What changed in this filing

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Item 9A. Controls and Procedures

2024-01-26 compared with 2022-12-29 · 147 added, 55 removed, 226 unchanged (47% of the section changed)

CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

Our management, with the participation of our management team, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2022.

Based on this evaluation, our CEO and CFO concluded that, our disclosure controls and procedures were not effective at the reasonable assurance level as of September 30, 2022 based on the material weaknesses in internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) described below.

Disclosure Controls and Procedures

The term “disclosure controls and procedures”

is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Under the supervision and with the participation of our management, including our Chief Executive Officer “CEO”

and Chief Financial Officer “CFO”, we performed an evaluation of our disclosure controls and procedures, which have been designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC rules and forms.

Our management, including our CEO and CFO, concluded that, as of September 30, 2023, those controls and procedures were not effective at the reasonable assurance level to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs

Management's Annual Report on Internal Control Over Financial Reporting

This Annual Report on Form 10-K includes a report of management’s assessment regarding internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm because, as a “Emerging Growth Company”, our independent registered public accounting firm is not required to issue such an attestation report.

The following report is provided by management in respect of our internal control over financial reporting:

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Our management used the Committee of Sponsoring Organizations of the Treadway Commission’s Internal Control - Integrated Framework (2013), or the COSO framework, to evaluate the effectiveness of internal control over financial reporting.

Management believes that the COSO framework is a suitable framework for its evaluation of financial reporting because it is free from bias, permits reasonably consistent qualitative and quantitative measurements of our internal control over financial reporting, is sufficiently complete so that those relevant factors that would alter a conclusion about the effectiveness of our internal control over financial reporting are not omitted and is relevant to an evaluation of internal control over financial reporting.

Management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2022 and has concluded that such internal control over financial reporting was not effective, based on the material weaknesses described below.

Material weakness in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Based on our assessments and those criteria, management determined that our review and oversight control activities did not operate at a sufficient level of precision to detect errors related to (1) the application of the accounting for net operating loss carryforwards governed by the Tax Cuts and Jobs Act (TCJA) and (2) the accounting for the impairment of the assets.

Internal controls in place were not operating effectively to prevent and detect a material misstatement.

We have established plans to remediate these material weaknesses outlined below.

Management’s steps taken to remediate the material weakness.

To remediate these two material weaknesses, we have taken the following actions:

We plan to hire additional qualified personnel, to assist management with its financial statement close process and provide oversight of our financial reporting, including items of a non-routine or technical nature.

We plan to implement more timely operation of the review controls and improve communications amongst the various stakeholders in the company.

Our management has concluded that the financial statements included elsewhere in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations and is in conformity with GAAP.

As required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with GAAP.

Our internal control over financial reporting includes those policies and procedures that:

(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of our company,

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our financial statements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

Under the supervision of and with the participation of management, we assessed the effectiveness of our internal control over financial reporting at September 30, 2023.

In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —

Integrated Framework (2013).

Based on our assessments and those criteria, management determined that we did not maintain effective internal control over financial reporting as of September 30, 2023 due to the material weaknesses described below.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Accordingly, a material weakness increases the risk that the financial information we report contains material errors.

If we fail to remediate these material weaknesses, determine that our internal controls over financial reporting are not effective, discover areas that need improvement in the future or discover additional material weaknesses, these shortcomings could have an adverse effect on our business and financial results.

As of September 30, 2023, we have identified two material weaknesses in internal controls in the areas of (i) information technology general controls ("ITGCs");

and (ii) debt covenant compliance.

The material weakness relating to ITGCs related to ineffective ITGCs in the areas of user access management and program change management –

related to our inventory management system, PMI, and our Oracle financial reporting system.

We believe that these control deficiencies were a result of (i) insufficient documentation of information technology (“IT”) control processes such that the successful operation of ITGCs was overly dependent upon knowledge and actions of certain qualified individuals for each IT system;

(ii) insufficient training of IT personnel on the operation and performance of their control responsibilities;

and (iii) inadequate risk-assessment processes to identify and assess IT environment changes and risks that could impact internal control over financial reporting.

As a result of this material weakness, manual and automated business process controls dependent on the affected ITGCs were ineffective because the controls had the potential to be adversely impacted.

Management performed additional analysis and test procedures as deemed necessary to ensure that our financial statements included in this Form 10-K present fairly in all material respects our financial position, results of operations and cash flows for the periods presented.

The material weakness in our internal controls over the review of debt covenant compliance related to the failure to monitor and review debt compliance covenants.

We believe that this control deficiency was a result of (i) inadequate performance of controls surrounding debt covenant compliance and disclosure;

(ii) insufficient knowledge of our amended credit agreement;

and (iii) insufficient communication with our lender regarding debt covenant compliance and obtaining waivers.

This material weakness impacts other transactions that rely on the review of debt covenants including our evaluation of going concern.

As a result of this material weakness, there was a factual material misstatement on the consolidated balance sheet and in our going concern disclosure and debt covenant compliance disclosures on Form 10-Q for the period ended June 30, 2023.

Notwithstanding these material weaknesses, management has concluded that our audited consolidated financial statements included in this Annual Report on Form 10-K are fairly stated in all material respects with U.S.

GAAP for each of the periods presented herein.

Remediation of Material Weakness in Internal Control over Financial Reporting

In order to remediate the material weakness in internal control over financial reporting related to the ineffective operation of ITGCs related to access management and program change management;

we are in the process of implementing additional IT monitoring controls and strengthening our process documentation over the access management and program change management domains of ITGCs.

In order to remediate the material weakness in internal control over financial reporting related to the review of debt covenant compliance, the Company intends to have additional personnel perform debt covenant calculations and review our disclosure controls and procedures in future periods.

To further remediate these material weaknesses, management, including the CEO and CFO, have reaffirmed, and re-emphasized the importance of internal controls, control consciousness and a strong control environment.

We also expect to continue to review, optimize and enhance our financial reporting controls and procedures.

These material weaknesses will not be considered remediated until the applicable remediated control operates for a sufficient period of time and management has concluded, through testing, that this enhanced control is operating effectively.

Changes in Internal Control Over Financial Reporting

Except with respect to the remediation actions described above, there have been no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control.

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely.

Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances.

In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

Except as noted above, there were no changes in the Company’s internal control over financial reporting that occurred during the year ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Mesa Air Group, Inc.

Opinion on the Internal Control Over Financial Reporting

We have audited Mesa Air Group, Inc.'s (the Company) internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control —

Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet as of September 30, 2023, the related consolidated statements of operations and comprehensive loss , stockholders' equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements) of the Company and our report dated January 26, 2024 expressed an unqualified opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management's assessment:

Management identified a material weakness relating to ITGCs related to ineffective ITGCs in the areas of user access management and program change management –

related to the inventory management system, PMI, and the Oracle financial reporting system.

These control deficiencies were a result of (i) insufficient documentation of information technology (“IT”) control processes such that the successful operation of ITGCs was overly dependent upon knowledge and actions of certain qualified individuals for each IT system;

(ii) insufficient training of IT personnel on the operation and performance of their control responsibilities;

and (iii) inadequate risk-assessment processes to identify and assess IT environment changes and risks that could impact internal control over financial reporting.

As a result of this material weakness, manual and automated business process controls dependent on the affected ITGCs were ineffective because the controls had the potential to be adversely impacted.

Management also identified a material weakness over the review of debt covenant compliance related to the failure to monitor and review debt compliance covenants.

This control deficiency was a result of (i) inadequate performance of controls surrounding debt covenant compliance and disclosure, (ii) insufficient knowledge of the amended credit agreement, and (iii) insufficient communication with the lender regarding debt covenant compliance and obtaining waivers.

This material weakness also impacts other transactions relying on the debt covenant calculations, including considerations of going concern.

As a result of this material weakness, there was a factual material misstatement on the consolidated balance sheet and in the going concern disclosure and debt covenant compliance disclosures in the 10-Q quarterly report ended June 30, 2023.

These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 financial statements, and this report does not affect our report dated January 26, 2024 on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ RSM US LLP

Phoenix, Arizona

January 26, 2024

OTHER INFORMATION

18 unchanged sentences

The following financial statements are filed as part of this report:

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Report of Independent Registered Public Accounting Firm for the years ended September 30, 2023 and 2022 (PCAOB ID:

49 and 42 , respectively).

Consolidated Balance Sheets as of September 30, 2023 and 2022

Consolidated Statements of Operations and Comprehensive (loss) income for the years ended September 30, 2023, 2022, and 2021

Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2022, 2021, and 2020

Consolidated Statements of Cash Flows for the years ended September 30, 2022, 2021, and 2020

Consolidated Statements of Stockholders’

Equity for the years ended September 30, 2023, 2022, and 2021

Consolidated Statements of Cash Flows for the years ended September 30, September 30, 2023, 2022, and 2021

Notes to Consolidated Financial Statements

3 unchanged sentences

References under the caption "Incorporated by Reference" to exhibits or other filings indicate that the exhibit or other filing has been filed, that the indexed exhibit and the exhibit referred to are the same and that the exhibit referred to is incorporated by reference.

Management contracts and compensatory plans or arrangements filed as exhibits to this Annual Report are identified by the “#” sign.

Management contracts and compensatory plans or arrangements filed as exhibits to this Annual Report are identified by the “#”

EXHIBIT INDEX

5 unchanged sentences

December 10, 2020

Amendment to Second Amended and Restated Bylaws of Mesa Air Group, Inc., effective as of January 13, 2023

January 13, 2023

Form of Common Stock Certificate

26 unchanged sentences

December 14, 2020

First Amendment to the Second Amended and Restated United Capacity Purchase Agreement between United Airlines, Inc.

F irst Amendment to the Second Amended and Restated United Capacity Purchase Agreement between United Airlines, Inc.

and Mesa Airlines, Inc.

4 unchanged sentences

dated February 4, 2022

Incorporated by Reference

Exhibit Description

Third Amendment to the Second Amended and Restated United Capacity Purchase Agreement between United Airlines, Inc.

5 unchanged sentences

dated August 8, 2022

Incorporated by Reference

Exhibit Description

December 29, 2022

Third Amended and Restated Capacity Purchase Agreement among United Airlines, Inc., Mesa Airlines, Inc., and Mesa Air Group, Inc., dated December 27, 2022

February 9, 2023

Aircraft Purchase Agreement between Mesa Airlines, Inc.

1 unchanged sentence

dated September 27, 2022

December 29, 2022

Amended and Restated Capacity Purchase Agreement among the Registrant, Mesa Airlines, Inc.

29 unchanged sentences

dated March 31, 2022

Incorporated by Reference

Exhibit Description

Amendment No.8 to the Amended and Restated Capacity Purchase Agreement among the Registrant, Mesa Airlines, Inc.

9 unchanged sentences

dated July 28, 2022

December 29, 2022

Amendment No.11 to the Amended and Restated Capacity Purchase Agreement among the Registrant, Mesa Airlines, Inc.

and American Airlines, Inc.

dated July 28, 2022

February 9, 2023

Credit and Guaranty Agreement among the Registrant, Mesa Airlines, Inc., Mesa Air Group Airline Inventory Management, L.L.C., the other guarantors party thereto from time to time, CIT Bank, N.A.

5 unchanged sentences

July 30, 2018

Incorporated by Reference

Exhibit Description

Amendment No.

10 unchanged sentences

July 30, 2018

Second Amended and Restated Credit and Guaranty Agreement, among the Registrant, Mesa Airlines, Inc., Mesa Air Group Airline Inventory Management, L.L.C.

and CIT Bank, NA, dated as of June 30, 2022

February 9, 2023

Amendment No.

1 to Second Amended and Restated Credit and Guaranty Agreement, dated December 27, 2022

February 9, 2023

Incorporated by Reference

Exhibit Description

Amendment No.

2 to Second Amended and Restated Credit and Guaranty Agreement, dated January 27, 2023

February 9, 2023

Amendment No.

3 to Second Amended and Restated Credit and Guaranty Agreement, dated September 6, 2023

Mortgage and Security Agreement among Mesa Airlines, Inc., Mesa Air Group Airline Inventory Management, L.L.C., the other grantors referred to therein and CIT Bank, N.A., dated August 12, 2016

45 unchanged sentences

December 14, 2020

Loan and Guarantee Agreement, dated as of October 30, 2020, among Mesa Airlines, Inc., as Borrower, the Guarantors party hereto from time to time, the United States Department of the Treasury, and The Bank of New York Mellon, as Administrative Agent and Collateral Agent.

Loan and Guarantee Agreement, dated as of October 30, 2020, among Mesa Airlines, Inc., as Borrower, the Guarantors party thereto from time to time, the United States Department of the Treasury, and The Bank of New York Mellon, as Administrative Agent and Collateral Agent

December 14, 2020

Modification and Waiver Agreement, dated December 22, 2022, among Mesa Airlines, Inc., as Borrower, the Guarantor parties thereto from time to time, the United States Department of the Treasurer, and the Bank of New York Mellon, as Administrative Agent and Collateral Agent

February 9, 2023

Incorporated by Reference

Exhibit Description

Fourteenth Amendment to Lease between the Registrant and BOF AZ Phoenix Gateway Center LLC, dated December 15, 2021

February 9, 2022

Engine Sale and Purchase Agreement, dated December 27, 2022

February 9, 2023

List of subsidiaries of the Registrant

Consent of Ernst & Young LLP

Consent of RSM US LLP

Consent of Ernst and Young LLP

Certification of Principal Executive Officer pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002

Incorporated by Reference

Exhibit Description

Certification of Principal Financial Officer pursuant to Rule 13(a)-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of Sarbanes-Oxley Act of 2002

3 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Clawback Policy

Inline XBRL Instance Document

14 unchanged sentences

MESA AIR GROUP, INC.

December 29, 2022

/s/ Torque Zubeck

Torque Zubeck

January 26, 2024

/s/ Michael J.

Chief Financial Officer

(Principal Financial Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on December 29, 2022 by the following persons on behalf of the registrant and in the capacities indicated.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on January 26, 2024 by the following persons on behalf of the registrant and in the capacities indicated.

/s/Jonathan G.

Chairman, Chief Executive Officer and Director

December 29, 2022

January 26, 2024

(Principal Executive Officer)

/s/Torque Zubeck

/s/Michael J.

Chief Financial Officer

December 29, 2022

Torque Zubeck

January 26, 2024

(Principal Financial Officer and Principal Accounting Officer)

December 29, 2022

January 26, 2024

/s/Mitchell Gordon

December 29, 2022

January 26, 2024

Mitchell Gordon

December 29, 2022

/s/Daniel McHugh

December 29, 2022

Daniel McHugh

December 29, 2022

January 26, 2024

/s/Spyridon Skiados

December 29, 2022

January 26, 2024

Spyridon Skiados

Jonathan Ireland

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 9A. Controls and Procedures