What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-06-25 compared with 2020-06-26 · 439 added, 392 removed, 754 unchanged (52% of the section changed)

29 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Redeemable non-controlling interest – valuation of Contrail Aviation Support, LLC — Refer to Notes 1 and 5 to the financial statements

Critical Audit Matter Description

The Company has a 79% controlling interest in Contrail Aviation Support, LLC and is party to an operating agreement with the owner of the remaining 21% ownership interest in Contrail Aviation Support, LLC, that contains certain future redemption features that are outside the control of the Company.

This arrangement is recorded and disclosed as a redeemable non-controlling interest at fair value of $6.6 million as of March 31, 2021.

The Company adjusts the redeemable non-controlling interest each reporting period to the higher of the redemption value or carrying value, using a combination of the income approach, utilizing a discounted cash flow analysis, and the market approach, utilizing the guideline public company method.

The determination of fair value includes estimation uncertainty under both approaches.

The income approach requires significant management judgment with respect to forecasts of future revenue, operating margins, and capital expenditures, and the selection and use of an appropriate discount rate.

The 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 Aviation Support, LLC.

We identified the valuation of redeemable non-controlling interest in Contrail Aviation Support, LLC as a critical audit matter given the significant judgments and assumptions required by management to estimate the fair value of the redeemable non-controlling interest, as well as the fact that performing audit procedures required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the significant judgments and assumptions utilized in the valuation of the redeemable non-controlling interest in Contrail Aviation Support, LLC, included the following, among others:

• We evaluated the reasonableness of management’s forecasts of future revenue and operating margins by comparing the forecasts to:

◦ Historical results of Contrail Aviation Support, LLC, and

◦ Forecasted information included in industry reports.

• We considered the impact of industry and market conditions on management’s forecasts for Contrail Aviation Support, LLC.

• We involved our fair value specialists to assist in the evaluation of:

◦ The valuation methodologies used by the Company to determine whether they were consistent with generally accepted valuation practices, and reasonably weighted.

◦ The discount rates, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.

◦ Earnings multiples, including testing the underlying source information and mathematical accuracy of the calculations, and evaluating the appropriateness of the Company’s selection of companies in its industry comparable groups.

• We performed sensitivity analyses with regard to forecasted revenue and the discount rate to evaluate the changes in the fair value of the redeemable non-controlling interest in Contrail Aviation Support, LLC, that would result from changes in those significant assumptions.

• We evaluated whether the business and valuation assumptions used were consistent with evidence obtained in other areas of the audit.

Inventories, net – valuation of inventories– Refer to Notes 1 and 6 to the financial statements

Critical Audit Matter Description

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

In its periodic evaluation of the carrying value of these inventories, the Company is required to make estimates regarding the net realizable value, which includes the consideration of sales patterns and expected future demand.

Changes in these assumptions could have a significant impact on the valuation of certain inventory held by the Company’s Commercial Jet Engines and Parts operating segment.

We identified the valuation of certain inventory held by the Company’s Commercial Jet Engines and Parts operating segment as a critical audit matter.

Given the magnitude of the inventories at certain business units, coupled with the significant judgments necessary to project sales patterns and expected future demand, as well as changes in economic and market conditions brought on by COVID-19, auditing such estimates required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the sales patterns and expected future demand, used by management to determine the valuation of inventories, included the following, among others:

• We evaluated the reasonableness of the sales patterns and expected future demand, and related inputs used by management, by comparing the information to:

◦ Historical results of those business units.

◦ Forecasted sales based on recent quote and sales information for similar parts within the Company’s inventory.

◦ Market data and forecasts with regard to the recovery of the airline industry from the impacts of COVID-19.

• We involved our fair value specialists to assist in the evaluation of:

◦ The methodology used by, and the qualifications of, the Company’s third-party specialist.

◦ The key assumptions underlying the valuation of a representative sample of inventories including recent quotes, number of vendors, number of components, and component condition.

• We held discussions with various members of management to understand the status of any plans to monetize certain inventories at less than carrying value to meet cash flow demands and evaluated whether the determination of net realizable value for those inventories reflects the status of management’s plans.

/s/ Deloitte & Touche LLP

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Commercial jet engines and parts 46,793 101,284

Printing equipment and maintenance 306 655

Corporate and other 1,398 1,070

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Commercial jet engines and parts 36,710 70,188

Printing equipment and maintenance 164 350

General and administrative 34,264 39,781

Depreciation and amortization 3,107 5,681

Write-down of inventory 6,405 —

Impairment of property and equipment 187 18

1 unchanged sentence

184,296 229,494

Operating Income from continuing operations 7,291 9,331

Operating (Loss) Income from continuing operations ( 9,175 ) 7,291

Non-operating Income (Expense):

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Gain on settlement of bankruptcy — 4,527

Bargain purchase acquisition gain 49 1,984

Income (loss) from equity method investments ( 910 ) 341

Loss from equity method investments ( 723 ) ( 910 )

Other 2,741 ( 1,287 )

( 2,606 ) ( 4,667 )

Income from continuing operations before income taxes 2,624 5,968

Income Taxes (Benefit) ( 544 ) 1,761

Net income from continuing operations 3,168 4,207

(Loss) Income from continuing operations before income taxes ( 11,781 ) 2,624

Income Tax Benefit ( 3,387 ) ( 544 )

Net (Loss) Income from continuing operations ( 8,394 ) 3,168

Loss from discontinued operations, net of tax — ( 114 )

Gain on sale of discontinued operations, net of tax 4 8,179

Net income 11,233 3,201

Net Income Attributable to Non-controlling Interests ( 3,577 ) ( 1,861 )

Net Income Attributable to Air T, Inc.

Net (Loss) Income ( 8,390 ) 11,233

Net Loss (Income) Attributable to Non-controlling Interests 1,113 ( 3,577 )

Net (Loss) Income Attributable to Air T, Inc.

Stockholders $ ( 7,277 ) $ 7,656

Income (Loss) from continuing operations per share (Note 24)

Loss from continuing operations per share (Note 22)

Basic $ ( 2.53 ) $ ( 0.15 )

Diluted $ ( 2.53 ) $ ( 0.15 )

Income (Loss) from discontinued operations per share (Note 24)

Income from discontinued operations per share (Note 22)

Basic $ — $ 2.89

Diluted $ — $ 2.88

Income per share (Note 24)

(Loss) Income per share (Note 22)

Basic $ ( 2.53 ) $ 2.74

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(In thousands) 2021 2020

Net Income $ 11,233 $ 3,201

Net (Loss) Income $ ( 8,390 ) $ 11,233

Other Comprehensive Income:

Foreign currency translation gain 212 225

Unrealized loss on interest rate swaps, net of tax of $ 157 and $ 70

( 529 ) ( 236 )

Foreign currency translation (loss) gain ( 409 ) 212

Unrealized gain/(loss) on interest rate swaps, net of tax of $ 78 and $ 157

Reclassification of interest rate swaps into earnings ( 18 ) —

Total Other Comprehensive Loss ( 165 ) ( 317 )

Total Comprehensive Income 10,916 3,190

Comprehensive Income Attributable to Non-controlling Interests ( 3,592 ) ( 1,900 )

Comprehensive Income Attributable to Air T, Inc.

Total Comprehensive (Loss) Income ( 8,555 ) 10,916

Comprehensive Loss (Income) Attributable to Non-controlling Interests 1,113 ( 3,592 )

Comprehensive (Loss) Income Attributable to Air T, Inc.

Stockholders $ ( 7,442 ) $ 7,324

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Other current assets 4,068 5,279

Current assets of discontinued operations — 11,601

Total Current Assets 105,774 98,486

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Right-of-use assets 7,757 8,116

Cash surrender value of life insurance policies, net of policy loans 243 122

Other tax receivables-long-term — 311

Deferred income tax assets, net — 548

Investments in securities 815 1,086

Equity method investments 4,475 5,208

Intangible assets, net of accumulated amortization of $2,380 and $2,097 749 998

Goodwill 4,227 4,227

Other assets 7,867 2,173

Non-current assets of discontinued operations — 1,264

Total Assets $ 140,750 $ 151,427

6 unchanged sentences

Short-term lease liability 1,370 1,174

Current liabilities of discontinued operations — 1,587

Total Current Liabilities 28,179 67,746

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Commitments and contingencies (Note 23)

Stockholders' Equity:

Preferred stock, $ 1.00 par value, 50,000 shares authorized

Common stock, $ 0.25 par value;

4,000,000 shares authorized, 3,022,745 and 2,022,637 shares issued, 2,881,853 and 2,022,637 shares outstanding 756 506

4,000,000 shares authorized, 3,022,745 shares issued and 2,881,853 shares outstanding

Treasury stock, 140,892 shares at $ 18.58

( 2,617 ) ( 2,617 )

Additional paid-in capital — 2,636

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CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 11,233 $ 3,201

Net (loss) income $ ( 8,390 ) $ 11,233

Loss from discontinued operations, net of income tax — 114

Gain on sale of discontinued operations, net of income tax ( 4 ) ( 8,179 )

Net income from continuing operations 3,168 4,207

Net (loss) income from continuing operations ( 8,394 ) 3,168

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 3,107 5,712

Bargain purchase acquisition gain ( 49 ) ( 1,984 )

Impairment of investment — 2,305

1 unchanged sentence

Gain on settlement of bankruptcy — ( 4,509 )

Write-down of inventory 6,405 —

Other 1,019 1,112

1 unchanged sentence

Accounts receivable 6,074 ( 2,242 )

Costs and estimated earnings in excess of billings and uncompleted projects — 2,012

Notes receivable and other non-trade receivables 727 ( 4,942 )

Inventories ( 129 ) ( 29,614 )

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Total adjustments ( 2,487 ) ( 28,742 )

Net cash (used in) provided by operating activities - continuing operations ( 26,231 ) 22,356

Net cash provided by (used in) operating activities - discontinued operations 1,157 ( 1,420 )

Net cash (used in) provided by operating activities ( 25,074 ) 20,936

Net cash used in operating activities - continuing operations ( 1,823 ) ( 26,231 )

Net cash provided by operating activities - discontinued operations 4 1,157

Net cash used in operating activities ( 1,819 ) ( 25,074 )

CASH FLOWS FROM INVESTING ACTIVITIES

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Other ( 919 ) 135

Net cash used in investing activities - continuing operations ( 11,568 ) ( 22,853 )

Net cash provided by (used in) investing activities - discontinued operations 20,173 ( 151 )

Net cash provided by (used in) investing activities 8,605 ( 23,004 )

Net cash provided by (used in) investing activities - continuing operations 2,516 ( 11,568 )

Net cash provided by investing activities - discontinued operations — 20,173

Net cash provided by investing activities 2,516 8,605

CASH FLOWS FROM FINANCING ACTIVITIES:

3 unchanged sentences

Payments on term loan ( 27,275 ) ( 47,438 )

Proceeds received from issuance of TruPs 8,522 —

Proceeds from life insurance policy loan — 2,328

Proceeds from PPP loan 8,215 —

Proceeds received from issuance of Trust Preferred Securities ("TruPs") 1,341 8,522

Other ( 2,319 ) ( 4,559 )

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Non-cash capital expenditures related to property & equipment 31 —

Equipment leased to customers transferred to Inventory 4,932 —

Equipment leased or held for lease to customers transferred to Inventory 19,623 4,932

Equipment in Inventory transferred to Assets on Lease — 501

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CONSOLIDATED STATEMENTS OF EQUITY

(In thousands) Common Stock Additional

(In thousands) Common Stock Treasury Stock

Share Amount Share Amount Additional

Comprehensive

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Non-controlling

Shares Amount

Balance, March 31, 2019 2,023 $ 506 — $ — $ 2,867 $ 21,191 $ ( 205 ) $ ( 1,001 ) $ 23,358

Net income (loss)* 1,340 ( 166 ) 1,174

Adoption of ASU 2016-01 ( 106 ) 106 —

Foreign currency translation gain 185 40 225

Net income* 7,656 1,991 9,647

Stock Split 1,010 252 ( 252 ) —

Repurchase of common stock ( 10 ) ( 2 ) 141 ( 2,617 ) ( 198 ) ( 2,817 )

Exercise of stock options 2 1 17 18

Unrealized loss on interest rate swaps, net of tax ( 235 ) ( 235 )

Issuance of Debt - Trust Preferred Securities ( 4,000 ) ( 4,000 )

Issuance of Warrants ( 840 ) ( 840 )

Adoption of ASC 842 - Leasing ( 41 ) ( 41 )

Foreign currency translation gain 197 15 212

Adjustment to fair value of redeemable non-controlling interest 21 21

Unrealized loss of interest rate swaps, net of tax ( 529 ) ( 529 )

Balance, March 31, 2020 3,023 $ 756 141 $ ( 2,617 ) $ 2,636 $ 23,768 $ ( 537 ) $ 1,005 $ 25,011

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Balance, March 31, 2020 3,023 $ 756 141 $ ( 2,617 ) $ 2,636 $ 23,768 $ ( 537 ) $ 1,005 $ 25,011

Net income* 7,656 1,991 9,647

Stock Split 1,010 252 ( 252 ) —

Repurchase of common stock ( 10 ) ( 2 ) 141 ( 2,617 ) ( 198 ) ( 2,817 )

Issuance of Debt - Trust Preferred Securities ( 4,000 ) ( 4,000 )

Issuance of Warrants ( 840 ) ( 840 )

Adoption ASC 842 - Leasing ( 41 ) ( 41 )

Foreign currency translation gain 197 15 212

Net loss* ( 7,277 ) ( 16 ) ( 7,293 )

Foreign currency translation loss ( 409 ) ( 409 )

Adjustment to fair value of redeemable non-controlling interest ( 2,636 ) ( 221 ) ( 2,857 )

Unrealized loss on interest rate swaps, net of tax ( 529 ) ( 529 )

Unrealized gain on interest rate swaps, net of tax 262 262

Balance, March 31, 2021 3,023 $ 756 141 $ ( 2,617 ) $ — $ 16,270 $ ( 684 ) $ 989 $ 14,714

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Our goal is to prudently and strategically diversify Air T’s earnings power and compound the growth of free cash flow per share over time.

We currently operate in five industry segments:

We currently operate in four industry segments:

• Overnight air cargo, which operates in the air express delivery services industry;

• Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers;

• Commercial jet engines and parts, which manages and leases aviation assets;

• Commercial aircraft, engines and parts, which manages and leases aviation assets;

supplies surplus and aftermarket commercial jet engine components;

provides commercial aircraft disassembly/part-out services;

commercial jet engines and jet aircraft parts sales;

procurement services and overhaul and repair services to airlines and commercial aircraft companies;

• Printing equipment and maintenance, which designs, manufactures and sells advanced digital print production equipment and provides maintenance services to commercial customers;

• Corporate and other, which acts as the capital allocator and resource for other segments.

commercial aircraft parts sales;

procurement services and overhaul and repair services to airlines and;

• Corporate and other, which acts as the capital allocator and resource for other consolidated businesses.

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

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.

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

Discontinued Operations

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Refer to Footnote 2 - "Discontinued Operations" for additional information.

The Company's results of operations related to GAS have been reclassified as discontinued operations on a retrospective basis for all years presented.

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

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All intercompany transactions and balances have been eliminated in consolidation.

Certain reclassifications have been made to the prior period amounts to conform to the current presentation.

Accounting Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts of assets and liabilities and amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

During the last quarter of fiscal 2020, there was a global outbreak of a novel coronavirus, or COVID-19, which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States.

The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19.

The impact of the outbreak on the U.S.

and world economies has been rapidly evolving, and as cases of COVID-19 have continued to be identified in additional countries, there have been international mandates, and mandates in the United States from federal, state and local authorities, instituting quarantines and stay-at-home orders, closing schools, and instituting restrictions on travel and/or limiting operations of non-essential offices and retail centers.

Such actions are adversely impacting many industries, with the aviation industries being particularly adversely affected.

The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.

The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions.

The Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable based on the information available as of March 31,

2020, however uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2020 inherently less certain than they would be absent the current and potential impacts of COVID-19.

Segments - The Company has five reportable operating segments:

overnight air cargo, ground equipment sales, ground support services, commercial jet engine and parts, printing equipment and maintenance, corporate and other.

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 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.

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 and potentially even longer.

We expect that these impacts will continue to some extent if the outbreak persists.

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 Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable based on the information available as of March 31, 2021, however;

uncertainty over the ultimate impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2021 inherently less certain than they would be absent the current and potential impacts of COVID-19.

Segments - The Company has four reportable operating segments:

overnight air cargo, ground equipment sales, commercial jet engine and parts and corporate and other.

The Company assesses the performance of these segments on an individual basis (see Note 21 ).

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Cash and Cash Equivalents – Cash equivalents consist of liquid investments with maturities of three months or less when purchased.

Financial Instruments Designated for Trading – Except for short sales of equity securities, the Company accounts for all other financial instruments (including derivative instruments) designated for trading in accordance with ASC 815.

All changes in the fair value of the financial instruments designated for trading are recognized in earnings as they occur.

Further, all gains and losses on derivative instruments designated for trading are presented net on the consolidated Statements of Income (Loss).

The fair value of derivative instruments designated for trading in a gain position are recorded in Other Current Assets and the fair value of derivative instruments designated for trading in a loss position are recorded in Accrued Expenses and Other on the consolidated Balance Sheets.

The Company accounts for short sales of equity securities in accordance with ASC 942 and ASC 860.

The obligations incurred in short sales are reported in Accrued Expenses and Other on the consolidated Balance Sheets.

They are subsequently measured at fair value through the income statement at each reporting date with gains and losses on securities.

Interest on the short positions are accrued periodically and reported as interest expense.

The market value of the Company’s equity securities and cash held by the broker are used as collateral against any outstanding margin account borrowings for purposes of short selling equities.

This collateral is recorded in Other Current Assets on the consolidated Balance Sheets.

The Company reports all cash receipts and payments resulting from the purchases and sales of securities, loans, and other assets that are acquired specifically for resale as operating cash flows.

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

When finished goods units are leased to customers under operating leases, the units are transferred to Assets on Lease or Held For Lease.

The classification of cash flows associated with the purchase and sale of finished goods is based on the activity that is likely to be the predominant source

or use of cash flows for the items.

The classification of cash flows associated with the purchase and sale of finished goods is based on the activity that is likely to be the predominant source or use of cash flows for the items.

Consistent with aviation industry practice, the Company includes expendable aircraft parts and supplies in current assets, although a certain portion of these inventories may not be used or sold within one year.

The Company periodically evaluates the carrying value of inventory.

In these evaluations, the Company is required to make estimates regarding the net realizable value, which includes the consideration of sales patterns and expected future demand.

Any slow moving, obsolete or damaged inventory and inventory with costs exceeding net realizable value are evaluated for

These estimates could vary significantly from actual amounts based upon future economic conditions, customer inventory levels, or competitive factors that were not foreseen or did not exist when the estimated write-downs were made.

In accordance with industry practice, all inventories are classified as a current asset including portions with long production cycles, some of which may not be realized within one year.

Investments under the Equity Method – The Company utilizes the equity method to account for investments when the Company possesses the ability to exercise significant influence, but not control, over the operating and financial policies of the investee.

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The fair value is determined through quoted prices in active markets or various valuation techniques, including internally developed discounted cash flow models or comparable market transactions.

Goodwill - The Company tests goodwill for impairment at least once annually.

An impairment test will also be carried out anytime events or changes in circumstances indicate that goodwill might be impaired.

Goodwill is tested for impairment at a level of reporting referred to as a reporting unit.

The Company is permitted to first assess qualitative factors to determine whether it is more likely than not (this is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value, including goodwill.

Goodwill - The Company evaluates goodwill on an annual basis or anytime events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

The Company is permitted to first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying value, including goodwill.

In qualitatively evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company assesses relevant events and circumstances such as macroeconomic conditions, industry and market developments, cost factors, and the overall financial performance of the reporting unit.

If, after assessing these events and circumstances, it is determined that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then the first and second steps of the quantitative goodwill impairment test are unnecessary.

If, after assessing these events and circumstances, it is determined that there may be an impairment, then a quantitative analysis is performed.

In the first step of the quantitative method, recoverability of goodwill is evaluated by estimating the fair value of the reporting unit’s goodwill using multiple techniques, including a discounted cash flow model income approach and a market approach.

The estimated fair value is then compared to the carrying value of the reporting unit.

If the fair value of a reporting unit is less than its carrying value, a second step is performed to determine the amount of impairment loss, if any.

The second step requires allocation of the reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations.

Any residual fair value is allocated to goodwill.

Impairment losses, limited to the carrying value of goodwill, represent the excess of the carrying amount of goodwill over its implied fair value.

The Company will recognize an impairment charge for the amount by which the carrying value of the reporting unit exceeds its fair value, if any.

Goodwill consisted of the following (in thousands):

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Goodwill, net of impairment $ 4,227 $ 4,227

As of March 31, 2020, the Company had approximately $ 4.2 million of goodwill, which is entirely related to the acquisition of Contrail Aviation.

We performed our annual impairment assessment for goodwill of the Contrail reporting unit.

In 2020, the occurrence of COVID-19 has greatly impacted the macroeconomic conditions and the outlook of the airline industry.

As of March 31, 2021, the entire $ 4.2 million goodwill balance is attributable to the acquisition of Contrail Aviation and included within the Commercial Jet Engines and Parts segment.

We performed our annual impairment assessment for goodwill of the Contrail reporting unit at March 31, 2021.

In the fiscal year 2021, COVID-19 greatly impacted the macroeconomic conditions and the outlook of the airline industry.

Due to this, the Company performed a quantitative analysis 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 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.

The forecasts and assumptions are based on our annual and long-term business plans.

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Customer relationship 10

Property and Equipment and Assets on Lease or Held for Lease – Property and equipment is stated initially at cost, or fair value if purchased as part of a business combination or, in the case of equipment under capital leases, the present value of future lease payments.

Property and Equipment and Assets on Lease or Held for Lease – Property and equipment is stated initially at cost, or fair value if purchased as part of a business combination.

Depreciation and amortization are provided on a straight-line basis over the asset’s useful life.

Equipment leased to customers is depreciated using the straight line method.

Useful lives range from three years for computer equipment, seven years for flight equipment, ten years for deicers and other equipment leased to customers and 30 years for buildings.

Useful lives range from three years for computer equipment, seven years for flight equipment, ten years for deicers and other equipment leased to customers and thirty years for buildings.

Engine assets on lease or held for lease are stated at cost, less accumulated depreciation.

Certain costs incurred in connection with the acquisition of engine assets are capitalized as part of the cost of such assets.

Major overhauls which improve functionality or extend original useful life are capitalized and depreciated over the estimated remaining useful life of the equipment.

If assets are not actively being leased (i.e.

held for lease), then they are not being depreciated.

Major overhauls which improve functionality or extend original useful life are capitalized and depreciated over the engine assets' useful life to a residual value.

The Company depreciates the engines on a straight-line basis over the assets' useful life from the acquisition date to a residual value.

The Company adjusts its estimates annually for these older generation assets, including updating estimates of an engine’s or aircraft’s remaining operating life as well as future residual value expected from part-out based on the current technical status of the engine or aircraft.

The Company believes this methodology accurately reflects the typical holding period for the assets and, that the residual value assumption reasonably approximates the selling price of the assets.

The Company adjusts its estimates annually for these older generation assets, including updating estimates of an engine’s or aircraft’s remaining operating life.

The Company believes this methodology accurately reflects the typical holding period for the assets and, that the residual value assumption, which is dependent on the Company's eventual plan for the engine assets (i.e.

whole asset sale, part-out, etc.), reasonably approximates the selling price of the assets.

When engine assets are committed for sales, the assets are transferred to Inventory.

1 unchanged sentence

The Company assesses long-lived assets for impairment when events and circumstances indicate the assets may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amount.

When evaluating the future cash flows that an asset will generate, we make assumptions regarding the lease market for specific engine models, including estimates of market lease rates and future demand.

These assumptions are based upon lease rates that we are obtaining in the current market as well as our expectation of future demand for the specific engine/aircraft model.

We determine fair value of the assets by reference to independent appraisals, quoted market prices (e.g., an offer to purchase) and other factors such as current data from manufacturers as well as specific market sales.

In the event it is determined that the carrying values of long-lived assets are in excess of the estimated undiscounted cash flows from those assets, the Company then will write-down the value of the assets by the excess of carrying value over fair value.

Accounting for Debt Preferred Securities and Warrant Liability – On June 10, 2019, the Company issued an aggregate of 1.6 million TruPs in the amount of $ 4.0 million in a non-cash transaction.

Accounting for Debt - Trust Preferred Securities and Warrant Liability – On June 10, 2019, the Company issued an aggregate of 1.6 million TruPs in the amount of $ 4.0 million in a non-cash transaction.

These TruPs are mandatorily redeemable preferred security obligations of the Company.

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In connection with the issuance of the TruPs, the Company also issued an aggregate of 8.4 million warrants (representing warrants to purchase $ 21.0 million in stated value of TruPs).

A warrant for mandatorily redeemable shares conditionally obligates the issuer to ultimately transfer assets—

the obligation is conditioned only on the warrant's being exercised because the shares will be redeemed.

A warrant for mandatorily redeemable shares conditionally obligates the issuer to ultimately transfer assets—the obligation is conditioned only on the warrant's being exercised because the shares will be redeemed.

Thus, warrants for mandatorily redeemable shares are liabilities under ASC 480.

Accordingly, the Warrants are recorded within "Other non-current liabilities" on our consolidated balance sheets.

The Warrants are recorded at fair value as of March 31, 2020.

Fair value measurement was based on market activity and trading volume as observed on the NASDAQ Global Market.

The liability is classified as Level 2 in the hierarchy (Level 2 is defined as quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability).

As of March 31, 2021, the Warrants are recorded at fair value.

Fair value measurement was based on quoted price for a similar asset or liability as observed on the NASDAQ Global Market.

The liability is classified as Level 2 in the hierarchy.

Income Taxes – Income taxes have been provided using the asset and liability method.

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An uncertain income tax position is not recognized if it has a less than a 50% likelihood of being sustained.

Accounting for Redeemable Non-Controlling Interest – In 2016, Contrail Aviation entered into an Operating Agreement (the “Operating Agreement”) with the Seller providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options (“Put/Call Option”) with regard to the 21% non-controlling interest retained by the Seller.

Accounting for Redeemable Non-Controlling Interest – In 2016, in connection with the Company's acquisition of Contrail Aviation, Contrail Aviation entered into an Operating Agreement (the “Operating Agreement”) with the Seller providing for the governance of and the terms of membership interests in Contrail Aviation.

The Operating Agreement includes put and call options (“Put/Call Option”) 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.

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Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer.

As a result of this redemption feature, the Company recorded the non-controlling interest as redeemable and classified it in temporary equity within its Consolidated Balance Sheets initially at its acquisition-date fair value.

As a result of this feature, the Company recorded the non-controlling interest as redeemable and classified it in temporary equity within its Consolidated Balance Sheets initially at its acquisition-date fair value.

The non-controlling interest is adjusted each reporting period for income (or loss) attributable to the non-controlling interest as well as any applicable distributions made.

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The forecasts and assumptions are based on our annual and long-term business plans.

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

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.

As of March 31, 2021, the fair value of the redeemable non-controlling interest is $ 6.6 million.

The net change in the redemption value compared to March 31, 2019 is an increase of $ 0.6 million, of which $ 21,000 was related to the net change in fair value during the fiscal year ended March 31, 2020, which is reflected on our consolidated statements of equity.

Revenue Recognition – Substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less, as a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.We evaluate gross versus net presentation on revenues from products or services purchased and resold in accordance with the revenue recognition criteria outlined in ASC 606-10, Principal Agent Considerations.

The net change in the redemption value compared to March 31, 2020 is an increase of $ 0.5 million.

The increase was driven by $ 2.9 million related to the net change in fair value during the fiscal year ended March 31, 2021, which is reflected on our consolidated statements of equity, partially offset by net loss attributable to and distributions made to the non-controlling interest.

The fair value increase is primarily attributable to the value associated with Contrail's potential investment in an aircraft asset management joint venture, which subsequently closed on May 5, 2021.

See Note 24 .

Revenue Recognition – Substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less.

As a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.We evaluate gross versus net presentation on revenues from products or services purchased and resold in accordance with the revenue recognition criteria outlined in ASC 606-10, Principal Agent Considerations.

The Company, under the terms of its overnight air cargo dry-lease service contracts, passes through to its air cargo customer certain cost components of its operations without markup.

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These pass-through costs totaled $ 19.9 million and $ 23.7 million for the years ended March 31, 2021 and 2020, respectively.

Certain reclassifications have been made to the prior period amounts to conform to the current presentation.

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

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

As of March 31, 2020, Contrail's management believes based on forecasted results for the fiscal year ended March 31, 2021, it is probable that they may not be in compliance with the debt service coverage ratio for the quarter ended September 30, 2020.

Non-compliance with a debt covenant that is not subsequently cured gives ONB the right to declare the entire amount of Contrail’s outstanding debt at the time of non-compliance immediately due and payable and exercise its remedies with respect to the collateral that secures the debt as described in Note 14 .

Additionally, the Contrail Credit Agreement contains a provision whereby Contrail is required to pay down the total outstanding principal balance of the Contrail revolving credit facility to zero for at least thirty consecutive days during each fiscal year.

With the next paydown requirement date on March 31, 2021, it is probable that Contrail may not be in compliance with this provision.

Contrail management is currently in discussion with ONB to obtain a waiver to its financial covenants and applicable paydown provision mentioned above, and/or secure alternative financing to avoid an event of non-compliance.

With respect to alternative financing, Contrail intends to access debt financing under the Main Street Lending Program, established by the Federal Reserve in response to economic uncertainty caused by the COVID-19 pandemic.

Main Street loans are intended to provide additional credit to companies that were in sound condition prior to the onset of the COVID-19 pandemic.

While Contrail believes that they qualify under the criteria set forth under the Main Street Lending Program, there is no assurance that Contrail will obtain funding under the Main Street program or if such credit would be sufficient.

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

Liquidity – The Company’s Credit Agreement with MBT (the Air T debt in Note 13 ) includes several covenants that are measured once a year at March 31, including, but not limited to, a financial covenant requiring a debt service coverage ratio of 1.25 .

The AirCo 1 Credit Agreement (the AirCo 1 debt in Note 13 ) 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 13 ) 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.

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.

If Contrail were to cease operations, the Company believes it, along with the rest of its businesses, will continue to operate, given the maximum guarantee of Contrail’s obligations of $ 1.6 million, plus costs of collection.

Subsequent to March 31, 2020, the Company obtained loans under the PPP, as authorized by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), of $ 8.2 million to help pay for payroll costs, mortgage interest, rent and utility costs.

The Company may apply to MBT for forgiveness of the PPP Loan, however, forgiveness is not fully assured.

The company believes it is probable that the cash on hand (including that obtained from the PPP), 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.

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 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 .

On December 11, 2020, AirCo 1 and 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 .

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.

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.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) as amended by multiple standards updates.

The new standard provides that a lessee should recognize the assets and the liabilities that arise from leases, including operating leases.

Under the new requirements, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term.

For leases with a term of twelve months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.

The Company adopted the standard in the fiscal year beginning April 1, 2019 using the modified retrospective transition method that does not require retrospective adjustment of the comparative periods.

The Company reviewed existing leases to determine the impact of the adoption of the standard on its consolidated financial statements.

Implementation had an immaterial cumulative effect on retained earnings.

Adoption resulted in the recognition of right-of-use assets of approximately $ 10.7 million, and lease liabilities of approximately $ 11.2 million.

Upon adoption, the Company elected practical expedients related to a) short term lease exemption b) not separate lease and non-lease components c) not reassess whether expired or existing contracts contain leases, d) not reassess lease classification for existing or expired leases and e) not consider whether previously capitalized initial direct costs would be appropriate under the new standard.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.

This standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables.

This standard significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables.

The standard requires an entity to estimate its lifetime “expected credit loss” for such assets at inception, and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset.

For public business entities that are U.S.

Securities and Exchange Commission (SEC) filers, the amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein.

The Company adopted this standard on April 1, 2020.

As of the date of adoption, the standard did not have a material impact on the Company's consolidated financial statements and disclosures.

The Company will continue to assess the impact of this standard in fiscal year 2021.

As of March 31, 2021, the standard did not have a material impact on the Company's consolidated financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350):

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Under this standard, an entity will recognize an impairment charge for the amount by which the carrying value of a reporting unit exceeds its fair value.

The standard is effective for any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and is to be applied prospectively.

Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company adopted this amendment on April 1, 2020.

As of the date of adoption, the amendment did not have a material impact on the Company's consolidated financial statements and disclosures.

The Company will continue to assess the impact of this update in fiscal year 2021.

As of March 31, 2021, the amendment did not have a material impact on the Company's consolidated financial statements and disclosures.

In October 2018, the FASB updated the Consolidation (Topic 810):

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Indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.

The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.

The Company adopted this amendment on April 1, 2020.

As of March 31, 2021, the amendment did not have a material impact on the Company's consolidated financial statements and disclosures.

In December 2019, the FASB updated the Income Taxes (Topic 740):

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The amendments in this Update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income), among other changes.

The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.

The Company early adopted this amendment as of April 1, 2020.

The amendment resulted in an immaterial impact to its consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

In January 2020, the FASB updated the Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions

affected by reference rate reform if certain criteria are met.

The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

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Further, in accordance with the amendments in this Update, an entity may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020.

The amendments in this Update are effective for all entities as of March 12, 2020 through December 31, 2022.

The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of this ASU.

An entity may elect to apply the amendments prospectively through December 31, 2022.

The Company is currently evaluating the impact of this amendment on our contracts, hedging relationships, and other transactions affected by reference rate reform.

DISCONTINUED OPERATIONS

On September 30, 2019, the Company completed the sale of 100 % of the equity ownership in GAS to PrimeFlight Aviation Services, Inc., a Delaware corporation.

On September 30, 2019, the Company completed the sale of 100 % of the equity ownership in the Company’s wholly-owned subsidiary, GAS to PrimeFlight Aviation Services, Inc., a Delaware corporation.

The agreement included a purchase price of $ 21 million as well as an earn-out provision of $ 4 million if certain performance metrics were achieved by March 31, 2020.

The Company received approximately $ 20.5 million of total proceeds at closing after the initial net working capital adjustment, and has concluded that the performance metrics with regard to the earn-out provision have not been met.

The Company recognized a pre-tax gain on the sale of GAS of approximately $ 10.5 million with tax impact of $ 2.3 million for a net of tax gain of $ 8.2 million during the fiscal year ended March 31, 2020.

The gain is subject to change pending final transaction costs and net working capital adjustments.

As of March 31, 2020, the settlement statement has not been finalized.

Those metrics were not achieved per the final settlement statement received during the second quarter ended September 30, 2020.

The Company received approximately $ 20.5 million of total proceeds at closing after the initial net working capital adjustment.

The Company recognized a pre-tax gain on the sale of GAS of approximately $ 10.5 million with a tax impact of $ 2.3 million for a net of tax gain of $ 8.2 million.

Summarized results of operations of GAS for the year ended March 31, 2021 and 2020 through the date of disposition are as follows (in thousands):

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Net sales $ — $ 16,637

Operating Expense ( 17,319 ) ( 35,597 )

Loss from discontinued operations before income taxes ( 682 ) ( 1,265 )

Operating Income (Expense) 4 ( 17,319 )

Gain/(Loss) from discontinued operations before income taxes 4 ( 682 )

Income tax benefit — ( 568 )

Loss from discontinued operations, net of tax $ ( 114 ) $ ( 1,006 )

The following table presents summary balance sheet information of GAS that is presented as discontinued operations as of March 31, 2019 (in thousands):

March 31, 2019

Cash and cash equivalents $ 107

Accounts receivable, net 8,197

Income tax receivable 16

Inventories, net 2,512

Other current assets 769

Current assets of discontinued operations 11,601

Property and equipment, net 554

Intangible assets, net 228

Other non-current assets 292

Non-current assets of discontinued operations 1,264

Accounts payable 1,144

Income tax payable ( 226 )

Accrued expenses 669

Current liabilities of discontinued operations $ 1,587

Income/(Loss) from discontinued operations, net of tax $ 4 $ ( 114 )

The following table presents capital expenditures, depreciation and amortization and other significant operating non-cash items of our discontinued operations for fiscal 2021 and 2020 (in thousands):

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Approximately 35 % and 16 % of the Company’s consolidated accounts receivable at March 31, 2021 and 2020, respectively, were due from FedEx Corporation.

BUSINESS COMBINATIONS

Acquisition of Worthington Aviation Parts, Inc.

On May 4, 2018, the Company completed the acquisition (the “Transaction”) of substantially all of the assets and assumed certain liabilities of Worthington Aviation Parts, Inc.

(“Worthington”), pursuant to the Asset Purchase Agreement (the “Purchase Agreement”), dated as of April 6, 2018, by and among the Company, Worthington, and Churchill Industries, Inc., as guarantor of Worthington’s obligations as disclosed in the Purchase Agreement.

Worthington is primarily engaged in the business of operating, distributing and selling airplane and aviation parts along with repair services.

The Company agreed to acquire the assets and liabilities in exchange for payment to Worthington of $ 50,000 as earnest money upon execution of the Purchase Agreement and a cash payment of $ 3.3 million upon closing.

Total consideration is summarized in the table below (in thousands):

Earnest money $ 50

Cash consideration 3,300

Cash acquired ( 24 )

Total consideration $ 3,326

The Transaction was accounted for as a business combination in accordance with ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of May 4, 2018, with the excess of fair value of net assets acquired recorded as a bargain purchase gain.

The most significant asset acquired was Worthington’s inventory.

The following table outlines the consideration transferred and purchase price allocation at the respective estimated fair values as of May 4, 2018 (in thousands):

Accounts receivable $ 1,929

Inventories 4,564

Other current assets 150

Property and equipment 392

Other assets 189

Intangible assets - tradename 138

Total assets 7,362

Accounts payable 1,289

Accrued expenses 175

Deferred tax liability 589

Total liabilities 2,053

Net assets acquired $ 5,309

Consideration paid $ 3,350

Cash acquired ( 24 )

Bargain purchase gain $ 1,983

The transaction resulted in a bargain purchase gain because Worthington was a non-marketed transaction and in financial distress at the time of the acquisition.

The seller engaged in a formal bidding process and determined that the Company was the best option for Worthington.

The tax impact related to the bargain purchase gain was to record a deferred tax liability and record tax expense against the bargain purchase gain of approximately $ 0.6 million.

The resulting net bargain purchase gain after taxes was approximately $ 2.0 million.

Total transaction costs incurred in connection with this acquisition were approximately $ 83,000 .

Pro forma financial information is not presented as the results are not material to the Company’s consolidated financial statements.

VARIABLE INTEREST ENTITIES

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The Company consolidated Delphax in its consolidated financial statements beginning on that date.

Delphax is included within our Corporate and other segment.

Upon petition by the Company, on August 8, 2017 the Ontario Superior Court of Justice in Bankruptcy and Insolvency adjudged Delphax Canada to be bankrupt.

As a result, Delphax Canada ceased to have capacity to deal with its property, which

then vested in the trustee in bankruptcy of Delphax Canada subject to the rights of secured creditors.

As a result, Delphax Canada ceased to have capacity to deal with its property, which then vested in the trustee in bankruptcy of Delphax Canada subject to the rights of secured creditors.

As of June 30, 2019, the bankruptcy proceedings were finalized in accordance with Canadian law and, therefore, Delphax Canada was legally discharged of its liabilities.

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The Company extinguished the assets and liabilities of Delphax Canada and Delphax UK during the quarter ended June 30, 2019 and recognized a gain on dissolution of entities of $ 4.5 million.

Delphax had total assets and liabilities with carrying values of $ 0 million and $ 0.5 million, as of March 31, 2020 and $ 0.4 million and $ 7.1 million, as of March 31, 2019.

Delphax had total assets and liabilities with carrying values of $ 8.0 thousand and $ 0.5 million, as of March 31, 2021 and $ 11.0 thousand and $ 0.5 million, as of March 31, 2020.

Delphax’s components of net income (loss) are included in our consolidated statements of income and comprehensive income herein.

For the years ended March 31, 2020 and 2019, Delphax did not recognize any revenue.

For the year ended March 31, 2020, Delphax recorded net income of $ 6.1 million, broken out between an operating loss of $ 0.2 million and non-operating income of $ 6.3 million, the majority of which was the result of the gain on dissolution of entities of $4.5 million.

For the year ended March 31, 2019, Delphax recorded net loss of $ 0.5 million, broken out between an operating loss of $ 0.3 million and non-operating expense of $ 0.2 million.

For the fiscal years ended March 31, 2021 and 2020, Delphax did not recognize any revenue, respectively.

For the fiscal year ended March 31, 2021, Delphax recorded net loss and operating loss of $ 48.0 thousand.

For the fiscal year ended March 31, 2020, Delphax recorded net income of $ 6.1 million, broken out between an operating loss of $ 0.2 million and non-operating income of $ 6.3 million, the majority of which was the result of the gain on dissolution of entities of $ 4.5 million.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures and reports financial assets and liabilities at fair value, on a recurring basis.

The Company measures and reports financial assets and liabilities at fair value.

Fair value measurement is classified and disclosed in one of the following three categories:

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Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following consolidated balance sheet items are measured at fair value (in thousands):

Assets Measured and Recorded at Fair Value on a Recurring Basis

The following consolidated balance sheet items are measured at fair value on a recurring basis (in thousands):

Fair Value Measurements at March 31,

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Interest rate swaps (Level 2) $ 593 $ 914

Acquisition contingent consideration obligations (Level 3) $ — $ 489

Debt - Trust Preferred Securities (Level 2) $ 14,289 12,877

Warrants Liability (Level 2) $ 414 485

Redeemable non-controlling interest (Level 3) $ 6,598 $ 6,080

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Since these inputs are observable in active markets over the terms that the instruments are held, the derivatives are classified as Level 2 in the hierarchy.

The fair value of the acquisition contingent consideration obligations is based on a discounted cash flow analysis using projected EBITDA over the earn-out period and is classified as Level 3 in the hierarchy.

The fair value of the Debt - Trust Preferred Securities was based on quoted prices as observed on the NASDAQ Global Market.

The fair value of the Warrants was derived from quoted prices for a similar asset or liability as observed on the NASDAQ Global Market.

Both of these items are classified as Level 2 in the hierarchy.

The fair value of the redeemable non-controlling interest is based on a combination of market approach and income approach and is classified as Level 3 in the hierarchy.

The fair value measurements which use significant observable inputs (Level 3), changed due to the following (in thousands):

Consideration

Obligations Redeemable Non-

Redeemable Non-

Beginning Balance as of April 1, 2020 $ 6,080

Payment of contingent consideration ( 489 ) —

Contribution from non-controlling member —

Distribution to non-controlling member ( 1,244 )

Net income attributable to non-controlling interests — 1,586

Net loss attributable to non-controlling interests ( 1,095 )

Fair value adjustment 2,857

Interest accrued on contingent consideration —

Ending Balance as of March 31, 2021 $ 6,598

The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, restricted cash, accounts receivable, notes receivable and accounts payable approximate their fair value at March 31, 2020 and 2019.

Assets Measured and Recorded at Fair Value on a Nonrecurring Basis

The Company determines fair value of engine assets on lease or held for lease by reference to independent appraisals, quoted market prices (e.g.

an offer to purchase) and other factors such as current data from manufacturers as well as specific market sales.

An impairment charge is recorded when the carrying value of the asset exceeds its fair value.

The Company used Level 2 inputs to measure write-downs of engine assets on lease or held for lease.

As of March 31, 2021, as a result of our year-end valuation, we did not identify any impairment on our engine assets on lease or held for lease.

Inventories consisted of the following (in thousands):

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Finished goods 1,691 1,725

Printing equipment and maintenance:

Corporate and Other:

Raw materials 462 464

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Total, net of reserves $ 71,971 $ 60,623

A write-down of $ 6.4 million was recorded on the inventory of the commercial jet engines and parts segment during the fiscal year ended March 31, 2021.

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.

ASSETS ON LEASE

The Company leases equipment to third parties, primarily through Contrail which leases engines to aviation customers with lease terms between 1 and 3 years under operating lease agreements.

All rental payments are fixed.

For the assets currently on lease, there are no options for the lessees to purchase the assets at the end of the leases.

As of March 31, 2020, future fixed rental payments to be received under non-cancelable leases are as follows (in thousands):

The Company depreciates the engines on a straight-line basis over the assets' useful life from the acquisition date to a residual value.

Depreciation expense relating to engines on lease was $ 1.9 million and $ 4.4 million for the fiscal years ended March 31, 2021 and 2020, respectively.

Future minimum rental payments to be received do not include contingent rentals that may be received under certain leases because amounts are based on usage.

Contingent rent earned totaled approximately $ 4.9 thousand and $ 3.7 million for the fiscal years ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, future minimum rental payments to be received under non-cancelable leases are as follows (in thousands):

Year ended March 31,

Total $ 5,160

As of March 31, 2021, Contrail has one engine on lease that is due a return-to-condition compensation ("engine compensation") upon the lease termination in December 2022.

The engine compensation is determined as the sum of $ 3.6 million, plus a variable component calculated based on various escalation factors, including usage of flight hours and consumption of material, labor and utility.

The Company estimated the engine compensation as of March 31, 2021 to be $ 4.1 million, which was recorded within "Other Assets" on our consolidated balance sheets.

$ 3.6 million of the engine compensation is fixed, and thus is included within the $ 4.3 million of future rental payments to be received during the fiscal year ended March 31, 2023.

PROPERTY AND EQUIPMENT

1 unchanged sentence

Year Ended March 31,

Furniture, fixtures and improvements $ 7,633 $ 6,100

Furniture, fixtures and equipment $ 4,852 $ 5,243

Leasehold improvements 5,541 2,390

Building 2,636 1,958

1 unchanged sentence

Property and equipment, net $ 8,519 $ 5,272

INVESTMENTS IN SECURITIES

During the year ended March 31, 2020, the Company had gross unrealized gains aggregating to $ 8,360 and gross unrealized losses aggregating to $ 0.5 million, which are included in the Consolidated Statements of Income.

INVESTMENTS IN SECURITIES AND DERIVATIVE INSTRUMENTS

As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D).

To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56 % and 5.09 %, respectively, on Term Notes A and D.

The swaps mature in January 2028.

As of August 1, 2018, these swap contracts are designated as effective cash flow hedging instruments in accordance with ASC 815.

The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the consolidated statement of income as interest expense in the same period in which the underlying hedged transaction affects earnings.

The interest rate swaps are considered Level 2 fair value measurements.

As of March 31, 2021 and March 31, 2020, the fair value of the interest-rate swap contracts was a liability of $ 0.6 million and $ 0.9 million, respectively, which is included within Other Non-Current Liabilities in the consolidated balance sheets.

During the twelve months ended March 31, 2021 and 2020, the Company recorded a loss of approximately $ 0.3 million and a gain of $ 0.5 million, net of tax, respectively, in the consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.

The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies.

Management uses derivative financial instruments to execute those strategies, which may include options, and futures contracts.

These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements.

During the fiscal year ended March 31, 2021, related to these derivative instruments, the Company had a gross gain aggregating to $ 0.8 million and a gross loss aggregating to $ 23.7 thousand.

During the fiscal year ended March 31, 2020, related to these derivative instruments, the Company had a gross gain aggregating to $ 1.7 thousand and a gross loss aggregating to $ 0.3 million.

The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities.

Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income.

The fair market value of marketable equity securities is determined based on quoted market prices in active markets.

During the fiscal year ended March 31, 2021, the Company had a gross unrealized gain aggregating to $ 1.2 million and a gross unrealized loss aggregating to $ 1.2 million.

During the fiscal year ended March 31, 2020, the Company had a gross unrealized gain aggregating to $ 8.4 thousand and a gross unrealized loss aggregating to $ 0.5 million.

These unrealized gains and losses are included in Other Income (Loss) on the consolidated Statement of Income.

The market value of the Company’s equity securities and cash held by the broker are periodically used as collateral against any outstanding margin account borrowings.

As of March 31, 2021 and 2020, the Company had outstanding borrowings of $ 0 and $ 0.4 million under its margin account, respectively, which is reflected in accrued expenses and other on the consolidated balance sheets.

As of March 31, 2021 and 2020, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $ 0.9 million and $ 1.3 million, respectively, which is reflected in other current assets on the consolidated balance sheets.

The interest rate on margin account borrowings was 9.4 % as of March 31, 2021.

EQUITY METHOD INVESTMENTS

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The Company has elected a three-month lag upon adoption of the equity method.

At March 31, 2019, the Company held approximately 3.5 million shares of Insignia’s common stock representing approximately 30 % of the outstanding shares for a total net investment basis of approximately $ 5.2 million.

For the year ended March 31, 2019, the Company recorded approximately $ 0.4 million as its share of Insignia’s net income along with a basis difference adjustment of approximately $ 92,000 .

At March 31, 2020, the Company held approximately 3.5 million of Insignia’s common stock representing approximately 29 % of the outstanding shares.

For the year ended March 31, 2020, the Company recorded a loss of approximately $ 1.5 million as its share of Insignia’s net loss for the twelve months ended December 31, 2019 along with a basis difference adjustment of $ 96,000 .

In addition, due to adverse financial results in addition to consideration of analyst reports and other qualitative factors, the Company recorded total impairment charges of $ 2.3 million on the investment for the year ended March 31, 2020.

The Company's net investment basis in Insignia is approximately $ 1.3 million as of March 31, 2020.

On November 8, 2019, the Company made an investment of $ 2.8 million to purchase a 19.90 % ownership stake in CCI.

The Company concluded that we are not the primary beneficiary of CCI, which is primarily the result of the Company's conclusion that it does not have the power to direct the activities that most significantly impact the economic performance of CCI.

Accordingly, the Company does not consolidate CCI and has determined to account for this investment using equity method accounting.

On December 31, 2020, Insignia effected a seven-for-one reverse stock split of its outstanding common stock.

As such, as of March 31, 2021, the number of Insignia's shares owned by the Company was adjusted to 0.5 million, representing approximately 28 % of the outstanding shares.

For the fiscal years ended March 31, 2021 and 2020, the Company recorded approximately $ 1.2 million and $ 1.5 million as its share of Insignia’s net loss for the twelve months ended December 31, 2020 and 2019, respectively, along with a basis difference adjustment of approximately $ 96.1 thousand.

In addition to the current year's loss attribution, the previous impairments taken in prior fiscal years have accelerated the Company's net investment basis in Insignia to be zero as of March 31, 2021.

On November 8, 2019, the Company made an investment of $ 2.8 million to purchase a 19.90 % ownership stake in CCI, subsequently reduced to a 18.98 % ownership stake as of September 30, 2020.

The Company accounts for this investment under the equity method of accounting.

Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost, with a basis difference of $ 0.3 million.

For the year ended March 31, 2020, Air T recorded income of $ 0.6 million as its share of CCI's net income for the three months ended December 31, 2019 prorated for the period under Air T's ownership, along with a basis difference adjustment of $ 6,042 .

For the fiscal year ended March 31, 2021, the Company recorded a gain of $ 0.4 million as its share of CCI's net income for the twelve months ended December 31, 2020, along with a basis difference adjustment of $ 49.9 thousand.

The Company's net investment basis in CCI is $ 3.8 million as of March 31, 2021.

Summarized audited financial information for the Company's equity method investees for the twelve months ended December 31, 2020 and December 31, 2019 are as follows (in thousands):

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Gross Profit 4,589 7,570

Operating income (loss) ( 2,653 ) 3,340

Net income (loss) ( 3,645 ) 2,486

Net income attributable to Air T, Inc.

Operating loss ( 10,551 ) ( 2,653 )

Net loss ( 1,960 ) ( 3,645 )

Net loss attributable to Air T, Inc.

stockholders $ ( 760 ) $ ( 887 )

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The interest rate implicit in lease contracts is typically not readily determinable, and as such the Company utilizes the incremental borrowing rate to calculate lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The components of lease cost for the twelve months ended March 31, 2020 are as follows (in thousands):

Twelve Months Ended March 31, 2020

The components of lease cost for the twelve months ended March 31, 2021 and 2020 are as follows (in thousands):

Twelve Months Ended March 31, 2021 Twelve Months Ended March 31, 2020

Operating lease cost $ 2,134 $ 2,093

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Variable lease cost 760 342

Sublease income —

Total lease cost $ 3,210 $ 2,874

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of the year ended March 31, 2020 were as follows (in thousands):

March 31, 2020

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of the years ended March 31, 2021 and 2020 were as follows (in thousands):

March 31, 2021 March 31, 2020

Operating leases

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Weighted-average remaining lease term

Operating leases 14 years, 4 months

Operating leases 13 years, 9 months 14 years, 4 months

Weighted-average discount rate

8 unchanged sentences

FINANCING ARRANGEMENTS

On February 25, 2020, the Company and Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”), entered into Amendment No.

3 to the Amended and Restated Credit Agreement (the “Third Amendment”).

The Third Amendment extends the termination date for the revolving credit commitment and the supplemental revolving credit commitment to the earlier of August 31, 2021, the date the Company reduces the respective commitment to zero or termination due to an event of default.

Thirteen of the Company’s subsidiaries continue to, jointly and severally, guaranty the full and prompt payment and performance of all debts and obligations of the Company to MBT and continue to grant a first priority security interest in each subsidiary’s assets to MBT as collateral for such obligations.

On February 25, 2020, AirCo 1, LLC, entered into Amendment No.

1 to the Loan Agreement with MBT (the “First Amendment”).

The First Amendment extends the stated termination date of the revolving facility to August 31, 2021.

Borrowings of the Company and its subsidiaries are summarized below at March 31, 2020 and March 31, 2019, respectively (in thousands):

Borrowings of the Company and its subsidiaries are summarized below at March 31, 2021 and March 31, 2020, respectively.

On April 13, 2020, the Company entered into a loan with MBT in a principal amount of $ 8.2 million pursuant to a PPP Loan under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The PPP Loan is evidenced by a promissory note (“Note”).

The Note provides for customary events of default including, among other things, cross-defaults on any other loan with MBT.

The PPP Loan may be accelerated upon the occurrence of an event of default.

The PPP Loan is unsecured and guaranteed by the United States Small Business Administration ("SBA").

The Company has applied to MBT for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the 24-week period beginning on April 13, 2020, calculated in accordance with the terms of the CARES Act.

The PPP Loan bears interest at a fixed annual rate of one percent ( 1 %).

Once the forgiveness determination is made, the Company will be required to make repayments plus interest on any unforgiven amount.

As of March 31, 2021, the Company has used the funds received from the PPP loan on eligible expenses as outlined in the CARES Act.

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

The material changes within the Third Amendment are:

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.

Federal Reserve.

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

The principal terms of the Contrail Main Street Loan ("Term Note G") are:

(a) interest on the loan accrues at a floating rate of LIBOR plus 3.00 % and interest is payable commencing November 24, 2021;

(b) 15 % principal payments plus 15 % of the amount of capitalized interest are due on November 24, 2023 and 2024, with the remainder due on the loan maturity date – November 24, 2025;

and, (d) a 2 % origination fee was paid on funding of the loan.

The loan contains affirmative covenants as to cash flow coverage and tangible net worth.

The terms of the loan provide for customary events of default, including, among others, those relating to a failure to make payment, breaches of representations and covenants, and the occurrence of certain events.

The loan is secured by a security interest in the assets of Contrail.

Federal Reserve.

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:

(a) interest on the loan accrues at a floating rate of 3-month LIBOR plus 3.00 % and interest is payable commencing December 11, 2021;

(b) 15 % principal payments (including any capitalized interest accrued thereon) are due on December 11, 2023, and 2024, with the remainder due on the loan maturity date – December 11, 2025;

and, (d) a 2 % origination fee was paid on funding of the loan.

The loan contains an affirmative covenant relating to collateral valuation.

The loan is secured by a security interest in the assets of AirCo 1 and a pledge of AirCo’s membership interest in AirCo 1.

The following table provides certain information about the current financing arrangements of the Company's and its subsidiaries as of March 31, 2021 and 2020:

March 31, 2021 March 31, 2020 Maturity Date Interest Rate Unused commitments

Revolver - MBT $ — $ 12,403 8/31/21 Prime - 1% $ 17,000

Revolver - MBT $ — $ — 8/31/21 Greater of 2.5 % or Prime - 1 %

Supplemental Revolver - MBT — 9,550 6/30/20 Greater of 1-month LIBOR + 1.25 % or 3 %

Term Note A - MBT 6,750 7,750 1/1/28 1-month LIBOR + 2 %

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Term Note D - MBT 1,472 1,540 1/1/28 1-month LIBOR + 2 %

Term Note E - MBT 4,706 — 6/25/25 Greater of LIBOR + 1.5 % or 2.5 %

Debt - Trust Preferred Securities 14,289 12,877 6/7/49 8 %

Supplemental Revolver - MBT 9,550 — 6/30/20 Greater of 1-month LIBOR + 1.25% and 3% 450

PPP Loan 8,215 — 12/24/22 1 1 %

Total 38,807 35,592

Revolver - MBT — 3,820 5/21/19 7.50%

Revolver - MBT — 8,335 8/31/21 2 Greater of 6.5 % or Prime + 2 %

Term Loan - MBT — 450 12/17/19 7.50%

Term Loan - MBT — 400 6/17/20 7.25%

Term Loan - Park State — 2,100 6/17/20 8.50%

Term Loan - PSB 6,200 — 12/11/25 3-month LIBOR + 3 %

Total 6,200 8,335

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Term Loan A - ONB — 6,285 1/26/21 1-month LIBOR + 3.75 %

Term Loan B - ONB — 15,500 9/14/21 1-month LIBOR + 3.75%

Term Loan D - ONB — — 10/30/21 1-month LIBOR + 3.75%

Term Loan E - ONB — 6,320 12/1/22 1-month LIBOR + 3.75 %

Term Loan F - ONB — 8,358 5/1/25 1-month LIBOR + 3.75 %

Term Loan G - ONB 43,598 — 11/24/25 1-month LIBOR + 3.00 %

Total 43,598 42,247

Delphax Solutions Debt

Canadian Emergency Business Account Loan 32 — 12/31/25 5 %

Total Debt 88,637 86,174

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Total Debt, net $ 87,496 $ 85,820

1 The Contrail revolving credit facility contains a provision where Contrail is required to pay down the total outstanding principal balance of its revolver to zero for at least thirty consecutive days during each annual period ending on the revolver's anniversary.

Due to this requirement, the entire outstanding balance of the revolver as of March 31, 2020 was classified as "Current portion of long-term debt" on the Consolidated Balance Sheets, and included in the contractual financing obligations due by fiscal year ended March 31, 2021 below.

The weighted average interest rate on short term borrowings outstanding as of March 31, 2020 and March 31, 2019 was 3.7 % and 5.3 %, respectively.

Fiscal 2021's weighted average interest rate on short term borrowings outstanding was 0.0 % due to the fact that all short-term borrowings outstanding as of March 31, 2021 have zero balances.

The weighted average interest rate on short term borrowings outstanding as of March 31, 2020 was 3.7 %.

The Air T revolving credit facility and the Contrail revolving credit facility contain affirmative and negative covenants, including covenants that restrict the ability of the Company 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 obligations of Contrail under the Contrail Credit Agreement with Old National Bank are secured by a first-priority security interest in substantially all of the assets of Contrail.

The obligations of Contrail under the Contrail Credit Agreement with ONB are secured by a first-priority security interest in substantially all of the assets of Contrail.

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

1 Pursuant to The Paycheck Protection Flexibility Act of 2020, P.L.

116-142, the SBA extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to MBT or (2) if Air T did not apply for loan forgiveness, 10 months after the end of Air T’s loan forgiveness covered period, which is December 24, 2022.

SBA does not require a formal modification to the original promissory note agreement.

2 The AirCo 1 Revolver was paid off and closed as of December 31, 2020.

At March 31, 2021, our contractual financing obligations, including payments due by period, are as follows (in thousands):

Fiscal year ended Amount

2021 $ 42,684

Thereafter 18,050

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On January 14, 2020, Air T effected a one-for-ten reverse split of its TruPs.

As a result of the reverse split, the stated value of the TruPs will be $ 25.00 per share.

As a result of the reverse split, the stated value of the TruPs currently is $ 25.00 per share.

Further, each Warrant conferred upon its holder the right to purchase one-tenth of a share of TruPs for $ 2.40 , representing a 4 % discount to the new stated value of $ 2.50 for one-tenth of a share.

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At March 31, 2021, the Company had Warrants outstanding and exercisable to purchase approximately 4.3 million shares of its TruPs at an exercise price of $ 2.40 per one-tenth of a share.

The Warrants are exercisable and as of March 31, 2020, will expire on June 7, 2020 or earlier upon redemption or liquidation.

The swaps mature in January 2028.

As of August 1, 2018, these swap contracts have been designated as cash flow hedging instruments and qualified as effective hedges in accordance with ASC 815-30.

As of March 31, 2020 and March 31, 2019, the fair value of the interest-rate swap contracts was a liability of $ 0.9 million and $ 0.2 million, respectively, which is included within other non-current liabilities in the consolidated balance sheets.

During the year ended March 31, 2020, the Company recorded a loss of approximately $ 0.5 million, net of tax, in the consolidated statement of comprehensive income for changes in the fair value of the instruments.

The Warrants will expire on August 30, 2021 or earlier upon redemption or liquidation.

RELATED PARTY MATTERS

Contrail Aviation Support, LLC leases its corporate and operating facilities at Verona, Wisconsin from Cohen Kuhn Properties, LLC, a limited liability company whose membership interests are owned by Mr.

Joseph Kuhn, Chief Executive Officer and Mrs.

Miriam Cohen-Kuhn, Chief Financial Officer equally.

Joseph Kuhn, Contrail's Chief Executive Officer and Mrs.

Miriam Cohen-Kuhn, Contrail's Chief Financial Officer, equally.

The facility consists of approximately 21,000 square feet of warehouse and office space.

The Company paid aggregate rental payments of approximately $ 0.2 million to Cohen Kuhn Properties, LLC pursuant to such lease during the period from April 1, 2020 through March 31, 2021.

The lease for this facility expires on June 30, 2021, though the Company has the option to renew the lease for a period of 5 years on the same terms.

The lease for this facility originally was to expire on June 30, 2021, however;

in April 2021, the Company executed the option to renew the lease for an additional period of 5 years on the same terms.

The lease agreement provides that the Company shall be responsible for maintenance of the leased facilities and for utilities, taxes and insurance.

The Company believes that the terms of such leases are no less favorable to the Company than would be available from an independent third party.

Kohler, a director of the Company, entered into an employment agreement with BCCM, a wholly-owned subsidiary of the Company, to serve as its Chief Investment Officer in return for an annual salary of $ 50,000 plus variable compensation based on the management and incentive fees to be paid to the subsidiary by certain of these investment funds and eligibility to participate in discretionary annual bonuses.

Kohler, a director of the Company, entered into an employment agreement with Blue Clay Capital Management, a wholly-owned subsidiary of the Company, in the Corporate and other segment, to serve as its Chief Investment Officer in return for an annual salary of $ 50.0 thousand plus variable compensation based on the management and incentive fees to be paid to the subsidiary by certain of these investment funds and eligibility to participate in discretionary annual bonuses.

Nick Swenson, CEO of the Company, is also the majority shareholder of CCI.

As of March 31, 2021, Mr.

Swenson has 69% of ownership interests in CCI.

Swenson owned 66.7 % of ownership interests in CCI.

Under the VIE model, Mr.

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Swenson and the Company ("the related party group") to direct the activities of CCI that most significantly impact CCI’s economic performance.

SHARE REPURCHASE

On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 (retrospectively adjusted to 1,125,000 after the stock split on June 10, 2019) shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period.

During the year ended March 31, 2020, the Company repurchased 150,658 shares at an aggregate cost of $ 2.8 million.

9,766 of these shares are reflected as retired and 140,892 of these shares were recorded as treasury shares as of March 31, 2020.

EMPLOYEE AND NON-EMPLOYEE STOCK OPTIONS

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For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs.

The Company believes this is appropriate as the Company is enhancing an asset that the customer controls as repair work, such as labor hours are incurred, and parts installed, is being performed.

The Company believes this is appropriate as the Company is performing labor hours and installing parts to enhance an asset that the customer controls.

The vast majority of repair-services are short term in nature and are typically billed upon completion of the service.

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Commercial jet engines and parts 40,066 86,625

Printing equipment and maintenance 261 592

Corporate and other 327 261

3 unchanged sentences

Commercial jet engines and parts 4,743 3,675

Printing equipment and maintenance 42 47

Corporate and other 132 146

3 unchanged sentences

Commercial jet engines and parts 1,730 10,797

Printing equipment and maintenance — —

Corporate and other 136 152

2 unchanged sentences

Commercial jet engines and parts 254 187

Printing equipment and maintenance 3 16

Corporate and other 803 511

Total $ 175,121 $ 236,785

The following table summarizes total revenues by segment (in thousands):

March 31, 2020 March 31, 2019

Air Cargo $ 75,275 $ 72,978

Ground equipment sales 59,156 47,152

Commercial jet engines and parts 101,284 93,968

Printing equipment and maintenance 306 655

Corporate and other 764 749

Total $ 236,785 $ 215,502

See Note 20 for the Company's disaggregated revenues by geographic region and Note 21 for the Company’s disaggregated revenues by segment.

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Contract liabilities relate to deferred revenue and advanced customer deposits with respect to product sales.

Performance obligations related to product sales are expected to be satisfied within one year.

Contract liabilities are included in accrued expenses on the accompanying consolidated balance sheets.

The following table presents outstanding contract liabilities and the amount of outstanding April 1, 2019 contract liabilities that were recognized as revenue during the year ended March 31, 2020 (in thousands):

The following table presents outstanding contract liabilities as of April 1, 2020 and March 31, 2021 and the amount of contract liabilities that were recognized as revenue during the year ended March 31, 2021 (in thousands):

Outstanding Contract Liabilities Outstanding Contract Liabilities

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All employees of the Company are immediately eligible to participate in the Plans.

The Company’s contribution to the Plans for the years ended March 31, 2020 and 2019 was approximately $ 0.6 million, and was recorded in the consolidated statements of income.

The Company’s contribution to the Plans for the years ended March 31, 2021 and 2020 was approximately $ 0.5 million and $ 0.6 million, respectively, and was recorded in the consolidated statements of income.

The Company, in each of the past three years, has paid a discretionary profit sharing bonus in which all employees have participated.

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Year Ended March 31,

Expected Federal income tax expense U.S.

Expected Federal income tax (benefit)/ expense U.S.

statutory rate $ ( 2,472 ) 21.0 % $ 551 21.0 %

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Write-off Delphax tax attributes — 0.0 % 9,353 356.4 %

Acquired NOL carrybacks;

Acquired Net Operating Loss ("NOL") carrybacks;

CARES Act — 0.0 % ( 363 ) - 13.8 %

NOL Carryback - Rate Differential ( 1,468 ) 12.5 % — 0.0 %

Other differences, net 173 - 1.4 % 51 1.9 %

Income tax (benefit) expense $ ( 544 ) - 20.7 % $ 1,761 29.5 %

Income tax benefit $ ( 3,387 ) 28.8 % $ ( 544 ) - 20.7 %

The Company did not record any liabilities for uncertain tax positions for the fiscal years ended March 31, 2021 and March 31, 2020.

During the fiscal period ended March 31, 2020, the Company sold GAS.

The tax benefit related to this entity that have been allocated to discontinued operations for the March 31, 2020 and March 31, 2019 fiscal years were $ 0.6 million and $ 0.3 million, respectively.

The tax benefit related to this entity allocated to discontinued operations for March 31, 2020 was $ 0.6 million.

In addition, a gain on the sale of discontinued operations was recognized, resulting in a net of tax gain of $ 8.2 million.

Delphax Solutions and Delphax Technologies are not included in Air T, Inc.’s consolidated tax return and account for $ 0.2 million and $( 8.9 ) million of the above valuation allowance effect for each year, respectively.

The Company has state gross operating losses of $ 6.4 million at March 31, 2021.

These net operating losses will begin to expire in tax year 2030.

The Company has foreign tax credits of $ 0.5 million that will begin to expire in tax year 2026.

DSI and Delphax (collectively known as the “Delphax entities”) are not included in Air T’s consolidated tax return.

During the year ended March 31, 2021, DSI and Delphax accounted for $ 0.3 million and $( 0.1 ) million, respectively, of fiscal year 2021's valuation allowance effect.

During the year ended March 31, 2020, each entity, respectively, accounted for $ 0.2 million and $( 8.9 ) million of the fiscal year 2020's valuation allowance effect.

The valuation allowance release in March 31, 2020 relates to attribute reduction for cancellation of debt income and dissolution of the Canadian and UK subsidiaries (See Note 4 ).

There is a separate return filed for Delphax Solutions and Delphax Technologies for the fiscal years ending March 31, 2020 and March 31, 2019.

Impairment on investments and changes in unrealized losses related to available-for-sale securities accounted for the remaining valuation allowance effect for each year.

Impairment on investments and changes in unrealized losses related to available-for-sale securities and foreign tax credits accounted for the remaining valuation allowance effect for each year.

In March of 2020, the CARES Act was enacted and made significant changes to federal tax laws, including certain changes that were retroactive to the March 31, 2020 tax year.

Changes in tax laws are accounted for in the period of enactment and the retroactive effects are recognized in these financial statements.

Of the changes impactful to the Company, the CARES act permits favorable treatment of deductible interest expense as well as the ability to carryback tax losses incurred in the March 31, 2021 fiscal year up to 5 years and recoup previously paid federal income taxes;

under which the Company was subject to a higher federal tax rate.

The benefit of the recoupment of these taxes are included in these consolidated financial statements and the Company expects to receive a refund of $ 3.4 million.

Deferred tax assets and liabilities were comprised of the following (in thousands):

Net operating loss & attribute carryforwards $ 4,094 $ 3,524

Federal/Canadian tax credits — 4,486

Unrealized losses on investments 1,504 1,693

1 unchanged sentence

Investment in partnerships 821 840

Disallowed capital loss — 463

Lease liabilities 1,999 1,909

9 unchanged sentences

Less valuation allowance ( 7,026 ) ( 6,405 )

Net deferred tax (liability) asset $ ( 579 ) $ 478

Net deferred tax liability $ ( 595 ) $ ( 579 )

Delphax entities

As described in Note 4 , effective on November 24, 2015, Air T, Inc.

4 unchanged sentences

With few exceptions, Delphax, is no longer subject to examinations by income tax authorities for tax years before 2015.

Delphax maintains a September 30 fiscal year end.

The returns for the fiscal year ended September 30, 2019 have not yet been filed.

Included in the deferred tax balances above and related to Delphax and its subsidiaries are estimated foreign and U.S.

Delphax maintains a September 30 fiscal year end and DSI maintains a March 31 fiscal year end.

The returns for the fiscal years ended September 30, 2020 and March 31, 2021 have not yet been filed.

Included in the deferred tax balances above and related to the Delphax entities are estimated foreign and U.S.

federal loss carryforwards of $ 6.1 million and $ 8.5 million, respectively.

The net operating losses expire in varying amounts beginning in the year 2023.

The net operating losses expire in varying amounts beginning in the tax year 2027.

The provisions of ASC 740 require an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets will be recovered.

In accounting for the Delphax tax attributes, the Company has established a full valuation allowance of $ 4.8 million at March 31, 2020, and $ 13.0 million at March 31, 2019.

The cumulative tax losses incurred by Delphax in recent years was the primary basis for the Company’s determination that a full valuation allowance should be established against Delphax’s net deferred tax assets.

In accounting for the Delphax entities' tax attributes, the Company has established a full valuation allowance of $ 5.0 million at March 31, 2021, and $ 4.8 million at March 31, 2020.

The cumulative tax losses incurred by the Delphax entities in recent years was the primary basis for the Company’s determination that a full valuation allowance should be established against the Delphax entities’ net deferred tax assets.

The Company continues to assert that it will permanently reinvest any foreign earnings of DSI in a foreign country and will not repatriate those earnings back to the U.S.

As a result of its permanent reinvestment assertion, the Company has not recorded deferred taxes related to DSI under the indefinite exception.

In March of 2020, the CARES Act was enacted and made significant changes to federal tax laws, including certain changes that were retroactive to the March 31, 2020 tax year.

Changes in tax laws are accounted for in the period of enactment and the retroactive effects are recognized in these financial statements.

There were no material income tax consequences of this enacted legislation on the reporting period of these financial statements.

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

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Operating Revenues $ 36,970 $ 35,604 $ 55,819 $ 46,728

Income (Loss) from continuing operations, net of tax 3,991 ( 2,122 ) 581 718

(Income) attributable to non-controlling interests ( 2,373 ) ( 287 ) ( 789 ) ( 128 )

Income (Loss) from continuing operations attributable to Air T, Inc.

(Loss) Income from continuing operations, net of tax ( 956 ) ( 3,357 ) 1,763 ( 5,844 )

Loss attributable to non-controlling interests 115 433 335 230

(Loss) Income from continuing operations attributable to Air T, Inc.

Stockholders ( 841 ) ( 2,924 ) 2,098 ( 5,614 )

Income (Loss) from discontinued operations, net of tax 165 8,124 ( 222 ) ( 2 )

Basic Income (Loss) per share from continuing operations 0.72 ( 0.80 ) ( 0.07 ) 0.20

Income from discontinued operations, net of tax — 4 — —

Basic (Loss) Income per share from continuing operations ( 0.29 ) ( 1.01 ) 0.73 ( 1.96 )

Basic Income (Loss) per share from discontinued operations — — — —

Basic Income (Loss) per share 0.79 1.89 ( 0.14 ) 0.20

Diluted Income (Loss) per share from continuing operations 0.72 ( 0.80 ) ( 0.07 ) 0.20

Basic (Loss) Income per share ( 0.29 ) ( 1.01 ) 0.73 ( 1.96 )

Diluted (Loss) Income per share from continuing operations ( 0.29 ) ( 1.01 ) 0.73 ( 1.96 )

Diluted Income (loss) per share from discontinued operations — — — —

Diluted Income (Loss) per share $ 0.79 $ 1.88 $ ( 0.14 ) $ 0.20

Diluted Loss per share $ ( 0.29 ) $ ( 1.01 ) $ 0.73 $ ( 1.96 )

Antidilutive shares Excluded from Computation of income (loss) per share from continuing operations (in shares) 5 5 — 8

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Stockholders 1,618 ( 2,409 ) ( 208 ) 590

(Loss) Income from discontinued operations, net of tax ( 132 ) ( 648 ) ( 376 ) 150

Income (Loss) from discontinued operations, net of tax 165 8,124 ( 222 ) ( 2 )

Basic Income (loss) per share from continuing operations 0.72 ( 0.80 ) ( 0.07 ) 0.20

Basic (Loss) Income per share from discontinued operations ( 0.04 ) ( 0.21 ) ( 0.12 ) 0.05

Basic Income (Loss) per share from discontinued operations 0.07 2.69 ( 0.07 ) —

Basic Income (Loss) per share 0.79 1.89 ( 0.14 ) 0.20

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Total tangible long-lived assets, net $ 10,650 $ 33,217

The Company’s tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent primarily engines on lease at March 31, 2020.

The Company’s tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent primarily engines on lease or held for lease at March 31, 2021.

The net book value located within each individual country at March 31, 2021 is listed below (in thousands):

Country March 31, 2021 March 31, 2020

Mexico $ 1,845 $ 2,681

Netherlands — 4,778

China — 16,808

Estonia — 7,408

Macau 1,896 —

Mexico — 1,845

Other 122 100

$ 2,018 $ 14,131

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SEGMENT INFORMATION

The Company has five reportable segments:

overnight air cargo, ground equipment sales, ground support services, commercial jet engine and parts, printing equipment and maintenance, corporate and other.

The Company has four reportable segments:

overnight air cargo, ground equipment sales, commercial jet engine and parts and corporate and other.

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.

Segment data is summarized as follows (in thousands):

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Total Ground Equipment Sales 60,679 59,156

Printing Equipment and Maintenance:

Domestic 200 322

International 271 347

Total Printing Equipment and Maintenance 471 669

Commercial Jet Engines and Parts

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Corporate and Other

Intercompany ( 4,950 ) ( 7,355 )

Domestic 967 799

International 431 271

Total Corporate and Other 1,398 1,070

Total $ 175,121 $ 236,785

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Ground Equipment Sales 8,948 7,302

Printing Equipment and Maintenance ( 1,767 ) ( 1,388 )

Commercial Jet Engines and Parts ( 10,882 ) 8,322

Corporate and Other ( 9,419 ) ( 9,082 )

Intercompany 841 678

Total $ ( 9,175 ) $ 7,291

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Ground Equipment Sales 124 881

Printing Equipment and Maintenance — —

Commercial Jet Engines and Parts 5,774 34,873

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Total $ 6,005 $ 37,149

Depreciation, Amortization and Impairment:

Depreciation and Amortization:

Overnight Air Cargo $ 66 $ 72

Ground Equipment Sales 184 261

Printing Equipment and Maintenance 34 9

Commercial Jet Engines and Parts 2,438 4,771

Corporate and Other 419 577

Intercompany ( 15 ) 32

Total $ 3,107 $ 5,681

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Year Ended March 31,

Net income from continuing operations $ 3,168 $ 4,207

Net income from continuing operations attributable to non-controlling interests ( 3,577 ) ( 1,861 )

Net (loss) income from continuing operations attributable to Air T, Inc.

Net (loss) income from continuing operations $ ( 8,394 ) $ 3,168

Net loss (income) from continuing operations attributable to non-controlling interests 1,113 ( 3,577 )

Net loss from continuing operations attributable to Air T, Inc.

Stockholders ( 7,281 ) ( 409 )

(Loss) income from continuing operations per share:

Loss from continuing operations per share:

Basic $ ( 2.53 ) $ ( 0.15 )

Diluted $ ( 2.53 ) $ ( 0.15 )

Antidilutive shares Excluded from Computation of income (loss) per share from continuing operations (in shares) 7 —

Antidilutive shares Excluded from Computation of loss per share from continuing operations 6 7

Loss from discontinued operations, net of tax — ( 114 )

Gain on sale of discontinued operations, net of tax 4 8,179

Gain (loss) from discontinued operations attributable to Air T, Inc.

Gain from discontinued operations attributable to Air T, Inc.

stockholders 4 8,065

Income (loss) from discontinued operations per share:

Income from discontinued operations per share:

Basic $ — $ 2.89

Diluted $ — $ 2.88

Antidilutive shares Excluded from Computation of income (loss) per share from discontinued operations (in shares) — 8

Income per share:

Antidilutive shares Excluded from Computation of income per share from discontinued operations — —

(Loss) Income per share:

Basic $ ( 2.53 ) $ 2.74

Diluted $ ( 2.53 ) $ 2.73

Antidilutive shares Excluded from Computation of income (loss) per share (in shares) — —

Antidilutive shares Excluded from Computation of (loss) income per share 6 —

Weighted Average Shares Outstanding:

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COMMITMENTS AND CONTINGENCIES

Impact of COVID-19 — As further discussed in Note 1 , the full extent of the impact of COVID-19 on the U.S.

Impact of COVID-19 — As further discussed in Note 1 , the full extent and duration of the impact of COVID-19 on the U.S.

and world economies generally, and the Company’s business in particular, is uncertain.

As of March 31, 2020, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of COVID-19, however as the global pandemic continues and the economic implications worsen, it may have long-term impacts on the Company’s financial condition, results of operations, and cash flows.

As of March 31, 2021, no contingencies have been recorded on the Company’s consolidated balance sheet as a result of COVID-19, however, the global pandemic could have long-term impacts on the Company’s financial condition, results of operations, and cash flows and the pandemic could once again worsen in the future.

Refer to Note 1 for further discussion of COVID-19.

SUBSEQUENT EVENTS

COVID-19 Pandemic

The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business.

As described below, the Company obtained loans under the Paycheck Protection Program in April 2020, which measures were intended to help maintain financial flexibility given the significant impact on U.S.

and world economies as a result of the COVID-19 pandemic.

As a result of the COVID-19 pandemic and measures taken to limit the pandemic and its impact, the Company experienced decreases in revenues during the months of April and May 2020.

The extent to which the COVID-19 pandemic continues to impact the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, 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 and containment measures, among others.

Paycheck Protection Program (the “PPP”) Loans

On April 10, 2020, the Company entered into a loan with MBT in a principal amount of $ 8.2 million pursuant to the Paycheck Protection Program (“PPP Loan”) under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”).

The PPP Loan is evidenced by a promissory note (“Note”).

The PPP Loan bears interest at a fixed annual rate of one percent ( 1 %), with the first six months of interest deferred.

Beginning on November 10, 2020, the Company will make seventeen ( 17 ) equal monthly installments of principal and interest payments with the final payment due on April 10, 2022.

The Note provides for customary events of default including, among other things, cross-defaults on any other loan with MBT.

The PPP Loan may be accelerated upon the occurrence of an event of default.

The PPP Loan is unsecured and guaranteed by the United States Small Business Administration.

The Company may apply to MBT for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent and mortgage obligations, and covered utility payments incurred by the Company during the eight-week period beginning on April 10, 2020, calculated in accordance with the terms of the CARES Act.

Extension of expiration date of Warrants

On June 9, 2020, Air T, Inc.

announced the extension of the expiration date of the Warrants (“Warrants”) to purchase Alpha Income Preferred Securities (also referred to as 8% Cumulative Capital Securities) (“AIP”).

The Warrants, previously scheduled to expire on June 10, 2020, are extended and now will expire on September 8, 2020.

Credit Agreement Amendments

On June 26, 2020, the Company entered into a Second Amended and Restated Credit Agreement with MBT, together with certain related documents.

Pursuant to the Amended Credit Agreement, MBT agreed to convert outstanding revolving credit advances in an amount equal to $ 9.5 million to a Term Loan.

The new Term Loan has a maturity date of June 25, 2025.

The new Term Loan, together with the existing Air T Revolving Credit Facility and other existing Term Loans are and continue to be guaranteed by certain subsidiaries of the Company and secured under the existing Security Agreement executed by the Company and the guarantors, certain real property and by certain pledged collateral accounts.

In connection with the execution and delivery of the Amended Credit Agreement, certain subsidiaries of the Company entered into new collateral account pledge agreements.

In connection with the Amended Credit Agreement, MBT further agreed to reduce the interest rate floor applicable to the existing Revolving Credit Facility from 4.00 % to 2.50 %.

The above discussion is qualified in its entirety by reference to the Form of Amended Credit Agreement Amendment, Term Note, Amended and Restated Revolving Note, and the Jet Yard and Ambry Hill Collateral Account Agreements filed as Exhibits 10.99, 10.100, 10.101, 10.102 and 10.103 to this Report, which are incorporated herein by reference.

Aircraft capital joint venture

On May 6, 2021, the Company announced the May 5, 2021 formation of a new aircraft asset management business called Contrail Asset Management, LLC (“CAM”), and a new aircraft capital joint venture called Contrail JV II LLC (“CJVII”).

The new joint venture was formed as a scalable asset management platform to complement the Company’s existing operating businesses.

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 Aviation’s origination and asset management expertise.

CJVII will initially be capitalized with up to $ 408 million of equity from Air T and three institutional investor partners, consisting of $ 108 million in initial commitments and $ 300 million in upsize capacity, contingent on underwriting and transaction appeal.

The three investor partners bring significant aviation experience to the joint venture.

The Company and Mill Road Capital (“MRC”) have agreed to became common members in CAM, the aircraft asset management business.

CAM will serve two separate and distinct functions:

1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII (“Asset Management Function”), and 2) to directly invest into CJVII alongside other institutional investment partners (“Investment Function”).

The Company and its affiliates will perform the services required for the Asset Management Function in exchange for 90 % of the economic interest derived therefrom.

For the Asset Management Function, CAM will receive 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 million, which is comprised of an $ 8 million initial commitment from the Company and an approximately $ 45 million initial commitment from MRC.

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

The CAM LLC Agreement provides that the limited liability company and each series will continue for a period of seven (7) years from the closing date, provided that the term of the company and each series may be extended for two (2) consecutive one-year periods after the initial term.

At the Market Offering

On May 14, 2021, the Company and Air T Funding (the “Trust”) entered into an At the Market Offering Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (the “sales agent” or “Ascendiant”), pursuant to which the Trust may sell and issue its Alpha Income Preferred Securities having an aggregate offering price of up to $ 8 million (the “Capital Securities”) from time to time through Ascendiant, as the Trust’s sales agent (the “ATM Offering”).

The Trust has no obligation to sell any of the Capital Securities, and may at any time suspend offers under the ATM Agreement or terminate the ATM Agreement.

Sales of the Capital Securities, if any, under the ATM Agreement may be made in transactions that are deemed to be “at-the-market” equity offerings as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions, including on the NASDAQ Stock Market.

Subject to the terms and conditions of the ATM Agreement, the sales agent will use its reasonable efforts to sell the Capital Securities from time to time based upon the Trust’s instructions (including any price, time, or size limits or other parameters or conditions the Trust may impose).

The Trust or the Company will pay the sales agent a commission of up to 3.0 % of the gross sales price of any Capital Securities sold under the ATM Agreement.

The Trust has also provided the sales agent with customary indemnification rights.

The Capital Securities will be offered and sold pursuant to the Company’s and the Trust’s shelf registration statement on Form S-3 (File Nos.

333-254110-01 and 333-254110).

On May 14, 2021, the Company and the Trust filed a prospectus supplement relating to the ATM Offering with the Securities and Exchange Commission.

Under the terms of the ATM Agreement, the Trust may also sell Capital Securities to Ascendiant as principal for its own account at a price agreed upon at the time of the sale, subject to the Trust entering into a separate terms agreement with Ascendiant for any such sale.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data