Overview

The Company operates in three business segments. The overnight air cargo segment, comprised of its Mountain Air Cargo, Inc. ("MAC") and CSA Air, Inc. ("CSA") subsidiaries, operates in the air express delivery services industry. The ground equipment sales segment, comprised of its Global Ground Support, LLC ("GGS") subsidiary, manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the U. S. military and industrial customers. The ground support services segment, comprised of its Global Aviation Services, LLC ("GAS") subsidiary, provides ground support equipment maintenance and facilities maintenance services to domestic airlines and aviation service providers. Each business segment has separate management teams and infrastructures that offer different products and services. The Company evaluates the performance of its operating segments based on operating income.

Following is a table detailing revenues by segment and by major customer category:

         (Dollars in thousands)
                                                     Year Ended March 31,
                                                  2012                   2011

         Overnight Air Cargo Segment:
           FedEx                           $ 48,344        54 %   $ 42,335        51 %
         Ground Equipment Sales Segment:
           Military                           6,928         8 %      1,235         1 %
           Commercial - Domestic             16,436        18 %     20,672        25 %
           Commercial - International         8,726        10 %     10,902        13 %
                                             32,090        36 %     32,809        39 %

         Ground Support Services Segment      8,948        10 %      8,218        10 %
                                           $ 89,382       100 %   $ 83,362       100 %

MAC and CSA are short-haul express airfreight carriers and provide overnight air cargo services to one primary customer, FedEx Corporation ("FedEx"). MAC also on occasion provides maintenance services to other airline customers and the U. S. military. Under the terms of dry-lease service agreements, which currently cover all of the 81 revenue aircraft, the Company receives a monthly administrative fee based on the number of aircraft operated and passes through to its customer certain cost components of its operations without markup. The cost of fuel, flight crews, landing fees, outside maintenance, parts and certain other direct operating costs are included in operating expenses and billed to the customer as cargo and maintenance revenue, at cost. Pursuant to such agreements, FedEx determines the type of aircraft and schedule of routes to be flown by MAC and CSA, with all other operational decisions made by the Company. These agreements are renewable on two to five-year terms and may be terminated by FedEx at any time upon 30 days' notice. The Company believes that the short term and other provisions of its agreements with FedEx are standard within the airfreight contract delivery service industry. FedEx has been a customer of the Company since 1980. Loss of its contracts with FedEx would have a material adverse effect on the Company.

MAC and CSA combined revenues increased by $6,009,000 (14%) in fiscal 2012. See the following comparison of fiscal year 2012 to 2011 for details of the increase.

GGS manufactures and supports aircraft deicers and other specialized industrial equipment on a worldwide basis. GGS manufactures five basic models of mobile deicing equipment with capacities ranging from 700 to 2,800 gallons. GGS also offers fixed-pedestal-mounted deicers. Each model can be customized as requested by the customer, including single operator configuration, fire suppressant equipment, open basket or enclosed cab design, a patented forced-air deicing nozzle and on-board glycol blending system to substantially reduce glycol usage, color and style of the exterior finish. GGS also manufactures five models of scissor-lift equipment, for catering, cabin service and maintenance service of aircraft, and has developed a line of decontamination equipment, flight-line tow tractors, glycol recovery vehicles and other special purpose mobile equipment. GGS competes primarily on the basis of the quality, performance and reliability of its products, prompt delivery, customer service and price.

In June 1999, GGS was awarded a four-year contract to supply deicing equipment to the USAF. GGS was awarded two three-year extensions of that contract through June 2009. On July 15, 2009, the Company announced that GGS had been awarded a new contract to supply deicing trucks to the USAF. The contract award was for one year with four additional one-year extension options that may be exercised by the USAF. In June 2011, the second option period under the contract was exercised, extending the contract to July 2012.

In September 2010, GGS was awarded a contract to supply flight line tow tractors to the USAF. The contract award is for one year commencing September 28, 2010 with four additional one-year extension options that may be exercised by the USAF. In September 2011, the first option period under the contract was exercised, extending the contract to September 2012. The value of the contract, as well as the number of units to be delivered, will be determined based upon annual requirements and available funding of the USAF.

GGS revenues decreased by $719,000 (2%) in fiscal 2012. See the following comparison of fiscal year 2012 to 2011 for details of the decrease.

GAS was formed in September 2007 to operate the aircraft ground support equipment and airport facility maintenance services business of the Company. GAS is providing aircraft ground support equipment and airport facility maintenance services to a wide variety of customers at a number of locations throughout the country.

GAS revenues increased by $730,000 (9%) in fiscal 2012. See the following comparison of fiscal year 2012 to 2011 for details of the decrease.

Fiscal 2012 Summary

Our overnight air cargo segment was again a strong performer in fiscal 2012, as revenues for the segment totaled $48,344,000 for the year ended March 31, 2012, representing a $6,009,000 (14%) increase over the prior year. The segment also saw its operating income increase by $506,000 or 16% in fiscal 2012. The increase in revenues and operating income is primarily attributable to the addition of four ATR-72 aircraft to the MAC fleet. Heavy maintenance work was performed on the aircraft in fiscal 2011 and completed in fiscal 2012, and all of the aircraft were added onto MAC's operating certificate, generating both maintenance revenue as well as additional administrative fee revenue in fiscal 2012.

Revenues for GGS for the year ended March 31, 2012 were down 2% from the prior year, while operating income decreased by $2,182,000 or 140%. The decrease in GGS operating income is due to a decline in GGS's gross margin percentage, which has continued from the prior year. Gross margin continues to be negatively impacted by a highly competitive environment, including domestic, international and military contracts. In addition, the segment's production efficiency has been negatively impacted by the reduced Air Force work in recent years, which previously allowed for more flexibility in delivery and production schedules, which contributed to greater efficiencies and a lower overall cost structure.

During the year ended March 31, 2012, revenues from our GAS subsidiary totaled $8,948,000, representing a $730,000 (9%) increase from the prior year. The segment also saw its operating income increase by $20,000 or 3% in fiscal 2012. These are both very positive steps forward for a business segment that suffered a significant business loss in September 2010, as a result of a significant reduction in the scope of work performed for Delta, its primary customer. The services that were reduced, which included the elimination of services at GAS's largest Delta location, accounted for almost half of GAS's historical revenues and a greater proportion of its operating income at the time. Since that time, GAS has added new customers and locations to build its revenue base and increase its operating income.

Fiscal 2012 vs. 2011

Consolidated revenue increased $6,020,000 (7%) to $89,382,000 for the fiscal year ended March 31, 2012 compared to the prior fiscal year. The increase in 2012 revenue resulted from a number of offsetting factors.

Revenues in the overnight air cargo segment increased $6,009,000 (14%) to $48,344,000, largely as a result of increases in administrative fee revenue and maintenance labor revenue relating to the four ATR-72 aircraft that were delivered by FedEx during fiscal 2011, as well as increases in flight and maintenance operating costs passed through to our customer at cost. Heavy maintenance on the four ATR-72 aircraft was completed in fiscal 2012 and three of the aircraft were placed into revenue service in fiscal 2012, in addition to the one aircraft that was placed into revenue service during the third quarter of fiscal 2011.

Revenues in the ground equipment sales segment decreased by $719,000 (2%) to $32,090,000. While the overall decrease in that segment was minimal, there was a swing in the product and customer mix resulting from an increase in deicer sales to the USAF during fiscal 2012, offset by decreased deicer sales in both the commercial domestic and international markets. A significant factor in the comparative decrease in commercial domestic revenues was the $10.5 million sale of mobile deicers to the City of Charlotte in fiscal 2011.

Revenues in the ground support services segment increased by $730,000 (9%) to $8,948,000, resulting from an increase in new customers as well as an increase in work and locations for existing customers.

Operating expenses on a consolidated basis increased $7,385,000 (9%) to $87,309,000 for fiscal 2012 compared to fiscal 2011. The increase was due to a number of factors. Operating expenses in the overnight air cargo segment were up $5,437,000 (15%) corresponding to the increase in revenues within that segment. Ground equipment sales operating costs increased $1,152,000 (4%). Ground equipment sales gross margin continues to be negatively impacted by a highly competitive environment, including domestic, international and military contracts. In addition, the segment's production efficiency has been negatively impacted by relatively low levels of USAF sales compared to prior years. Although sales to the USAF in fiscal 2012 were greater than in fiscal 2011, the level of USAF sales was significantly less than in the preceding years. The higher sales volumes to the USAF previously allowed for more flexibility in our delivery and production schedules, which contributed to greater efficiencies and a lower overall cost structure. Operating expenses in the ground support services segment increased by $56,000 (1%) relating to the increased revenues produced in fiscal 2012. The ground support services segment saw a greater increase in general and administrative expenses related to its revenue growth in fiscal 2012, as discussed in the following paragraph.

General and administrative expense increased $746,000 (7%) to $11,335,000 in fiscal 2012. The Company incurred increased general and administration costs in the ground support services segment of $620,000 relating to staffing costs, rents and other operating costs, and supply costs associated with new stations and increased business in fiscal 2012. In addition, the Company experienced increases in other costs including facility rents, staffing, professional fees, and supplies costs. Partially offsetting these increases, profit sharing expense decreased by $184,000 directly related to the decreased profit generated by the Company in fiscal 2012.

Operating income for the year ended March 31, 2012 was $2,073,000, a $1,365,000 (40%) decrease from fiscal 2011. The reduction was principally the result of the reduced gross margin and profitability in the ground equipment sales segment as discussed above.

Non-operating income, net for the year ended March 31, 2012 was $23,000, a $107,000 decrease from fiscal 2011. Non-operating income is principally interest income, and decreased as a result of decreased rates of return and decreased investment balances in fiscal 2012.

Income tax expense of $746,000 in fiscal 2012 represented an effective tax rate of 35.6%, which included the benefit of current year foreign tax credits and the research and development credit. Income tax expense of $1,431,000 in fiscal 2011 represented an effective tax rate of 40.1% which included the benefit of current year foreign tax credits and the research and development credit, as well as the U.S. production deduction. In addition, the fiscal 2011 tax provision included other adjustments for an overstatement of Puerto Rico tax credits and other accumulated items in prior periods.

Net earnings were $1,350,000 or $0.55 per diluted share for the year ended March 31, 2012, a 37% decrease from earnings of $2,138,000 or $0.87 per diluted share in fiscal 2011.

Liquidity and Capital Resources

As of March 31, 2012, the Company held approximately $5.8 million in cash and cash equivalents. Of this amount, $3.3 million was invested in liquid money market accounts. All invested amounts are fully insured by the Federal Deposit Insurance Corporation ("FDIC"), with the exception of $200,000 held in money market accounts.

As of March 31, 2012, the Company's working capital amounted to $23,240,000, an increase of $513,000 compared to March 31, 2011. The increase resulted principally from the earnings generated from operations, which has been our primary source of liquidity.

The Company has a $7,000,000 secured long-term revolving credit line with an expiration date of August 31, 2013. The revolving credit line contains customary events of default, a subjective acceleration clause and a fixed charge coverage requirement, with which the Company was in compliance at March 31, 2012. The Company had no outstanding obligations under its line of credit at March 31, 2012 and 2011. See Note 6 in the consolidated financial statements, included elsewhere in this report, for further discussion.

The Company is exposed to changes in interest rates on its line of credit. Although the line had no outstanding balance at March 31, 2012 and 2011, the line of credit did have a weighted average balance outstanding of approximately $87,000 during the year ended March 31, 2012. If the LIBOR interest rate had been increased by one percentage point, based on the weighted average balance outstanding for the year, the change in annual interest expense would have been negligible.

Following is a table of changes in cash flow for the respective years ended March 31, 2012 and 2011:

                                                           Year Ended March 31,
                                                           2012            2011

  Net Cash Provided by (Used in) Operating Activities   $  752,000     $ (4,517,000 )
  Net Cash Provided by (Used in) Investing Activities     (906,000 )      2,069,000
  Net Cash Used in Financing Activities                   (548,000 )       (815,000 )

  Net Decrease in Cash and Cash Equivalents             $ (702,000 )   $ (3,263,000 )

Cash provided by operating activities was $5,269,000 more for fiscal 2012 compared to fiscal 2011. The major contributor to this cash flow increase was a decrease in accounts receivable in fiscal 2012, compared to a substantial increase in fiscal 2011, which was partially offset by a cash flow decrease caused by a slight decrease in accounts payable in fiscal 2012 compared to a substantial increase in fiscal 2011.

Cash used in investing activities was $2,975,000 higher in fiscal 2012, largely due to the Company decreasing its position in short-term investments in fiscal 2011. The change in investments was solely due to seeking appropriate returns and risk on invested cash. In addition, capital expenditures increased by $746,000 in fiscal 2012 compared to the prior year. The Company expended approximately $380,000 in overhaul costs for its corporate aircraft in fiscal 2012 and also expended $284,000 for vehicles and tooling for new GAS stations in fiscal 2012.

Cash used in financing activities was $267,000 less in fiscal 2012 compared to fiscal 2011 due to a $191,000 reduction in dividend paid in fiscal 2012 and $124,000 proceeds from the exercise of stock options in fiscal 2012.

There are currently no commitments for significant capital expenditures. The Company's Board of Directors, on August 7, 1997, adopted the policy to pay an annual cash dividend in the first quarter of each fiscal year, in an amount to be determined by the board. On May 18, 2012 the Company declared a $.25 per share cash dividend, to be paid on June 29, 2012 to shareholders of record June 8, 2012.

Off-Balance Sheet Arrangements

The Company defines an off-balance sheet arrangement as any transaction, agreement or other contractual arrangement involving an unconsolidated entity under which a Company has (1) made guarantees, (2) a retained or a contingent interest in transferred assets, (3) an obligation under derivative instruments classified as equity, or (4) any obligation arising out of a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company, or that engages in leasing, hedging, or research and development arrangements with the Company. The Company is not currently engaged in the use of any of these arrangements.

Impact of Inflation

The Company believes that inflation has not had a material effect on its manufacturing operations, because increased costs to date have been passed on to its customers. Under the terms of its overnight air cargo business contracts the major cost components of its operations, consisting principally of fuel, crew and other direct operating costs, and certain maintenance costs are reimbursed by its customer. Significant increases in inflation rates could, however, have a material impact on future revenue and operating income.

Seasonality

GGS's business has historically been seasonal. The Company has continued its efforts to reduce GGS's seasonal fluctuation in revenues and earnings by increasing military and international sales and broadening its product line to increase revenues and earnings throughout the year. In June 1999, GGS was awarded a four-year contract to supply deicing equipment to the United States Air Force, and subsequently was awarded two three-year extensions on the contract, which expired in June 2009. In July 2009, GGS was awarded a new one-year contract with the United States Air Force with four additional one-year extension options. Although sales remain somewhat seasonal, particularly with regard to commercial deicers which typically are delivered prior to the winter season, this diversification has lessened the seasonal impacts in the past when sales under the contract with the United States Air Force were a significant component of the Company's revenues. If sales to the United States Air Force cease to be a significant component of GGS's sales, seasonal patterns of revenues and earnings attributable to its commercial deicer business may resume, with revenues and operating income for the segment being lower in the first and fourth fiscal quarters. The overnight air cargo and ground support services segments are not susceptible to seasonal trends.

Critical Accounting Policies and Estimates

The Company's significant accounting policies are more fully described in Note 1 of Notes to the Consolidated Financial Statements in Item 8. The preparation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company's estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. The Company believes that the following are its most significant accounting policies:

Allowance for Doubtful Accounts. An allowance for doubtful accounts receivable is established based on management's estimates of the collectability of accounts receivable. The required allowance is determined using information such as customer credit history, industry information, credit reports, customer financial condition and the collectability of outstanding accounts receivables. The estimates can be affected by changes in the financial strength of the aviation industry, customer credit issues or general economic conditions.

Inventories. The Company's parts inventories are valued at the lower of cost or market. Provisions for excess and obsolete inventories are based on assessment of the marketability of slow-moving and obsolete inventories. Historical parts usage, current period sales, estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates. Estimates are subject to volatility and can be affected by reduced equipment utilization, existing supplies of used inventory available for sale, the retirement of aircraft or ground equipment and changes in the financial strength of the aviation industry.

Warranty Reserves. The Company warranties its ground equipment products for up to a three-year period from date of sale. Product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known.

Income Taxes. Income taxes have been provided using the liability method. Deferred income taxes reflect the net affects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes using enacted rates expected to be in effect during the year in which the basis differences reverse.

Revenue Recognition. Cargo revenue is recognized upon completion of contract terms. Maintenance and ground support services revenue is recognized when the service has been performed. Revenue from product sales is recognized when contract terms are completed and ownership has passed to the customer.

Recent Accounting Pronouncements

We do not believe there are any recently issued accounting standards that have not yet been adopted that will have a material impact on the Company's financial statements.

Forward Looking Statements

Certain statements in this Report, including those contained in "Overview," are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company's financial condition, results of operations, plans, objectives, future performance and business. Forward-looking statements include those preceded by, followed by or that include the words "believes", "pending", "future", "expects," "anticipates," "estimates," "depends" or similar expressions. These forward-looking statements involve risks and uncertainties. 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;

· The risk that contracts with FedEx could be terminated or adversely modified in connection with any renewal;

· The risk that the number of aircraft operated for FedEx will be further reduced;

· The risk that the United States Air Force will continue to defer significant orders for deicing equipment under its contract with GGS;

· The impact of any terrorist activities on United States soil or abroad;

· The Company's ability to manage its cost structure for operating expenses, or unanticipated capital requirements, and match them to shifting customer service requirements and production volume levels;

· The risk of injury or other damage arising from accidents involving the Company's overnight air cargo operations, equipment sold by GGS or services provided by GGS or GAS;

· Market acceptance of the Company's new commercial and military equipment and services;

· Competition from other providers of similar equipment and services;

· Changes in government regulation and technology;

· Mild winter weather conditions reducing the demand for deicing equipment.

A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. We are under no obligation, and we expressly disclaim any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.