What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-08-12 compared with 2021-02-12 · 168 added, 365 removed, 389 unchanged (58% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(in thousands, except (loss) income per share number) Three Months Ended

December 31, Nine Months Ended

2020 2019 2020 2019

(in thousands, except income (loss) per share number) Three Months Ended

Operating Revenues:

10 unchanged sentences

Depreciation and amortization 380 609

Write-down on inventory — — 535 —

Asset impairment — 4 129 18

Loss (Gain) on sale of property and equipment 3 ( 2 )

36,972 37,236

Operating Income (Loss) from continuing operations 1,068 3,720 (2,881) 5,185

Operating Loss ( 4 ) ( 266 )

Non-operating Income (Expense):

Other-than-temporary impairment loss on investments — (1,095) — (2,305)

Interest expense ( 939 ) ( 1,161 )

Gain on settlement of bankruptcy — — — 4,527

Gain (Loss) from equity method investments 83 ( 558 )

Other 1,182 729

377 (2,523) (1,834) (2,787)

Income (Loss) from continuing operations before income taxes 1,445 1,197 (4,715) 2,398

Income Taxes (Benefit) Expense (318) 616 (2,165) (52)

Net Income (Loss) from continuing operations 1,763 581 (2,550) 2,450

Loss from discontinued operations, net of tax — — — (70)

(Loss) Gain on sale of discontinued operations, net of tax — (222) 4 8,137

Income (Loss) before income taxes 322 ( 1,256 )

Income Taxes Benefit ( 5 ) ( 300 )

Net Income (Loss) 327 ( 956 )

Net Loss (Income) Attributable to Non-controlling Interests $ 335 $ (789) $ 884 $ (3,449)

Net (Income) Loss Attributable to Non-controlling Interests $ ( 38 ) $ 115

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

Stockholders $ 289 $ ( 841 )

Income (Loss) from continuing operations per share (Note 6)

Basic $ 0.73 $ (0.07) $ (0.58) $ (0.36)

Diluted $ 0.73 $ (0.07) $ (0.58) $ (0.36)

(Loss) Income from discontinued operations per share (Note 6)

Basic $ — $ (0.07) $ — $ 2.93

Diluted $ — $ (0.07) $ — $ 2.93

Income (Loss) per share (Note 5)

8 unchanged sentences

Three Months Ended

December 31, Nine Months Ended

(In Thousands) 2021 2020

1 unchanged sentence

Foreign currency translation loss ( 49 ) ( 67 )

Unrealized gain (loss) on interest rate swaps, net of tax 71 94 100 (170)

Unrealized gain (loss) on interest rate swaps 11 ( 26 )

Reclassification of interest rate swaps into earnings ( 1 ) —

Total Other Comprehensive Income (Loss) 48 41 (74) (199)

Total Other Comprehensive Loss ( 39 ) ( 93 )

Total Comprehensive Income (Loss) 288 ( 1,049 )

Comprehensive Loss (Income) Attributable to Non-controlling Interests 335 (789) 884 (3,464)

Comprehensive (Income) Loss Attributable to Non-controlling Interests ( 38 ) 115

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

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts) December 31, 2020 March 31, 2020

(In thousands, except share amounts) June 30, 2021 March 31, 2021

Current Assets:

4 unchanged sentences

Accounts receivable, net of allowance for doubtful accounts of $ 1,515 and $ 1,177

19,448 13,077

Income tax receivable 4,394 4,389

3 unchanged sentences

Assets on lease or held for lease, net of accumulated depreciation of $ 562 and $ 436

10,225 27,945

Property and equipment, net of accumulated depreciation of $ 4,622 and $ 4,510

7 unchanged sentences

Accounts payable $ 9,587 8,344

Income tax payable 39 39

Accrued expenses and other (Note 3) 9,779 12,787

26 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) Nine Months Ended

(In Thousands) Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (Loss) Income 327 ( 956 )

Loss from discontinued operations, net of income tax — 70

Gain on sale of discontinued operations, net of income tax (4) (8,137)

Net (loss) income from continuing operations (2,550) 2,450

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Depreciation and amortization 380 609

Impairment of investment — 2,305

Profit from sale of assets on lease (26) (3,846)

Gain on settlement of bankruptcy — (4,527)

Other ( 492 ) 369

5 unchanged sentences

Other 941 ( 3,094 )

Net cash used in operating activities - continuing operations (6,661) (10,892)

Net cash provided by operating activities - discontinued operations 4 1,201

Net cash used in operating activities ( 8,821 ) ( 3,335 )

2 unchanged sentences

Sale of marketable securities — 658

Proceeds from sale of assets on lease 1,900 16,956

Acquisition of businesses, net of cash acquired — (500)

Investment in unconsolidated entities ( 1,085 ) —

2 unchanged sentences

Other ( 228 ) ( 78 )

Net cash used in investing activities - continuing operations (308) (27,572)

Net cash provided by investing activities - discontinued operations — 20,174

Net cash used in investing activities ( 1,449 ) ( 548 )

7 unchanged sentences

Other 50 ( 17 )

Net cash provided by financing activities - continuing operations 40,383 26,164

Net cash provided by financing activities 5,819 5,040

Effect of foreign currency exchange rates on cash and cash equivalents ( 49 ) ( 72 )

NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 33,254 9,065

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 4,500 ) 1,085

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 15,927 15,571

9 unchanged sentences

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

Net income* — — — — — 1,782 — 2,034 3,816

Repurchase of Common Stock (17) (4) — — — (122) — — (126)

Stock Split 1,010 252 — — (252) — — — —

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

Issuance of Warrants — — — — — (840) — — (840)

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

Net loss* — — — — — ( 841 ) — ( 5 ) ( 846 )

Unrealized loss on interest rate swaps, net of tax — — — — — — ( 26 ) — ( 26 )

Foreign currency translation (loss) gain — — — — — — (30) 12 (18)

Foreign currency translation loss — — — — — — ( 67 ) — ( 67 )

Adjustment to fair value of redeemable non-controlling interests — — — — 429 — — — 429

Balance, June 30, 2020 3,023 $ 756 $ 141 $ ( 2,617 ) $ 3,065 $ 22,927 $ ( 630 ) $ 1,000 $ 24,501

Net income (loss)* — — — — — 5,715 — (17) 5,698

Repurchase of Common Stock 8 2 — — — (75) — — (73)

Foreign currency translation gain — — — — — — 38 3 41

Adjustment to fair value of redeemable non-controlling interest — — — — 781 — — — 781

Unrealized loss on interest rate swaps, net of tax — — — — — — (88) — (88)

Balance, September 30, 2019 3,023 $ 756 $ — $ — $ 2,410 $ 23,610 $ (461) $ 1,032 $ 27,347

Net loss* — — — — — (430) — (19) (449)

Repurchase of Common Stock — — 110 (2,157) — — — — (2,157)

Foreign currency translation loss — — — — — — (53) — (53)

Adjustment to fair value of redeemable non-controlling interest — — — — (1,381) — — — (1,381)

Unrealized gain on interest rate swaps, net of tax — — — — — — 94 — 94

Balance, December 31, 2019 3,023 $ 756 $ 110 $ (2,157) $ 1,029 $ 23,180 $ (420) $ 1,013 $ 23,401

(In Thousands) Common Stock Treasury Stock Additional

3 unchanged sentences

Shares Amount Shares Amount

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

Net loss* — — — — — (841) — (5) (846)

Unrealized loss on interest rate swaps, net of tax — — — — — — (26) — (26)

Foreign currency translation (loss) — — — — — — (67) — (67)

Adjustment to fair value of redeemable non-controlling interest — — — — 429 — — — 429

Balance, June 30, 2020 3,023 756 141 (2,617) 3,065 22,927 (630) 1,000 24,501

Net loss* — — — — — (2,920) — (8) (2,928)

Foreign currency translation (loss) — — — — — — (68) — (68)

Adjustment to fair value of redeemable non-controlling interest — — — — (890) — — — (890)

Unrealized gain on interest rate swaps, net of tax — — — — — — 55 — 55

Balance, September 30, 2020 3,023 756 141 (2,617) 2,175 20,007 (643) 992 20,670

Net income (loss)* — — — — — 2,098 — (1) 2,097

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

Net income* — — — — — 289 — 153 442

Foreign currency translation loss — — — — — — ( 49 ) — ( 49 )

1 unchanged sentence

Unrealized gain on interest rate swaps, net of tax — — — — — — 11 — 11

Balance, December 31, 2020 3,023 $ 756 $ 141 $ (2,617) $ 1,287 $ 22,105 $ (594) $ 991 $ 21,928

Reclassification of interest rate swaps into earnings — — — — — — ( 1 ) — ( 1 )

Balance, June 30, 2021 3,023 $ 756 $ 141 $ ( 2,617 ) $ — $ 16,321 $ ( 723 ) $ 1,142 14,879

* Excludes amount attributable to redeemable non-controlling interest in Contrail.

8 unchanged sentences

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2021.

The results of operations for the period ended December 31, 2020 are not necessarily indicative of the operating results for the full year.

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

Discontinued Operations

On September 30, 2019, the Company completed the sale of Global Aviation Services, LLC ("GAS").

The results of operations of GAS are reported as discontinued operations in the condensed consolidated statements of operations for the three and nine months ended December 31, 2020 and 2019.

Refer to Footnote 3 - "Discontinued Operations" for additional information.

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

Contrail Aviation Support, LLC ("Contrail") is a subsidiary of the Company in the Commercial Jet Engines and Parts segment.

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.

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 are:

(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.

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 (the “Contrail Main Street Loan”) for which ONB served as lender pursuant to the Main Street Priority Loan Facility as established by the U.S.

Federal Reserve (the "Fed").

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

The loan proceeds are 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 proceeds will also be 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.

AirCo 1, LLC ("AirCo 1") is a wholly-owned subsidiary of AirCo, LLC, which is a wholly-owned subsidiary of Stratus Aero Partners LLC, which is a wholly-owned subsidiary of the Company in the Commercial Jet Engines and Parts segment.

On December 11, 2020, AirCo 1 and Park State Bank (“PSB”), entered into a loan in the aggregate amount of $6.2 million (the “AirCo 1 Main Street Loan”) 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 Minnesota Bank & Trust ("MBT").

The principal terms of the AirCo 1 Main Street Loan ("Term Loan - PSB") are:

(a) interest on the loan accrues at a floating rate of 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 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 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 will 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 and other recent financings, 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.

The results of operations for the period ended June 30, 2021 are not necessarily indicative of the operating results for the full year.

Formation of new entities

On May 5, 2021, the Company formed 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 Company and Mill Road Capital (“MRC”) have agreed to become common members in CAM.

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”).

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.

COVID-19 Pandemic

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

Even though the Company undertook measures to attempt to limit the effect of the pandemic and its impact on the Company, the Company continued to experience a decrease in revenues during the third fiscal quarter and the month of January.

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, including the effectiveness and rollout of vaccines and the direct and indirect economic effects of the pandemic and containment measures, among others.

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 designed 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 condensed 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 designed for trading in a loss position are recorded in Accrued Expenses and Other on the condensed 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 condensed 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 condensed 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.

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

Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a substantial number of disruptions, and we experienced and continue to experience a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods.

Many of our businesses may continue to generate reduced operating cash flow and may operate at a loss during at least the first half of fiscal 2022.

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

The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions and our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.

Recently Adopted 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 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.

The Company adopted this standard on April 1, 2020.

As of December 31, 2020, the standard did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

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

Simplifying the Test for Goodwill Impairment.

This ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step Two from the goodwill impairment test.

Step Two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.

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 Company adopted this amendment on April 1, 2020.

As of December 31, 2020, the amendment did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

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

Targeted Improvements to Related Party Guidance for Variable Interest Entities of the Accounting Standards Codification.

The amendments in this update affect reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation—Overall.

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 Company adopted this amendment on April 1, 2020.

As of December 31, 2020, the amendment did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

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

Simplifying the Accounting for Income Taxes of the Accounting Standards Codification.

For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

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 early adopted this amendment as of April 1, 2020.

The amendment resulted in an immaterial impact to its condensed 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.

For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years.

The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method.

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

The Company adopted this amendment on April 1, 2021.

As of June 30, 2021, the amendments did not have a material impact on the Company's consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848):

3 unchanged sentences

The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

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

1 unchanged sentence

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

In July 2021, the FASB updated the Leases (Topic 842):

Lessors—Certain Leases with Variable Lease Payments.

The amendments in this Update address stakeholders’ concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840.

Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met:

The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3.

The lessor would have otherwise recognized a day-one loss.

When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss.

The leased asset continues to be subject to the measurement and impairment requirements under other applicable GAAP.

The amendments in this Update are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities.

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

Revenue Recognition

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

Substantially all of the Company’s non-lease 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.

26 unchanged sentences

The following table summarizes disaggregated revenues by type (in thousands):

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Three Months Ended June 30,

Product Sales

9 unchanged sentences

Leasing Revenue

Air Cargo — — — —

Ground equipment sales 39 48

10 unchanged sentences

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

The following table presents outstanding contract liabilities as of April 1, 2020 and December 31, 2020 and the amount of contract liabilities that were recognized as revenue during the nine-month period ended December 31, 2020 (in thousands):

The following table presents outstanding contract liabilities as of April 1, 2021 and June 30, 2021 and the amount of contract liabilities as of April 1, 2021 that were recognized as revenue during the three-month period ended June 30, 2021 (in thousands):

Outstanding contract liabilities Outstanding contract liabilities as of April 1, 2021

Recognized as Revenue

As of December 31, 2020 $ 1,661

As of June 30, 2021 $ 1,957

As of April 1, 2021 1,358

For the nine months ended December 31, 2020 785

Discontinued Operations

On September 30, 2019, the Company completed the sale of 100% of the equity ownership in the Company’s wholly-owned subsidiary, Global Aviation Services, LLC ("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.

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 $10.8 million with a tax impact of $2.4 million for a net of tax gain of $8.4 million in the second quarter of 2019.

Summarized results of operations of GAS for the three and nine months ended December 31, 2020 and 2019 through the date of disposition are as follows (in thousands):

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Net sales $ — $ — $ — $ 16,637

Operating Income (Expense) — — 4 (17,319)

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

Income tax benefit — — — (612)

Gain/(Loss) from discontinued operations, net of tax $ — $ — $ 4 $ (70)

For the quarter ended June 30, 2021 450

Accrued Expenses

(in thousands) December 31, 2020 March 31, 2020

(in thousands) June 30, 2021 March 31, 2021

Salaries, wages and related items $ 4,659 $ 5,427

Profit sharing and bonus 487 2,706

Other Deposits 1,632 1,251

Other 3,001 3,403

Total $ 9,779 $ 12,787

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

The Company records income taxes using an estimated annual effective tax rate for interim reporting.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the three-month period ended December 31, 2019, the Company recorded $0.6 million in income tax benefit at an ETR of 51.5%.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2019 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the estimated deduction for foreign derived intangible income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the nine-month period ended December 31, 2020, the Company recorded $2.2 million in income tax benefit at an ETR of 45.9%.

During the three-month period ended June 30, 2021, the Company recorded $ 5.0 thousand in income tax benefit at an effective tax rate ("ETR") of ( 1.6 )%.

The Company records income taxes using an estimated annual effective tax rate for interim reporting.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the nine-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the nine-month period ended December 31, 2019, the Company recorded $0.1 million in income tax benefit which resulted in an effective tax rate of (2.2)%.

The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the nine-month period ended December 31, 2019 were related to the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the estimated deduction for foreign derived intangible income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

Net Earnings Per Share

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2021 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc.

and Delphax Technologies, Inc.

(collectively known as "Delphax") and other capital losses, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the three-month period ended June 30, 2020, the Company recorded $ 0.3 million in income tax benefit at an ETR of 23.9 %.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

Net Earnings (Loss) Per Share

Basic earnings per share has been calculated by dividing net income (loss) attributable to Air T, Inc.

stockholders by the weighted average number of common shares outstanding during each period.

For purposes of calculating diluted earnings per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive.

For purposes of calculating diluted earnings (loss) per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive.

The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures):

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

Net income (loss) from continuing operations $ 1,763 $ 581 $ (2,550) $ 2,450

Net loss (income) from continuing operations attributable to non-controlling interests 335 (789) 884 (3,449)

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

Stockholders 2,098 (208) (1,666) (999)

Income (Loss) from continuing operations per share:

Basic $ 0.73 $ (0.07) $ (0.58) $ (0.36)

Diluted $ 0.73 $ (0.07) $ (0.58) $ (0.36)

Antidilutive shares excluded from computation of loss per share from continuing operations — 4 5 4

Loss from discontinued operations, net of tax — — — (70)

(Loss) Gain on sale of discontinued operations, net of tax — (222) 4 8,137

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

Three Months Ended June 30,

Net income (loss) $ 327 $ ( 956 )

Net (income) loss attributable to non-controlling interests ( 38 ) 115

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

Stockholders 289 ( 841 )

(Loss) Income from discontinued operations per share:

Basic $ — $ (0.07) $ — $ 2.93

Diluted $ — $ (0.07) $ — $ 2.93

Antidilutive shares excluded from computation of loss per share from discontinued operations — 4 — —

Income (Loss) per share:

1 unchanged sentence

Diluted $ 0.10 $ ( 0.29 )

Antidilutive shares excluded from computation of loss per share — 4 5 —

Antidilutive shares excluded from computation of income (loss) per share — 5

Weighted Average Shares Outstanding:

1 unchanged sentence

Diluted 2,890 2,882

On June 10, 2019, the Company effected a three-for-two stock split of its common stock in the form of a 50% stock dividend to stockholders of record as of June 4, 2019.

All share and earnings per share information have been retroactively adjusted to reflect the stock split and the incremental par value of the newly-issued shares was recorded with the offset to additional paid-in capital.

With respect to our December 31, 2020 Quarterly Report on Form 10-Q, the effect of the stock split was recognized retroactively in the stockholders’ equity accounts in the condensed consolidated Balance Sheets, and in all share data in the condensed consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Investments in Securities and Derivative Instruments

2 unchanged sentences

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 condensed consolidated statement of income as interest expense in the same period in which the underlying hedged transaction affects earnings.

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 condensed consolidated statement of income (loss) 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 December 31, 2020 and March 31, 2020, the fair value of the interest-rate swap contracts was a liability of $0.8 million and $0.9 million, respectively, which is included within other non-current liabilities in the condensed consolidated balance sheets.

During the three and nine months ended December 31, 2020, the Company recorded a gain of approximately $71.0 thousand and $0.1 million, net of tax, in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.

As of June 30, 2021 and March 31, 2021, the fair value of the interest-rate swap contracts was a liability of $ 0.6 million, which is included within other non-current liabilities in the condensed consolidated balance sheets.

During the three months ended June 30, 2021 and June 30, 2020, the Company recorded a gain of approximately $ 11.0 thousand and a loss of approximately $ 26.0 thousand, net of tax, in the condensed 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.

1 unchanged sentence

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

During the three months ended December 31, 2020, related to these derivative instruments, the Company had a gross gain aggregating to $0.1 million and a gross loss aggregating to $1.6 thousand, respectively.

During the nine months ended December 31, 2020, 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, respectively.

The following table presents these derivative instruments at fair value in the condensed consolidated balance sheets as of December 31, 2020 and March 31, 2020 (in thousands):

(In thousands) December 31, 2020 March 31, 2020

Exchange-traded options & futures

Other current assets $ 76 $ 6

Total assets 76 6

Exchange-traded options & futures

Accrued Expenses and other 7 36

Total liabilities $ 7 $ 36

During the three months ended June 30, 2021, related to these derivative instruments, the Company did not record any gain or loss.

During the three months ended June 30, 2020, related to these derivative instruments, the Company had a gross gain aggregating to $ 0.4 million and no gross loss.

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

1 unchanged sentence

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

During the three months ended December 31, 2020, the Company had a gross unrealized gain aggregating to $0.8 million and a gross unrealized loss aggregating to $0.3 million.

During the nine months ended December 31, 2020, the Company had a gross unrealized gain aggregating to $1.6 million and a gross unrealized loss aggregating to $1.1 million.

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

During the three months ended June 30, 2021, the Company had a gross unrealized gain aggregating to $ 0.4 million and a gross unrealized loss aggregating to $ 49.0 thousand.

During the three months ended June 30, 2020, the Company had a gross unrealized gain aggregating to $ 0.6 million and a gross unrealized loss aggregating to $ 0.4 million.

These unrealized gains and losses are included in Other Income (Loss) on the condensed consolidated statement of income (loss).

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 December 31, 2020 and 2019, the Company had outstanding borrowings of $0.7 million and $0.4 million under its margin account, respectively, which is reflected in accrued expenses and other on the condensed consolidated balance sheets.

As of December 31, 2020 and 2019, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $1.3 million and $0.3 million, respectively, which is reflected in other current assets on the condensed consolidated balance sheets.

The interest rate on margin account borrowings was 9.5% as of December 31, 2020.

As of June 30, 2021 and 2020, the Company had outstanding borrowings of $ 0 and $ 2.4 million under its margin account, respectively, which is reflected in accrued expenses and other on the condensed consolidated balance sheets.

As of June 30, 2021 and 2020, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $ 22.0 thousand and $ 3.0 million, respectively, which is reflected in other current assets on the condensed consolidated balance sheets.

Equity Method Investments

2 unchanged sentences

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

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

As such, as of December 31, 2020, the number of Insignia's shares owned by the Company was adjusted to 0.5 million, representing approximately 28% of the outstanding shares.

The Company recorded approximately $0.2 million and $1.0 million as its share of Insignia’s net loss for the three and nine months ended September 30, 2020 along with a basis difference adjustment of approximately $24.0 thousand and $72.0 thousand, respectively.

The Company's net investment basis in Insignia is $0.2 million as of December 31, 2020.

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

("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.

As of June 30, 2021, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 28 % of the outstanding shares.

During the fiscal year ended March 31, 2021, due to loss attributions and impairments taken in prior fiscal years, the Company's net investment basis in Insignia was reduced to $ 0 .

As such, the Company did no t record any additional share of Insignia's net loss as of June 30, 2021.

The Company's 18.98 % investment in Cadillac Casting, Inc.

("CCI") is accounted for 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.

The Company recorded a gain of $0.6 million and $0.3 million as its share of CCI's net income for the three and nine months ended September 30, 2020, along with a basis difference adjustment of $12.0 thousand and $37.0 thousand, respectively.

The Company's net investment basis in CCI is $3.5 million as of December 31, 2020.

Summarized unaudited financial information for the Company's equity method investees for the three and nine months ended September 30, 2020 and 2019 is as follows (in thousands):

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

The Company recorded a loss of $ 0.3 million as its share of CCI's net loss for the three months ended June 30, 2021, along with a basis difference adjustment of $ 12.0 thousand.

The Company's net investment basis in CCI is $ 3.5 million as of June 30, 2021.

Summarized unaudited financial information for the Company's equity method investees for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

Three Months Ended

March 31, 2021 March 31, 2020

Revenue $ 30,273 $ 21,936

Gross Profit 807 805

Operating income (loss) 891 (2,374) (3,496) (5,746)

Net income (loss) 2,242 (2,556) (2,075) (6,528)

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

Operating loss ( 3,095 ) ( 2,378 )

Net loss ( 2,145 ) ( 2,286 )

Net loss attributable to Air T, Inc.

stockholders $ ( 295 ) $ ( 570 )

9 unchanged sentences

Commercial jet engines and parts:

59,014 60,516

Total inventories $ 77,606 $ 74,073

11 unchanged sentences

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 three and nine months ended December 31, 2020 and 2019 are as follows (in thousands):

Three Months Ended December 31, Nine Months Ended December 31,

2020 2019 2020 2019

The components of lease cost for the three months ended June 30, 2021 and 2020 are as follows (in thousands):

Three Months Ended June 30,

Operating lease cost $ 447 $ 571

2 unchanged sentences

Total lease cost $ 876 $ 708

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

December 31, 2020 March 31, 2020

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of June 30, 2021 and March 31, 2021 were as follows (in thousands):

June 30, 2021 March 31, 2021

Operating leases

2 unchanged sentences

Weighted-average remaining lease term

Operating leases 13 years, 10 months 14 years, 4 months

Operating leases 14 years 13 years, 9 months

Weighted-average discount rate

Operating leases 4.4 % 4.4 %

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of the quarter ended December 31, 2020 are as follows (in thousands):

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of June 30, 2021 are as follows (in thousands):

Operating Leases

2021 (excluding the nine months ended December 31, 2020) $ 444

2022 (excluding the three months ended June 30, 2021) $ 1,351

Thereafter 5,300

4 unchanged sentences

Financing Arrangements

Borrowings of the Company and its subsidiaries are summarized below at December 31, 2020 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 Company’s Credit Agreement with Minnesota Bank & Trust, a Minnesota state banking corporation (“MBT”) 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 .

AirCo 1, LLC ("AirCo 1") and Contrail Aviation Support, LLC ("Contrail") are subsidiaries of the Company in the Commercial Jet Engines and Parts segment.

The AirCo 1 Credit Agreement contains an affirmative covenant relating to collateral valuation.

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 are:

(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 $ 0 for at least thirty consecutive days to September 5, 2021;

As of June 30, 2021, the Company, AirCo 1 and Contrail were in compliance with all financial covenants.

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;

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

On April 13, 2020, the Company entered into a loan with MBT in a principal amount of $ 8.2 million pursuant to the Payroll Protection Program ("PPP Loan"), backed by the Small Business Administration ("SBA"), under the CARES Act.

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

2 unchanged sentences

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

The Company will 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 24-week period beginning on April 13, 2020, calculated in accordance with the terms of the CARES Act.

The Company has applied to the SBA 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 December 31, 2020, 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:

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 loan proceeds are 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 proceeds will also be 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 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 loan is secured by a security interest in the assets of Contrail.

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 U.S.

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 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 December 31, 2020:

(In Thousands) December 31,

As of June 30, 2021, the Company has used the funds received from the PPP loan on eligible expenses as outlined in the CARES Act.

The following table provides certain information about the current financing arrangements of the Company's and its subsidiaries as of June 30, 2021:

(In Thousands) June 30,

2021 March 31,

1 unchanged sentence

Revolver - MBT $ 2,521 $ — August 31, 2021 Greater of 2.5 % or Prime - 1 %

Supplemental Revolver- MBT — 9,550 June 30, 2020 Greater of 1-month LIBOR + 1.25% and 3%

Term Note A - MBT $ 6,500 $ 6,750 January 1, 2028 1-month LIBOR + 2 %

10 unchanged sentences

Revolver - ONB $ — $ — September 5, 2021 1-month LIBOR + 3.45 %

Term Loan A - ONB 3,508 6,285 January 26, 2021 1-month LIBOR + 3.75%

Term Loan E - ONB 4,597 6,320 December 1, 2022 1-month LIBOR + 3.75%

Term Loan F - ONB — 8,358 May 1, 2025 1-month LIBOR + 3.75%

Term Loan G - ONB $ 43,598 $ 43,598 November 24, 2025 1-month LIBOR + 3.00 %

2 unchanged sentences

Canadian Emergency Business Account Loan $ 33 $ 32 December 31, 2025 5.00 %

Total $ 33 $ 32

Total Debt $ 94,408 $ 88,637

4 unchanged sentences

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 12/31/2020.

At December 31, 2020, our contractual financing obligations, including payments due by period, are as follows (in thousands):

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

At June 30, 2021, our contractual financing obligations, including payments due by period, are as follows (in thousands):

Due by Amount

December 31, 2021 $ 42,388

December 31, 2022 9,383

December 31, 2023 9,037

December 31, 2024 9,037

December 31, 2025 41,764

June 30, 2022 $ 9,537

June 30, 2023 4,333

June 30, 2024 9,037

June 30, 2025 13,093

June 30, 2026 36,459

Thereafter 21,949

2 unchanged sentences

• A dividend of one additional share for every two shares already held (a 50 % stock dividend, or the equivalent of a 3-for-2 stock split).

See Footnote 6 for discussion.

• The Company issued and distributed to existing common stockholders an aggregate of 1.6 million trust preferred capital security ("TruPs") shares (aggregate $ 4.0 million stated value) and an aggregate of 8.4 million warrants ("Warrants") (representing warrants to purchase $ 21.0 million in stated value of TruPs).

2 unchanged sentences

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.

As of December 31, 2020, 3.6 million Warrants have been exercised.

As a result, the amount outstanding on the Company's Debt - Trust Preferred Securities is $12.9 million as of December 31, 2020.

At December 31, 2020, the Company had Warrants outstanding and exercisable to purchase 4.8 million shares of its TruPs at an exercise price of $2.40 per one-tenth of a share.

On January 11, 2021, the Company announced the extension of the expiration date of the Warrants.

The Warrants, previously scheduled to expire on January 15, 2021, are extended and now will expire on August 30, 2021 or earlier upon redemption or liquidation.

As of June 30, 2021, 4.1 million Warrants have been exercised.

At June 30, 2021, the Company had 4.3 million Warrants outstanding and exercisable to purchase shares of its TruPs at an exercise price of $ 2.40 per one-tenth of a share.

On January 11, 2021, the Company announced the extension of the expiration date of the Warrants, previously scheduled to expire on January 15, 2021, to August 30, 2021 or earlier upon redemption or liquidation.

On June 23, 2021, the Company announced that it will not extend the expiration date of its Warrants beyond August 30, 2021.

Fair Value Measurement

as of December 31, 2020

as of June 30, 2021

Warrant liability (Level 2) 180,000

As of December 31, 2020, the Warrants are recorded within "Other non-current liabilities" on our condensed consolidated balance sheets.

As of June 30, 2021, the Warrants are recorded within "Other non-current liabilities" on our condensed consolidated balance sheets.

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).

On May 14, 2021, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (the “sales agent” or “Ascendiant”), pursuant to which it may sell and issue its TruPs having an aggregate offering price of up to $ 8 million from time to time.

The Company has no obligation to sell any TruPs, and may at any time suspend offers under the ATM Agreement or terminate the ATM Agreement.

As of June 30, 2021, the Company has sold 184.0 thousand shares of TruPs under the ATM agreement for net proceeds of $ 4.4 million.

The amount outstanding on the Company's Debt - Trust Preferred Securities is $ 18.6 million as of June 30, 2021.

Geographical information

Total tangible long-lived assets, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of December 31, 2020 and March 31, 2020 (in thousands):

December 31, 2020 March 31, 2020

June 30, 2021 March 31, 2021

United States $ 8,550 $ 8,632

1 unchanged sentence

Total tangible long-lived assets, net $ 10,462 $ 10,650

The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at December 31, 2020.

The net book value located within each individual country at December 31, 2020 and March 31, 2020 is listed below (in thousands):

December 31, 2020 March 31, 2020

Spain $ 10,013 $ —

Netherlands — 4,778

Estonia — 7,408

Mexico — 1,845

The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at June 30, 2021.

The net book value located within each individual country at June 30, 2021 and March 31, 2021 is listed below (in thousands):

June 30, 2021 March 31, 2021

Macau 1,795 1,896

Other 117 122

Total tangible long-lived assets, net 1,912 2,018

Total revenue from continuing operations, in and outside the United States is summarized in the following table for the nine months ended December 31, 2020 and December 31, 2019 (in thousands):

December 31, 2020 December 31, 2019

Total revenue, in and outside the United States, is summarized in the following table for the three months ended June 30, 2021 and June 30, 2020 (in thousands):

June 30, 2021 June 30, 2020

United States $ 31,769 $ 34,649

4 unchanged sentences

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

Due to insignificance, the Company combined the previous printing and equipment segment into corporate and other during the quarter ended September 30, 2020.

We have presented prior periods based on the current presentation.

Segment data is summarized as follows (in thousands):

(In Thousands) Three Months Ended

December 31, Nine Months Ended

2020 2019 2020 2019

Operating Revenues by Segment:

Overnight Air Cargo

Domestic $ 18,768 $ 16,171

International 83 —

Total Overnight Air Cargo 18,851 16,171

Ground Equipment Sales:

29 unchanged sentences

Total $ 380 $ 609

Variable Interest Entities

A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest.

Under ASC 810 - Consolidation, an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its condensed consolidated financial statements.

In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:

• the power to direct the activities that most significantly impact the economic performance of the VIE;

• the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE.

The Company concluded that its investments in Delphax’s equity and debt, and its investment in the Delphax warrant, each constituted a variable interest.

In addition, the Company concluded that it became the primary beneficiary of Delphax on November 24, 2015.

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

The conclusion of the bankruptcy proceedings also resulted in the dissolution of Delphax Canada.

In addition, on June 11, 2019, the Company also fully dissolved Delphax UK.

As such, the only Delphax entity that remains in existence as of March 31, 2020 is Delphax France.

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 $9.0 thousand and $0.5 million, as of December 31, 2020 and $11.0 thousand and $0.5 million, as of March 31, 2020.

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

For the three months ended December 31, 2020 and December 31, 2019, Delphax did not recognize any revenue, respectively.

For the three months ended December 31, 2020, Delphax recorded a net loss of $8.0 thousand, broken out between an operating loss of $2.0 thousand and non-operating loss of $6.0 thousand.

For the three months ended December 31, 2019, Delphax recorded net loss and operating loss of $57.0 thousand.

For the nine months ended December 31, 2020 and December 31, 2019, Delphax did not recognize any revenue, respectively.

For the nine months ended December 31, 2020, Delphax recorded net loss and operating loss of $40.0 thousand.

For the nine months ended December 31, 2019, Delphax recorded net income of $6.1 million, broken out between an operating loss of $0.2 million and non-operating income of $6.2 million, the majority of which was the result of the gain on dissolution of entities of $4.5 million.

Commitments and Contingencies

Contrail Aviation entered into an Operating Agreement (the “Operating Agreement”) in connection with the acquisition of Contrail Aviation in 1996 providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options with the Seller of Contrail (“Put/Call Option”).

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.

The Company has presented this redeemable non-controlling interest in Contrail Aviation between the liabilities and equity sections of the accompanying condensed consolidated balance sheets.

Contrail Aviation entered into an Operating Agreement (the “Contrail Operating Agreement”) in connection with the acquisition of Contrail Aviation in 1996 providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options with the Seller of Contrail (“Contrail Put/Call Option”).

The Contrail Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on the fifth anniversary of the acquisition, which was on July 18, 2021.

The Company has presented this redeemable non-controlling interest in Contrail Aviation ("Contrail RNCI") between the liabilities and equity sections of the accompanying condensed consolidated balance sheets.

In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period.

The fair value of the redeemable non-controlling interest is $5.6 million as of December 31, 2020.

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

The decrease was driven by $1.9 million of net loss attributable to and distributions made to the non-controlling interest as of December 31, 2020, partially offset by a $1.4 million increase related to the net change in fair value during the nine months ended December 31, 2020, which is reflected on our condensed consolidated statements of equity.

The offsetting increase is primarily attributable to the value associated with Contrail's potential investment in an aircraft asset management joint venture, as announced publicly in our 8-K dated December 23, 2020.

The fair value of the redeemable non-controlling interest is $ 7.0 million as of June 30, 2021.

The change in the redemption value compared to March 31, 2021 is an increase of $ 0.4 million.

The increase was driven by $ 0.3 million of contributions made from the non-controlling interest and $ 0.2 million of the net change in fair value, partially offset by $ 0.1 million of net loss attributable to the non-controlling interest during the three months ended June 30, 2021.

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

If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date.

The Company currently expects that it would fund any required payment from cash provided by operations.

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

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

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

CAM will serve two separate and distinct functions:

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

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

As of June 30, 2021, CAM's unfunded capital commitments are approximately $ 6.9 million from the Company and $ 43.9 million from MRC.

The increase in the fair value of the Contrail RNCI is primarily attributable to the value associated with the Contrail Aviation's investment in CJVII.

Subsequent Events

On January 11, 2021, the Company announced that the Warrants to purchase its TruPs have been extended through August 30, 2021.

The Warrants were scheduled to expire on January 15, 2021.

Management performs an evaluation of events that occur after the balance sheet date but before condensed consolidated financial statements are issued for potential recognition or disclosure of such events in its condensed consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements