numbers of trucks sold to the U.S.

Air Force in the prior nine-month period.

The commercial jet engines and parts segment contributed $35.9 million of revenues in the nine months ended December 31, 2021 compared to $28.9 million in the comparable prior year nine 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

Following is a table detailing operating income (loss) by segment during the nine months ended December 31, 2021 compared to the same nine months in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Overnight Air Cargo $ 2,063 $ 1,617 $ 446

3 unchanged sentences

$ 724 $ (2,881) $ 3,605

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.

Consolidated operating income for the nine months ended December 31, 2021 was $0.7 million compared to an operating loss of $2.9 million for the comparable nine months of the prior year.

Operating income for the air cargo segment for the nine months ended December 31, 2021 increased by $0.4 million versus the prior year comparable period primarily due to the revenue increase noted above.

The ground equipment sales segment's operating income decreased by $4.4 million to $2.9 million in the nine-month period ended December 31, 2021 versus the prior year comparable period.

This decrease was primarily attributable to the revenue decrease noted above, in addition to higher costs of materials required to build trucks.

The commercial jet engines and parts segment generated an operating income of $2.0 million in the current-year nine month period compared to an operating loss of $4.8 million in the prior-year nine-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

The corporate and other segment's operating loss was $6.3 million for the nine months ended December 31, 2021 versus the prior year comparable period's operating loss of $7.1 million.

This is primarily attributable to the segment having lower health insurance claims during the nine months ended December 31, 2021 compared to December 31, 2020.

Following is a table detailing non-operating income (expense) during the nine months ended December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Interest expense $ (3,341) $ (3,413) $ 72

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

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

Income (Loss) from equity method investments 197 (546) 743

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

Other-than-temporary impairment loss on investments (348) — (348)

Other 1,329 2,125 (796)

$ 6,168 $ (1,834) $ 8,002

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 had a net non-operating income of $6.2 million for the nine months ended December 31, 2021 compared to a net non-operating loss of $1.8 million in the prior-year nine-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, during the nine months ended December 31, 2021, the Company recorded an impairment loss of $0.3 million on the equity investment of CCI.

Further, in the prior year, the Company recorded $0.5 million of net loss from our equity investments whereas in the current year, we recorded $0.2 million of net income from these investments.

During the nine-month period ended December 31, 2021, the Company recorded $0.2 million in income tax benefit at an effective rate of (3.6)%.

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.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the nine-month period ended December 31, 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 nine-month period ended December 31, 2020, the Company recorded $2.2 million in income tax benefit which resulted in an effective tax rate of 45.9%.

The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the nine-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, 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

4 unchanged sentences

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 September 30, 2021.

There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended December 31, 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.

Other segments have typically not experienced material seasonal trends.

Supply Chain and Inflation

The Company continues to monitor a wide range of health, safety, and regulatory matters related to the continuing COVID-19 pandemic including its impact on our business operations.

In particular, ongoing supply chain disruptions have impacted product availability and costs across all markets including the aviation industry in which our company operates.

Additionally, the United States is experiencing an acute workforce shortage and increasing inflation which has created a hyper-competitive wage environment.

Thus far, the direct impact of these items on our businesses have been immaterial.

However, ongoing or future disruptions to consumer demand, our supply chain, product pricing inflation, our ability to attract and retain employees, or our ability to procure products and fulfill orders, could negatively impact the Company’s operations and financial results in a material manner.

We continue to look for proactive ways to mitigate potential impacts of supply chain disruptions at our businesses.

Liquidity and Capital Resources

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.

As of December 31, 2021, the Company held approximately $5.8 million in cash and cash equivalents and restricted cash, $2.9 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 $0.7 million in restricted investments held as statutory reserve of SAIC.

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.

The Company has approximately $2.6 million of marketable securities and an aggregate of $36.8 million in available funds under its lines of credit as of December 31, 2021.

As of December 31, 2021, the Company’s working capital amounted to $85.6 million, an increase of $8.0 million compared to March 31, 2021.

As mentioned in Note 2 and Note 11 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, on December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the real estate located at 5000 36th Street West, St.

Louis Park, Minnesota pursuant to the real estate purchase agreement with WLPC

East, LLC, a Minnesota limited liability company dated October 11, 2021.

The real estate purchased consists of a 2-story office building, asphalt-paved driveways and parking areas, and landscaping.

The building was constructed in circa 2004 with an estimated 54,742 total square feet of space.

The real estate purchased is where the Air T's executive office is currently located.

With this purchase, the Company assumed 11 leases from existing tenants occupying the building.

The purchase price was $13.2 million, which was paid for with approximately $3.3 million in cash and a new secured loan from Bridgewater with an aggregate principal amount of $9.9 million and a fixed interest rate of 3.65% which matures on December 2, 2031.

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, backed by the SBA, under the CARES Act.

As of December 31, 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 11 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, during the first three quarters of fiscal 2022, the Company received $7.9 million in gross proceeds from the sale of TruPs through a S-3 Registration Statement filed by the Company.

The TruPs were sold and issued under the S-3 “shelf” Registration Statement base prospectus filed with the Securities and Exchange Commission on March 10, 2021 and declared effective by the SEC on March 19, 2021, and under an At the Market Offering Agreement and a First Amendment to the At the Market Offering Agreement filed with the SEC on May 14, 2021 and November 19, 2021, respectively, and prospectus supplements filed with the SEC on May 14, 2021 and November 19, 2021, respectively.

The Shelf Registration Statement registers a number of securities that may be issued by the Company in a maximum aggregate amount of up to $15 million.

The Registration Statement is subject to the offering limits set forth in General Instruction I.B.6 of Form S-3 because the Company’s public float is less than $75 million.

For so long as the Company's public float is less than $75 million, the aggregate market value of securities sold by the Company under the Shelf Registration Statement pursuant to Instruction I.B.6 to Form S-3 during any 12 consecutive months may not exceed one-third of the Company’s public float.

For purposes of this limitation, the aggregate market value of our outstanding common stock held by non-affiliates, or public float, was $26.8 million, based on 1.1 million shares of our outstanding common stock held by non-affiliates and a price of $25.15 per share, which was the price as of December 31, 2021, a date within 60 days of the date that our common stock was last sold on The Nasdaq Global Market on February 11, 2022, calculated in accordance with General Instruction I.B.6 of Form S-3.

After giving effect to the $8.9 million offering limit imposed by General Instruction I.B.6 of Form S-3, we may offer and sell from time to time up to the full amount of the $1.0 million remaining under the current Prospectus Supplement.

As mentioned in Note 1 4 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.

The Seller is the founder of Contrail and its current Chief Executive Officer.

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.

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 July 18, 2021.

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

1 unchanged sentence

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.

As mentioned in Note 1 4 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.

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

3 unchanged sentences

CAM has an initial commitment to CJVII of approximately $53 million, which is comprised of an $8 million initial commitment from the Company and an approximately $45 million initial commitment 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.

As of December 31, 2021, CAM's remaining capital commitments are approximately $4.2 million from the Company and $28.9 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.

As of the date of this filing, $34.3 million of capital has been deployed to CJVII.

The timing of the remaining capital commitment is not yet known at this time.

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,

Following is a table of changes in cash flow from continuing operations for the nine months ended December 31, 2021 and 2020 (in thousands):

Nine Months Ended December 31,

Net Cash Used in Operating Activities (19,690) (6,661)

2 unchanged sentences

Effect of foreign currency exchange rates on cash and cash equivalents 69 (164)

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.

Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash (10,088) 33,250

Net cash used in operating activities was $19.7 million for the nine-month period ended December 31, 2021 compared to net cash used in operating activities of $6.7 million in the prior year nine-month period.

The change in net cash used in operating activities was primarily driven by a net increase in cash used to purchase inventories at Contrail.

The Company had a net increase in inventories of $8.6 million in the current period and a net decrease of $6.1 million in the prior period.

In addition to regular inventory movements resulting from component sales and purchases, Contrail purchased 1 engine in the current period and sold 2 engines in the prior period, which is driving the aforementioned change in inventories.

Net cash used in investing activities for the nine-month period ended December 31, 2021 was $19.5 million compared to net cash used in investing activities of $0.3 million in the prior-year period.

Cash was used in the current-year period primarily to acquire the real estate located at 5000 36th Street West, St.

Louis Park, Minnesota, as referenced in Note 2 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report and to invest in CAM, the Company's new aircraft asset management business.

Net cash provided by financing activities for the nine-month period ended December 31, 2021 was $29.1 million compared to net cash provided by financing activities of $40.4 million in the prior-year period.

The decrease was primarily driven by lower net cash proceeds from the Company's term loans, partially offset by higher issuance of TruPs in the current-year.

Non-GAAP Financial Measures

3 unchanged sentences

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 $18.3 thousand and $0.8 million for the three months ended September 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 $70.4 thousand and $1.7 million for the three months ended December 31, 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 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

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 nine months ended December 31, 2021 and 2020 (in thousands):

Three months ended Nine months ended

12/31/2021 12/31/2020 12/31/2021 12/31/2020

2 unchanged sentences

Asset impairment, restructuring or impairment charges — — — 664

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

Loss on disposition of assets — 5 3 1

Security issuance expenses 150 — 215 —

Adjusted EBITDA $ 547 $ 1,332 $ 1,898 $ (1,299)

Three months ended Six months ended

Three months ended Nine months ended

12/31/2021 12/31/2020 12/31/2021 12/31/2020

4 unchanged sentences

Adjusted EBITDA $ 547 $ 1,332 $ 1,898 $ (1,299)

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