What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-06-28 compared with 2021-06-25 · 147 added, 105 removed, 139 unchanged (64% of the section changed)

12 unchanged sentences

Further, Corporate and other is also comprised of insignificant businesses that do not pertain to other reportable segments.

On September 30, 2019, we completed the sale of 100% of the equity ownership in GAS, which previously constituted the ground support services segment.

See Note 2 , Discontinued Operations of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

Wolfe Lake HQ, LLC.

On December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake, completed the purchase of the real estate located at 5000 36th Street West, St.

Louis Park, Minnesota for $13.2 million 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 2004 and contains an estimated 54,742 total square feet of space.

Air T's Minnesota executive office is currently located in the building.

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

Wolfe Lake HQ, LLC is included within the Corporate and other segment.

See Note 2 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

GdW Beheer B.V.

On February 10, 2022, the Company, acquired GdW, a Dutch holding company in the business of providing global aviation data and information for EUR 12.5 million.

The acquisition was completed through a wholly-owned subsidiary of the Company, Air T Acquisition 22.1, a Minnesota limited liability company, through its Dutch subsidiary, Shanwick, and

was funded with cash, investment by executive management of the underlying business, and the loans described in Note 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

As part of the transaction, the executive management of the underlying business purchased 30% of Shanwick.

Air T Acquisition 22.1 and its consolidated subsidiaries are included within the Corporate and other segment.

See Note 2 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

Unconsolidated Investments

On May 5, 2021, the Company helped form an aircraft asset management business called CAM, and a new aircraft capital joint venture called CJVII.

The Company and MRC agreed to become common members in CAM.

CAM serves two separate and distinct functions:

1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners.

For the Asset Management Function, CAM receives origination fees, management fees, consignment fees (where applicable) and a carried interest.

For its Investment Function, CAM has an initial commitment to CJVII of approximately $53.0 million, which is comprised of an $8.0 million initial commitment from the Company and an approximately $45.0 million initial commitment from MRC.

Any investment returns are shared pro-rata between the Company and MRC.

See Note 24 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

The Company also has ownership interests in Insignia and CCI.

The operations of these companies are not consolidated into the operations of the Company.

See Note 10 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

Each business segment has separate management teams and infrastructures that offer different products and services.

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

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

Discontinued Operations

On September 30, 2019, the Company completed the sale of GAS.

The results of operations of GAS are reported as discontinued operations in the condensed consolidated statements of operations for the year ended March 31, 2021.

Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.

Forward Looking Statements

3 unchanged sentences

Actual results may differ materially from those contemplated by such forward-looking statements, because of, among other things, potential risks and uncertainties, such as:

• Economic conditions in the Company’s markets;

• Economic and industry conditions in the Company’s markets;

• The risk that contracts with FedEx could be terminated or adversely modified;

10 unchanged sentences

• Mild winter weather conditions reducing the demand for deicing equipment;

• Market acceptance and operational success of the Company’s new aircraft asset management business and related new aircraft capital joint venture;

• Market acceptance and operational success of the Company’s relatively new aircraft asset management business and related aircraft capital joint venture;

• The length and severity of the COVID-19 pandemic.

2 unchanged sentences

Results of Operations

Due to insignificance, the Company combined the previous printing and equipment segment into corporate and other.

We have presented prior periods based on the current presentation.

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 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 operate at a loss beyond fiscal 2022.

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

1 unchanged sentence

Fiscal 2022 vs.

Consolidated revenue decreased by $61.7 million (26%) to $175.1 million for the fiscal year ended March 31, 2021 compared to the prior fiscal year.

Consolidated revenue increased by $2.0 million (1%) to $177.1 million for the fiscal year ended March 31, 2022 compared to the prior fiscal year.

Following is a table detailing revenue (after elimination of intercompany transactions), in thousands:

5 unchanged sentences

Total $ 177,077 $ 175,121 $ 1,956 1 %

Revenues from the air cargo segment decreased by $9.0 million (12%) compared to the prior fiscal year, principally attributable to lower sales to maintenance customers outside of FedEx as a result of COVID-19 and lower admin fees from FedEx due to fewer operating aircraft (66 aircraft in fiscal 2021 compared to 69 aircraft in fiscal 2020).

Revenues from the air cargo segment increased by $8.2 million (12%) compared to the prior fiscal year, principally attributable to higher FedEx pass through revenues, higher admin fee as a result of increased contract rates starting in June 2021 and higher maintenance labor revenue.

In addition, maintenance revenue with customers outside of FedEx also increased compared to the prior year.

Pass-through costs under the dry-lease agreements with FedEx totaled $23.0 million and $19.9 million for the years ended March 31, 2022 and 2021, respectively.

The ground equipment sales segment contributed approximately $60.7 million and $59.2 million to the Company’s revenues for the fiscal periods ended March 31, 2021 and 2020, respectively, representing a $1.5 million (3%) increase in the current year.

The increase was primarily driven by a higher volume of truck sales to the USAF.

The ground equipment sales segment contributed approximately $42.2 million and $60.7 million to the Company’s revenues for the fiscal periods ended March 31, 2022 and 2021, respectively, representing a $18.4 million (30%) decrease in the current year.

The decrease was primarily driven by a lower volume of truck sales to the USAF in the current fiscal year.

At March 31, 2022, the ground equipment sales segment’s order backlog was $14.0 million compared to $10.3 million at March 31, 2021.

The commercial jet engines and parts segment contributed $46.8 million of revenues in fiscal year ended March 31, 2021 compared to $101.3 million in the prior fiscal year which is a decrease of $54.5 million (54%).

The decrease is primarily attributable to the fact that all the companies within this segment had lower engine and component sales and lease income due to the impact of COVID-19 on the aviation industry as a whole.

Following is a table detailing operating (loss) income by segment, net of intercompany during Fiscal 2021 and Fiscal 2020 (in thousands):

The commercial jet engines and parts segment contributed $57.7 million of revenues in fiscal year ended March 31, 2022 compared to $46.8 million in the prior fiscal year which is an increase of $10.9 million (23%).

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, net of intercompany during Fiscal 2022 and Fiscal 2021 (in thousands):

Year ended March 31, Change

4 unchanged sentences

Total $ 8,755 $ (9,175) $ 17,930

Consolidated operating loss for the fiscal year ended March 31, 2021 was $9.2 million compared to consolidated operating income of $7.3 million in the prior fiscal year.

Operating income for the air cargo segment increased by $1.4 million in the current fiscal year, due primarily to having lower pilot and staff salaries as well as contract labor.

The ground equipment sales segment operating income increased by $1.6 million from $7.3 million in the prior year to $8.9 million in the current year.

This increase was primarily attributable to the increased sales noted in the segment revenue discussion above as well as better operating margin as a result of having a more profitable mix of products sold.

Operating loss of the commercial jet engines and parts segment was $10.9 million compared to operating income of $8.3 million in the prior year.

The change was primarily attributable to the decreased aircraft engines and component sales as well as reduced lease income due to COVID-19 at the companies within this segment as explained in the segment revenue discussion above.

This segment's current year operating loss was also further increased due to inventory write-down of $6.4 million.

Following is a table detailing consolidated non-operating expenses, net of intercompany during Fiscal 2021 and Fiscal 2020 (in thousands):

Consolidated operating income for the fiscal year ended March 31, 2022 was $8.8 million compared to consolidated operating loss of $9.2 million in the prior fiscal year.

Operating income for the air cargo segment increased by $0.6 million in the current fiscal year, due primarily to having higher segment revenues as described above, offset by higher pilot and staff salaries as well as contract labor.

The ground equipment sales segment operating income decreased by $5.7 million from $8.9 million in the prior year to $3.2 million in the current year.

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

Operating income of the commercial jet engines and parts segment was $3.6 million compared to operating loss of $10.9 million in the prior year.

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

In addition, this segment incurred an inventory write-down of $6.4 million in the prior year compared to only $0.8 million in the current year.

The table below provides Adjusted EBITDA by segment for the fiscal year ended March 31, 2022 and 2021 (in thousands):

Twelve Months Ended Change

March 31, 2022 March 31, 2021

Overnight Air Cargo $ 2,854 $ 2,248 606

Ground Equipment Sales 3,455 9,132 (5,677)

Commercial Jet Engines and Parts 5,200 (3,933) 9,133

Corporate and Other (103) (8,777) 8,674

Adjusted EBITDA $ 11,406 $ (1,330) 12,736

Consolidated Adjusted EBITDA for the fiscal year ended March 31, 2022 was $11.4 million, an increase of $12.7 million compared to the prior fiscal year.

Adjusted EBITDA for the air cargo segment increased by $0.6 million in the current fiscal year, due primarily to having higher segment operating income as described above.

The ground equipment sales segment Adjusted EBITDA decreased by $5.7 million from $9.1 million in the prior year to $3.5 million in the current year.

This decrease was primarily attributable to the decreased operating income noted in the discussion above.

Adjusted EBITDA of the commercial jet engines and parts segment was $5.2 million, an increase of $9.1 million from the prior fiscal year.

The increase was primarily driven by the change in operating income (loss) as described above, partially offset by a lower EBITDA adjustment in inventory write-down of $5.5 million in this fiscal year compared to the prior fiscal year.

The corporate and other segment Adjusted EBITDA increased by $8.7 million from fiscal 2021 to fiscal 2022.

The increase was driven by the $9.1 million offset to general and administrative expenses in the current fiscal year as a result of the ERC credit.

Following is a table detailing consolidated non-operating income (expense), net of intercompany during fiscal 2022 and fiscal 2021 (in thousands):

Year Ended March 31, Change

Other-than-temporary impairment loss on investments $ — $ (2,305) $ 2,305

Interest expense, net $ (4,948) $ (4,624) $ (324)

Gain on settlement of bankruptcy — 4,527 (4,527)

Loss from equity method investments (723) (910) 187

Gain on forgiveness of Paycheck Protection Program ("PPP") 8,331 — 8,331

Income (loss) from equity method investments 37 (723) 760

Other 1,221 2,741 (1,520)

$ (2,606) $ (4,667) $ 2,061

The Company had net non-operating expenses of $2.6 million for the year ended March 31, 2021, a decrease of $2.1 million from $4.7 million in the prior year.

The decrease was primarily due to the prior-year's impairment loss on the investment of Insignia of $2.3 million that did not recur in the current-year as well as an increase of $4.0 million in other income, driven by $2.1 million of investment income and realized gain on sale of securities in the current-year.

The decrease was partially offset by the prior-year's gain on settlement of bankruptcy proceedings related to Dephax Canada and UK of $4.5 million that did not recur in the current-year.

During the year ended March 31, 2021, the Company recorded $3.4 million of income tax benefit related to continuing operations, which yielded an effective rate of 28.8%.

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company’s effective tax rate for the fiscal year ended March 31, 2021 were the estimated benefit for the exclusion of income for the Company’s captive insurance company subsidiary under §831(b), the exclusion of the minority owned portion of pretax income of Contrail Aviation Support, LLC, state income tax expense, the rate differential for the NOL carryback claim and changes in the valuation allowance.

The change in the valuation allowance is primarily due to unrealized losses on investments and the generation of foreign tax credits through the NOL carryback claim that the Company expects to expire before they are fully utilized.

Total $ 4,641 $ (2,606) $ 7,247

The Company had net non-operating income of $4.6 million for the year ended March 31, 2022, an increase of $7.2 million from $2.6 million non-operating expense in the prior year.

The increase was primarily attributable to the $8.3 million gain recognized on the SBA's forgiveness of the Company's PPP loan offset by a decrease of $1.5 million in other income primarily driven by prior-year's unrealized and realized gain on sale of investments that did not recur in the current-year.

During the year ended March 31, 2022, the Company recorded $1.2 million of income tax expense related to continuing operations, which yielded an effective rate of 8.7%.

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company’s effective tax rate for the fiscal year ended March 31, 2022 were the estimated benefit for the exclusion of income for the Company’s captive insurance company subsidiary under §831(b), the exclusion of the minority owned portion of pretax income of Contrail, state income tax expense, the exclusion of PPP loan forgiveness proceeds from taxable income, and changes in the valuation allowance.

During the fiscal year ended March 31, 2021, the Company recorded $3.4 million of income tax benefit related to continuing operations at an effective tax rate of 28.8%.

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company’s effective tax rate for the fiscal year ended March 31, 2020 were the estimated benefit for the exclusion of income for the Company’s captive insurance company subsidiary under §831(b), the exclusion of the minority owned portion of pretax income of Contrail Aviation Support, LLC as well as state income tax expense, and changes in the valuation allowance.

The change in the valuation allowance is primarily due to unrealized losses on investments, utilization of capital loss carryforwards, and attribute reduction incurred by Delphax related to cancellation of debt income and dissolution of its Canadian and UK subsidiaries.

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company’s effective tax rate for the fiscal year ended March 31, 2021 were the estimated benefit for the exclusion of income for the Company’s captive insurance company subsidiary under §831(b), the exclusion of the minority owned portion of pretax income of Contrail, state income tax expense, the rate differential for the Net Operating Loss ("NOL") carryback claim and changes in the valuation allowance.

Market Outlook

COVID-19 and its impact on the 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 a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods.

We currently expect that 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.

We expect that these impacts 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, as a result, present material uncertainty and risk with respect to us and our results of operations.

The outbreak of the COVID-19 virus in the United States and elsewhere created considerable instability and disruption in the U.S.

and world economies.

Uncertainty still surrounds COVID-19 and its potential effects, as well as the extent and effectiveness of any responses taken on a national and local level.

Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures and other restrictions on travel, congregation and business operations resulted in significant negative impacts in the United States and world economies and in relation to our business.

The long-term impact of COVID-19 on the U.S.

and world economies remains uncertain and the duration and scope of the world-wide economic downturn cannot currently be predicted.

The extent to which our financial condition, results of operations and overall value will continue to be affected by the COVID-19 pandemic will largely depend on future developments, which are highly uncertain and cannot be accurately predicted, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic, containment and the effectiveness of vaccine measures, among others.

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

Many of our businesses may continue to generate reduced operating cash flow and could operate at a loss from time to time beyond 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.

Liquidity and Capital Resources

As of March 31, 2021, the Company held approximately $15.9 million in cash and cash equivalents and restricted cash, $4.7 million of which related to restricted cash collateralized for three Opportunity Zone fund investments.

As of March 31, 2022, the Company held approximately $8.4 million in total cash, cash equivalents and restricted cash.

Of which, $2.3 million related to cash collateral for three Opportunity Zone fund investments.

The Company also held $1.7 million in restricted investments held as statutory reserve of SAIC.

The Company also has approximately $0.9 million of marketable securities.

As of March 31, 2021, the Company’s working capital amounted to $77.6 million, an increase of $46.9 million compared to March 31, 2020, primarily driven by a decrease in short-term borrowings of $37.0 million.

See Note 13 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report for a summary of “Financing Arrangements” as of March 31, 2021.

As of March 31, 2022, the Company’s working capital amounted to $97.3 million, an increase of $19.7 million compared to March 31, 2021, primarily driven by the $9.1 million Employee Retention Credit ("ERC") receivable and an increase of $13.2 million in accounts receivable.

The Company’s Credit Agreement with Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”) (the Air T debt in Note 1 4 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report) includes several covenants that are measured once a year at March 31, including but not limited to, a negative covenant requiring a debt service coverage ratio of 1.25.

The AirCo 1 Credit Agreement (the AirCo 1 debt in Note 1 4 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report) contains an affirmative covenant relating to collateral valuation.

As of March 31, 2021, the Company and AirCo 1 were in compliance with all financial covenants.

The Contrail Credit Agreement (the Contrail debt in Note 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report) 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 tangible net worth ("TNW") of $8 million.

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

The material changes within the Third Amendment were:

(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 zero 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.

Due primarily to the impact of COVID-19 on its business, as of March 31, 2021, Contrail was not in compliance with maintaining the minimum TNW of $15 million.

As of the issuance date of this report, pursuant to the existing terms of the Contrail Credit Agreement, the Company and the non-controlling interest owner of Contrail made total capital contributions to Contrail in the amount of $1.4 million, which had the effect of curing this financial covenant non-compliance.

Contrail and ONB are also in discussions to reduce the minimum TNW 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.

The obligations of Contrail under the Contrail Credit Agreement are guaranteed by the Company, up to a maximum of $1.6 million, plus costs of collection.

The Company is not liable for any other assets or liabilities of Contrail and there are no cross-default provisions with respect to Contrail’s debt in any of the Company’s debt agreements with other lenders.

In the possible absence of Contrail’s operation as a going concern, the Company believes it, along with the rest of its businesses, will continue to operate as a going concern, given the maximum guarantee of Contrail’s obligations of $1.6 million.

On November 24, 2020, Contrail and ONB entered into Supplement #8 to Master Loan Agreement and related documentation for a loan in the aggregate amount of $43.6 million for which ONB served as lender pursuant to the Main Street Priority Loan Facility as established by the U.S.

Federal Reserve ("the Fed").

The Contrail Main Street Loan was approved by the Fed and completed by December 8, 2020.

The proceeds were used to pay down the Contrail Revolver.

The loan proceeds are also to be used as working capital to support the operations of Contrail in the ordinary course of business, which includes the acquisition from time to time of aircraft and engines.

The indebtedness incurred is subject to the terms and provisions of the Master Loan Agreement.

The principal terms of the Contrail Main Street Loan are detailed in Note 13 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

On December 11, 2020, AirCo 1 and Park State Bank ("PSB") entered into a loan in the aggregate amount of $6.2 million for which PSB served as lender pursuant to the Main Street Priority Loan Facility as established by the Fed.

The AirCo 1 Main Street Loan was approved by the Fed and completed by December 22, 2020.

The loan proceeds were used to pay off the AirCo 1 revolving line of credit with MBT.

The principal terms of the Term Loan - PSB are detailed in Note 13 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

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.

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

The Company has applied to MBT for forgiveness of the PPP Loan;

however, forgiveness is not fully assured.

As mentioned in Note 1 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, in 2016, Contrail Aviation 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 Aviation 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 is on July 18, 2021.

As of the date of issuance, neither the Seller nor Air T has indicated the intent to exercise its put and call options on July 18, 2021.

If either side were to exercise its option, the Company anticipates that the price would approximate the fair value of the Redeemable Non-Controlling Interest, as determined on the transaction date, based on the methodology in Note 1 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report.

As of March 31, 2022, the Company, AirCo 1 and Contrail were in compliance with all financial covenants.

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

As of March 31, 2022, 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 14 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, during fiscal 2022, the Company received $8.5 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 $23.7 million, based on 1.0 million shares of our outstanding common stock held by non-affiliates and a price of $22.75 per share, which was the price as of March 31, 2022, a date within 60 days of the date that our common stock was last sold on The Nasdaq Global Market on May 26, 2022, calculated in accordance with General Instruction I.B.6 of Form S-3.

After giving effect to the $7.9 million offering limit imposed by General Instruction I.B.6 of Form S-3, we have now reached the offering limit under the current Prospectus Supplement.

As mentioned in Note 24 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report, 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 to purchase all of the Seller’s equity membership interests in Contrail commencing on July 18, 2021 ("Contrail RNCI").

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 24 of Notes to Consolidated Financial Statements included under Part II, Item 8 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.

CJVII will target investments in current generation narrow-body aircraft and engines, building on Contrail’s origination and asset management expertise.

CAM will serve two separate and distinct functions:

1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners.

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 March 31, 2022, CAM's remaining capital commitments are approximately $2.0 million from the Company and $22.0 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, $75.8 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 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 from continuing operations for the respective years ended March 31, 2022 and 2021 (in thousands):

Year Ended March 31,

2021 2020 Change

Year Ended March 31, Change

Net Cash Used in Operating Activities $ (33,084) $ (1,823) $ (31,261)

Net Cash Provided by (Used in) Investing Activities 2,516 (11,568) 14,084

Net Cash (Used) Provided by Investing Activities (33,388) 2,516 (35,904)

Net Cash Provided by Financing Activities 59,254 71 59,183

Effect of foreign currency exchange rates (341) (412) 71

Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash $ 352 $ (18,299) $ 18,651

Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash $ (7,559) $ 352 $ (7,911)

Cash used in operating activities was $33.1 million in fiscal year 2022 compared to cash used in operating activities of $1.8 million in fiscal year 2021.

During fiscal year 2022, the Company's purchase of engines and components received into inventory exceeded amounts spent in fiscal year 2021 by $17.5 million.

Further, more cash was collected this year compared to the prior year as accounts receivable decreased by $6.6 million.

The decrease in cash usage was offset by a decrease in net income of $11.6 million due to reduced operations as a result of COVID-19.

Cash provided by investing activities for fiscal year 2021 was $2.5 million compared to cash used in investing activities for the prior fiscal year of $11.6 million.

This difference was primarily driven by a net decrease of $32.7 million in capital expenditures, partially offset by $22.5 million less proceeds from sale of assets on lease in fiscal year 2021 compared to fiscal year 2020.

Cash provided by financing activities for fiscal year 2021 was $19.2 million less compared to the prior fiscal year.

This was primarily due to decreased net proceeds from lines of credit of $65.9 million, offset by increased net proceeds from term loans of $51.7 million.

Further, less cash was collected this year due to timing and less concentration of cash receipts compared to the prior year as accounts receivable increased by $13.2 million.

Cash used in investing activities for fiscal year 2022 was $33.4 million compared to cash provided by investing activities for the prior fiscal year of $2.5 million.

This difference was primarily driven by cash used for the acquisitions of Wolfe Lake assets of $13.4 million, GdW's acquisition of $12.8 million, and investment in unconsolidated entities of $6.8 million.

Cash provided by financing activities for fiscal year 2022 was $59.2 million more compared to the prior fiscal year.

This was primarily due to the current year's increase in net proceeds from lines of credit of $33.0 million, increase in proceeds received from issuance of Trust Preferred Securities ("TruPs") of $10.0 million, and decrease in payments on line of credit of $21.0 million compared to prior year, offset by prior year's proceeds from PPP loan of $8.2 million that did not recur in the current year.

Off-Balance Sheet Arrangements

1 unchanged sentence

The Company is not currently engaged in the use of any of these arrangements.

Impact of Inflation

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.

The Company believes that inflation has not had a material effect on its manufacturing and commercial jet engine and parts operations, because increased costs to date have been passed on to customers.

9 unchanged sentences

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 from continuing operations, the most directly comparable amounts reported under GAAP.

The table below provides a reconciliation of operating income from continuing operations to Adjusted EBITDA for the fiscal year ended March 31, 2021 and 2020 (in thousands):

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

The table below provides a reconciliation of operating income (loss) from continuing operations to Adjusted EBITDA for the fiscal year ended March 31, 2022 and 2021 (in thousands):

Twelve Months Ended

March 31, 2022 March 31, 2021

Operating (loss) income from continuing operations $ (9,175) $ 7,291

Operating income (loss) from continuing operations $ 8,755 $ (9,175)

Depreciation and amortization (excluding leased engines depreciation) 1,589 1,231

Asset impairment, restructuring or impairment charges 805 6,592

Gain on sale of property and equipment (10) (37)

Loss (gain) on sale of property and equipment 5 (10)

Security issuance expenses 252 32

1 unchanged sentence

Included in the asset impairment, restructuring or impairment charges for the fiscal year ended March 31, 2022 was a write-down of $0.8 million on the commercial jet engines and parts segment's inventory.

Of the total write-down, $0.5 million was driven by a management decision to monetize two engines by sale to a third party, in which the net carrying values exceeded the estimated proceeds during the quarter ended September 30, 2020.

The remaining write-down was attributable to our evaluation of the carrying value of inventory as of March 31, 2021, where we compared its cost to its net realizable value and considered factors such as physical condition, sales patterns and expected future demand to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory.

The write-down was attributable to our evaluation of the carrying value of inventory as of March 31, 2022, where we compared its cost to its net realizable value and considered factors such as physical condition, sales patterns and expected future demand to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory.

The table below provides Adjusted EBITDA by segment for the fiscal year ended March 31, 2022 and 2021 (in thousands):

15 unchanged sentences

The Company believes that the following are its most critical accounting policies:

Business Combinations .

The Company accounts for business combinations in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations.

Consistent with ASC 805, the Company accounts for each business combination by applying the acquisition method.

Under the acquisition method, the Company records the identifiable assets acquired and liabilities assumed at their respective fair values on the acquisition date.

Goodwill is recognized for the excess of the purchase consideration over the fair value of identifiable net assets acquired.

Included in purchase consideration is the estimated acquisition date fair value of any earn-out obligation incurred.

For business combinations where non-controlling interests remain after the acquisition, assets (including goodwill) and liabilities of the acquired business are recorded at the full fair value and the portion of the acquisition date fair value attributable to non-controlling interests is recorded as a separate line item within the equity section or, as applicable to redeemable non-controlling interests, between the liabilities and equity sections of the Company’s consolidated balance sheets.

There are various estimates and judgments related to the valuation of identifiable assets acquired, liabilities assumed, goodwill and non-controlling interests.

These estimates and judgments have the potential to materially impact the Company’s consolidated financial statements.

Inventories – Inventories are carried at the lower of cost or net realizable value.

2 unchanged sentences

These assumptions and estimates are complex and subjective in nature.

Changes in economic and operating conditions, including those occurring as a result of the impact of the COVID-19 pandemic could impact the assumptions and result in future losses to our inventory.

Changes in economic and operating conditions, including those occurring as a result of the impact of the COVID-19 pandemic or its effects could impact the assumptions and result in future losses to our inventory.

The Company periodically evaluates the carrying value of inventory.

15 unchanged sentences

Accounting for Redeemable Non-Controlling Interest .

Policies related to redeemable non-controlling interest involve judgment and complexity, specifically on the classification of the non-controlling interest in the Company’s consolidated balance sheet.

Policies related to redeemable non-controlling interests involve judgment and complexity, specifically on the classification of the non-controlling interests in the Company’s consolidated balance sheet, and the accounting treatment for changes in the fair value or estimated redemption value for non-controlling interests that are redeemed at other than fair value.

Further, there is significant judgment in determining whether an equity instrument is currently redeemable or not currently redeemable but probable that the equity instrument will become redeemable.

Additionally, there are also significant estimates made in the valuation of the redeemable non-controlling interest.

The fair value of the non-controlling interest is determined using a combination of the income approach, utilizing a discounted cash flow analysis, and the market approach, utilizing the guideline public company method.

Additionally, there are also significant estimates made in the valuation of the Contrail's redeemable non-controlling interest.

The fair value of Contrail's non-controlling interest is determined using a combination of the income approach, utilizing a discounted cash flow analysis, and the market approach, utilizing the guideline public company method.

Contrail's discounted cash flow analysis requires significant management judgment with respect to forecasts of revenue, operating margins, capital expenditures, and the selection and use of an appropriate discount rate.

Contrail’s market approach requires management to make significant assumptions related to market multiples of earnings derived from comparable publicly-traded companies with similar operating characteristics as Contrail.

Quantitative and Qualitative Disclosures about Market Risk.

Not Applicable.

There are also significant estimates made to determine the estimated redemption value of Shanwick's redeemable non-controlling interest ("Shanwick RNCI").

The analysis uses significant inputs such as forecasted earnings before interest and taxes ("EBIT"), discount rate and expected volatility, which require significant management judgment and assumptions.

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-K

Item 7. Management’s Discussion and Analysis