AIR T INC 10-Q

Item 1. Financial Statements AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) (in thousands, except income (loss) per share number) Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 Operating Revenues: Overnight air cargo $ 18,248 $ 16,322 $ 55,946 $ 49,789 Ground equipment sales 15,232 20,769 32,603 48,656 Commercial jet engines and parts 11,392 18,078 35,902 28,886 Corporate and other 561 650 1,189 1,063 45,433 55,819 125,640 128,394 Operating Expenses: Overnight air cargo 16,209 14,505 49,506 43,906 Ground equipment sales 11,988 14,966 25,550 36,923 Commercial jet engines and parts 7,601 16,086 22,707 22,861 General and administrative 9,168 8,303 26,004 24,940 Depreciation and amortization 442 886 1,146 2,644 Loss on sale of property and equipment — 5 3 1 45,408 54,751 124,916 131,275 Operating Income (Loss) from continuing operations 25 1,068 724 ( 2,881 ) Non-operating Income (Expense): Interest expense ( 1,236 ) ( 1,172 ) ( 3,341 ) ( 3,413 ) Income (Loss) from equity method investments 99 510 197 ( 546 ) Gain on forgiveness of Paycheck Protection Program (“PPP”) loan — — 8,331 — Other-than-temporary impairment loss on investments ( 348 ) — ( 348 ) — Other ( 11 ) 1,039 1,329 2,125 ( 1,496 ) 377 6,168 ( 1,834 ) (Loss) Income from continuing operations before income taxes ( 1,471 ) 1,445 6,892 ( 4,715 ) Income Taxes Benefit ( 282 ) ( 318 ) ( 249 ) ( 2,165 ) Net (Loss) Income from continuing operations ( 1,189 ) 1,763 7,141 ( 2,550 ) Gain on sale of discontinued operations, net of tax — — — 4 Net (Loss) Income ( 1,189 ) 1,763 7,141 ( 2,546 ) Net (Income) Loss Attributable to Non-controlling Interests $ ( 73 ) $ 335 $ ( 559 ) $ 884 Net (Loss) Income Attributable to Air T, Inc. Stockholders $ ( 1,262 ) $ 2,098 $ 6,582 $ ( 1,662 ) (Loss) Income from continuing operations per share (Note 6) Basic $ ( 0.44 ) $ 0.73 $ 2.28 $ ( 0.58 ) Diluted $ ( 0.44 ) $ 0.73 $ 2.28 $ ( 0.58 ) Income from discontinued operations per share (Note 6) Basic $ — $ — $ — $ — Diluted $ — $ — $ — $ — (Loss) Income per share (Note 6) Basic $ ( 0.44 ) $ 0.73 $ 2.28 $ ( 0.58 ) Diluted $ ( 0.44 ) $ 0.73 $ 2.28 $ ( 0.58 ) Weighted Average Shares Outstanding: Basic 2,882 2,882 2,882 2,882 Diluted 2,882 2,887 2,893 2,882 See notes to condensed consolidated financial statements. 4 AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Three Months Ended December 31, Nine Months Ended December 31, (In Thousands) 2021 2020 2021 2020 Net (Loss) Income $ ( 1,189 ) $ 1,763 $ 7,141 $ ( 2,546 ) Foreign currency translation gain (loss) 19 ( 22 ) 73 ( 157 ) Unrealized (loss) gain on interest rate swaps ( 20 ) 71 37 100 Reclassification of interest rate swaps into earnings 22 ( 1 ) 19 ( 17 ) Total Other Comprehensive Income (Loss) 21 48 129 ( 74 ) Total Comprehensive (Loss) Income ( 1,168 ) 1,811 7,270 ( 2,620 ) Comprehensive (Income) Loss Attributable to Non-controlling Interests ( 73 ) 335 ( 559 ) 884 Comprehensive (Loss) Income Attributable to Air T, Inc. Stockholders $ ( 1,241 ) $ 2,146 $ 6,711 $ ( 1,736 ) See notes to condensed consolidated financial statements. 5 AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share amounts) December 31, 2021 March 31, 2021 ASSETS Current Assets: Cash and cash equivalents $ 2,576 $ 10,996 Marketable securities 2,630 1,407 Restricted cash 3,263 4,931 Restricted investments 714 1,507 Accounts receivable, net of allowance for doubtful accounts of $ 1,513 and $ 1,177 10,548 6,505 Income tax receivable 4,735 4,389 Inventories, net 76,446 71,971 Other current assets 5,884 4,068 Total Current Assets 106,796 105,774 Assets on lease or held for lease, net of accumulated depreciation of $ 728 and $ 436 5,896 2,131 Property and equipment, net of accumulated depreciation of $ 5,111 and $ 4,510 21,328 8,519 Right-of-use ("ROU") assets 7,099 7,757 Equity method investments 8,785 4,475 Goodwill 4,227 4,227 Other assets 9,665 7,867 Total Assets $ 163,796 $ 140,750 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable 7,952 8,344 Income tax payable — 39 Accrued expenses and other (Note 4) 8,959 12,787 Current portion of long-term debt 2,962 5,639 Short-term lease liability 1,337 1,370 Total Current Liabilities 21,210 28,179 Long-term debt 105,436 81,857 Deferred income tax liabilities, net 607 595 Long-term lease liability 6,555 7,075 Other non-current liabilities 808 1,732 Total Liabilities $ 134,616 $ 119,438 Redeemable non-controlling interest 7,885 6,598 Commitments and contingencies (Note 14) Equity: Air T, Inc. Stockholders' Equity: Preferred stock, $ 1.00 par value, 50,000 shares authorized — Common stock, $ .25 par value; 4,000,000 shares authorized, 3,022,745 shares issued, 2,881,853 shares outstanding 756 756 Treasury stock, 140,892 shares at $ 18.58 ( 2,617 ) ( 2,617 ) Additional paid-in capital 315 — Retained earnings 22,283 16,270 Accumulated other comprehensive loss ( 555 ) ( 684 ) Total Air T, Inc. Stockholders' Equity $ 20,182 $ 13,725 Non-controlling Interests 1,113 989 Total Equity 21,295 14,714 Total Liabilities and Equity $ 163,796 $ 140,750 See notes to condensed consolidated financial statements. 6 AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands) Nine Months Ended December 31, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income (Loss) 7,141 ( 2,546 ) Gain on sale of discontinued operations, net of income tax — ( 4 ) Net Income (Loss) from continuing operations 7,141 ( 2,550 ) Adjustments to reconcile Net Income (Loss) to net cash provided by operating activities: Depreciation and amortization 1,146 2,644 Gain on forgiveness of PPP loan ( 8,331 ) — Other ( 225 ) 668 Change in operating assets and liabilities: Accounts receivable ( 4,378 ) ( 6,784 ) Inventories ( 8,593 ) 6,118 Accounts payable ( 379 ) ( 2,913 ) Accrued expenses ( 3,247 ) ( 1,056 ) Other ( 2,824 ) ( 2,788 ) Net cash used in operating activities - continued operations ( 19,690 ) ( 6,661 ) Net cash provided by operating activities - discontinued operations — 4 Net cash used in operating activities ( 19,690 ) ( 6,657 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of marketable securities — ( 659 ) Sale of marketable securities 6 2,445 Proceeds from sale of assets on lease — 1,900 Investment in unconsolidated entities ( 4,461 ) — Acquisition of assets ( 13,408 ) — Capital expenditures related to property & equipment ( 1,205 ) ( 3,415 ) Capital expenditures related to assets on lease or held for lease — ( 124 ) Other ( 478 ) ( 455 ) Net cash used in investing activities ( 19,546 ) ( 308 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from lines of credit 59,247 47,886 Payments on lines of credit ( 54,063 ) ( 54,738 ) Proceeds from term loan 16,080 59,277 Payments on term loan ( 2,909 ) ( 18,176 ) Proceeds from PPP loan — 8,215 Proceeds received from issuance of Trust Preferred Securities ("TruPs") 10,671 1 Other 53 ( 2,082 ) Net cash provided by financing activities 29,079 40,383 Effect of foreign currency exchange rates on cash and cash equivalents 69 ( 164 ) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 10,088 ) 33,254 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 15,927 15,571 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD 5,839 48,825 See notes to condensed consolidated financial statements. 7 AIR T, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) (In Thousands) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interests Total Equity Shares Amount Shares Amount 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 interests — — — — 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 ) Unrealized gain on interest rate swaps, net of tax — — — — — — 55 — 55 Foreign currency translation loss — — — — — — ( 68 ) — ( 68 ) Adjustment to fair value of redeemable non-controlling interests — — — — ( 890 ) — — — ( 890 ) 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 Unrealized gain on interest rate swaps, net of tax — — — — — — 71 — 71 Foreign currency translation loss — — — — — — ( 22 ) — ( 22 ) Adjustment to fair value of redeemable non-controlling interests — — — — ( 888 ) — — — ( 888 ) Balance, December 31, 2020 3,023 $ 756 $ 141 $ ( 2,617 ) $ 1,287 $ 22,105 $ ( 594 ) $ 991 $ 21,928 (In Thousands) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interests Total Equity Shares Amount Shares Amount 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 ) Adjustment to fair value of redeemable non-controlling interest — — — — — ( 238 ) — — ( 238 ) Unrealized gain on interest rate swaps, net of tax — — — — — — 11 — 11 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 Net income (loss)* — — — — — 7,555 — ( 12 ) 7,543 Stock compensation expense — — — — 236 — — — 236 Foreign currency translation gain — — — — — — 103 — 103 Adjustment to fair value of redeemable non-controlling interest — — — — — 183 — — 183 Unrealized gain on interest rate swaps, net of tax — — — — — — 46 — 46 Reclassification of interest rate swaps into earnings — — — — — — ( 2 ) — ( 2 ) Balance, September 30, 2021 3,023 $ 756 $ 141 $ ( 2,617 ) $ 236 $ 24,059 $ ( 576 ) $ 1,130 22,988 Net loss* — — — — — ( 1,262 ) — ( 17 ) ( 1,279 ) Stock compensation expense — — — — 79 — — — 79 Foreign currency translation gain — — — — — — 19 — 19 Adjustment to fair value of redeemable non-controlling interest — — — — — ( 514 ) — — ( 514 ) Unrealized loss on interest rate swaps, net of tax — — — — — — ( 20 ) — ( 20 ) Reclassification of interest rate swaps into earnings — — — — — — 22 — 22 Balance, December 31, 2021 3,023 $ 756 $ 141 $ ( 2,617 ) $ 315 $ 22,283 $ ( 555 ) $ 1,113 21,295 * Excludes amount attributable to redeemable non-controlling interest in Contrail. See notes to condensed consolidated financial statements. 8 AIR T, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Financial Statement Presentation The condensed consolidated financial statements of Air T, Inc. (“Air T”, the “Company”, “we”, “us” or “our”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the periods presented have been made. 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, 2021 are not necessarily indicative of the operating results for the full year. 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 nine months ended December 31, 2020. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations. 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 $ 53.0 million, which is comprised of an $ 8.0 million initial commitment from the Company and an approximately $ 45.0 million initial commitment from MRC. Any investment returns will be shared pro-rata between the Company and MRC. COVID-19 Pandemic 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 continue to operate at a loss from time to time during the remainder of fiscal 2022 and beyond. 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 Issued Accounting Pronouncements In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848): 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 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. 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. 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. 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: 1. 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. 2. 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. 9 2. Acquisitions On December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the real estate located at 5000 36th Street West, St. Louis Park, Minnesota pursuant to the real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company dated October 11, 2021. The real estate purchased consists of a 2-story office building, asphalt-paved driveways and parking areas, and landscaping. The building was constructed in 2004 with an estimated 54,742 total square feet of space. The real estate purchased is where the Air T's executive office is currently located. With this purchase, the Company assumed 11 leases from existing tenants occupying the building. The total amount recorded for the real estate was $ 13.4 million, which included the purchase price of $ 13.2 million and total direct capitalized acquisition costs of $ 0.2 million. The consideration paid for the real estate consisted of approximately $ 3.3 million in cash and a new secured loan from Bridgewater Bank ("Bridgewater") with an aggregate principal amount of $ 9.9 million and a fixed interest rate of 3.65 % which matures on December 2, 2031. See Note 11 . In accordance with ASC 805, the purchase price consideration was allocated as follows (in thousands): Land $ 2,794 Building 8,439 Site Improvements 798 Tenant Improvements 269 Above market leases 3 Below market leases ( 139 ) Intangible origination costs 512 Absorption period costs 732 $ 13,408 10 3. Revenue Recognition 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. The following is a description of the Company’s performance obligations: Type of Revenue Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms Product Sales The Company generates revenue from sales of various distinct products such as parts, aircraft equipment, jet engines, airframes, and scrap metal to its customers. A performance obligation is created when the Company accepts an order from a customer to provide a specified product. Each product ordered by a customer represents a performance obligation. The Company recognizes revenue when obligations under the terms of the contract are satisfied; generally, this occurs at a point-in-time upon shipment or when control is transferred to the customer. Transaction prices are based on contracted terms, which are at fixed amounts based on standalone selling prices. While the majority of the Company's contracts do not have variable consideration, for the limited number of contracts that do, the Company records revenue based on the standalone selling price less an estimate of variable consideration (such as rebates, discounts or prompt payment discounts). The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue. The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service agreement or by the contract. Support Services The Company provides a variety of support services such as aircraft maintenance and short-term repair services to its customers. Additionally, the Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis. 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 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. Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis. In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are immaterial for disclosure under Topic 606. The following table summarizes disaggregated revenues by type (in thousands): Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 Product Sales Air Cargo $ 5,493 $ 4,970 $ 17,680 $ 15,013 Ground equipment sales 14,674 20,365 31,600 47,935 Commercial jet engines and parts 9,379 16,471 29,827 23,450 Corporate and other 85 73 199 106 Support Services Air Cargo 12,734 11,342 38,228 34,751 Ground equipment sales 173 109 306 193 Commercial jet engines and parts 1,686 1,191 5,342 3,771 Corporate and other 72 47 189 72 Leasing Revenue Air Cargo — — — — Ground equipment sales 141 39 219 110 Commercial jet engines and parts 298 373 642 1,537 Corporate and other 145 36 221 178 Other Air Cargo 21 10 38 25 Ground equipment sales 244 256 478 418 Commercial jet engines and parts 29 43 91 128 Corporate and other 259 494 580 707 Total $ 45,433 $ 55,819 $ 125,640 $ 128,394 See Note 1 2 for the Company's disaggregated revenues by geographic region and Note 1 3 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Contract Balances and Costs 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, 2021 and December 31, 2021 and the amount of contract liabilities as of April 1, 2021 that were recognized as revenue during the nine-month period ended December 31, 2021 (in thousands): Outstanding contract liabilities Outstanding contract liabilities as of April 1, 2021 Recognized as Revenue As of December 31, 2021 $ 1,585 As of April 1, 2021 $ 1,358 For the nine months ended December 31, 2021 $ 1,180 11 4. Accrued Expenses and Other (in thousands) December 31, 2021 March 31, 2021 Salaries, wages and related items $ 4,356 $ 5,427 Profit sharing and bonus 387 2,706 Other Deposits 1,352 1,251 Other 2,864 3,403 Total $ 8,959 $ 12,787 12 5. Income Taxes During the three-month period ended December 31, 2021, the Company recorded $ 0.3 million in income tax benefit at an effective tax rate ("ETR") of 19.2 %. 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, 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"), 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 the Company's 79 %-owned subsidiary ("Contrail"). During the three-month period ended December 31, 2020, the Company recorded $ 0.3 million in income tax benefit at an ETR of ( 22.0 )%. 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 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, 2021, the Company recorded $ 0.2 million in income tax benefit at an effective rate of ( 3.6 )%. 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, 2021 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act. During the nine-month period ended December 31, 2020, the Company recorded $ 2.2 million in income tax benefit which resulted in an effective tax rate of 45.9 %. 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, 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. 13 6. 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 (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, 2021 2020 2021 2020 Net (loss) income from continuing operations $ ( 1,189 ) $ 1,763 $ 7,141 $ ( 2,550 ) Net (income) loss from continuing operations attributable to non-controlling interests ( 73 ) 335 ( 559 ) 884 Net (loss) income from continuing operations attributable to Air T, Inc. Stockholders ( 1,262 ) 2,098 6,582 ( 1,666 ) (Loss) Income from continuing operations per share: Basic $ ( 0.44 ) $ 0.73 $ 2.28 $ ( 0.58 ) Diluted $ ( 0.44 ) $ 0.73 $ 2.28 $ ( 0.58 ) Antidilutive shares excluded from computation of loss per share from continuing operations 11 — — 5 Gain on sale of discontinued operations, net of tax — — — 4 Income from discontinued operation attributable to Air T, Inc. stockholders — — — 4 Income from discontinued operations per share: Basic $ — $ — $ — $ — Diluted $ — $ — $ — $ — (Loss) Income per share: Basic $ ( 0.44 ) $ 0.73 $ 2.28 $ ( 0.58 ) Diluted $ ( 0.44 ) $ 0.73 $ 2.28 $ ( 0.58 ) Antidilutive shares excluded from computation of loss per share 11 — — 5 Weighted Average Shares Outstanding: Basic 2,882 2,882 2,882 2,882 Diluted 2,882 2,887 2,893 2,882 14 7. 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 mentioned in Note 1 1 , on August 31, 2021, Air T and MBT refinanced Term Note A and fixed its interest rate at 3.42 %. As a result of this refinancing, the Company determined that the interest rate swap on Term Note A was no longer an effective hedge. The Company will amortize the fair value of the interest-rate swap contract included in accumulated other comprehensive income associated with Term Note A at the time of de-designation into earnings over the remainder of its term. In addition, any changes in the fair value of Term Note A's swap after August 31, 2021 are recognized directly into earnings. The remaining swap contract associated with Term Note D is designated as an effective cash flow hedging instrument in accordance with ASC 815. The effective portion of changes in the fair value on this instrument 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. This interest rate swap is considered a Level 2 fair value measurement. As of December 31, 2021 and March 31, 2021, the fair value of this interest-rate swap contract was a liability of $ 0.4 million and $ 0.6 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, 2021, the Company recorded a loss of approximately $ 20.0 thousand and a gain of $ 37.0 thousand, net of tax, respectively, in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of this instrument. 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 three and nine months ended December 31, 2021, the Company did not record any gain or loss related to these derivative instruments. During the three months ended December 31, 2020, the Company had a gross gain aggregating to $ 0.1 million and gross loss aggregating to $ 1.6 thousand related to these derivative instruments. During the nine months ended December 31, 2020, the Company had a gross gain aggregating to $ 0.8 million and a gross loss aggregating to $ 23.7 thousand related to these derivative instruments. 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 and are therefore, considered Level 1 fair value measurements. During the three months ended December 31, 2021, the Company had a gross unrealized gain aggregating to $ 1.7 million and a gross unrealized loss aggregating to $ 1.9 million. During the nine months ended December 31, 2021, the Company had a gross unrealized gain aggregating to $ 2.5 million and a gross unrealized loss aggregating to $ 2.1 million. 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 (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, 2021 and 2020, the Company had outstanding borrowings of $ 0 and $ 0.7 million under its margin account, respectively, which is reflected in accrued expenses and other on the condensed consolidated balance sheets. As of December 31, 2021 and 2020, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $ 0 and $ 1.3 million, respectively, which is reflected in other current assets on the condensed consolidated balance sheets. 15 8. Equity Method Investments The Company’s investment in Insignia Systems, Inc. (“Insignia”) is accounted for under the equity method of accounting. The Company has elected a three-month lag upon adoption of the equity method. As of December 31, 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 December 31, 2021. On August 23, 2021, Insignia restated its 10-K for the fiscal year ended December 31, 2020 and its 10-Q for the quarter ended March 31, 2021. The Company evaluated these restatements and determined that they would not result in any additional impact on the Company's condensed consolidated financial statements. 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 loss of $ 0.1 million and $ 0.6 million as its share of CCI's net loss for the three and nine months ended December 31, 2021, along with a basis difference adjustment of $ 13.0 thousand and $ 38.0 thousand, respectively. Additionally, due to the adverse financial results as reported in CCI's financial statements for the quarters ended June 30, 2021 and September 30, 2021, in addition to consideration of industry reports and other qualitative factors, the Company determined that it has suffered from an other-than-temporary impairment in its investment in CCI. As such, the Company recorded an impairment charge of $ 0.3 million during the quarter ended December 31, 2021. After the impairment, the Company's net investment basis in CCI is $ 2.8 million as of December 31, 2021. Summarized unaudited financial information for the Company's equity method investees for the three and nine months ended September 30, 2021 and 2020 is as follows (in thousands): Three Months Ended Nine Months Ended September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020 Revenue $ 29,408 $ 27,327 $ 87,396 $ 61,402 Gross Profit 1,256 3,231 3,160 5,196 Operating loss ( 1,339 ) 891 ( 6,544 ) ( 3,496 ) Net loss ( 1,434 ) 2,242 ( 5,847 ) ( 2,075 ) Net loss attributable to Air T, Inc. stockholders $ ( 110 ) $ 355 $ ( 678 ) $ ( 705 ) 16 9. Inventories Inventories consisted of the following (in thousands): December 31, 2021 March 31, 2021 Overnight air cargo $ 30 $ — Ground equipment manufacturing: Raw materials 4,509 4,695 Work in process 2,120 5,820 Finished goods 8,714 1,691 Corporate and other: Raw materials 650 462 Finished goods 728 889 Commercial jet engines and parts 61,583 60,516 Total inventories $ 78,334 $ 74,073 Reserves ( 1,888 ) ( 2,102 ) Total inventories, net of reserves $ 76,446 $ 71,971 17 10. Leases The Company has operating leases for the use of real estate, machinery, and office equipment. The majority of our leases have a lease term of 2 to 5 years; however, we have certain leases with longer terms of up to 30 years. Many of our leases include options to extend the lease for an additional period. The lease term for all of the Company’s leases includes the non-cancellable period of the lease, plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor that is considered likely to be exercised. Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments. Variable payments are typically operating costs associated with the underlying asset and are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Our leases do not contain residual value guarantees. The Company has elected to combine lease and non-lease components as a single component and not to recognize leases on the balance sheet with an initial term of one year or less. 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, 2021 and 2020 are as follows (in thousands): Three Months Ended December 31, Nine Months Ended December 31, 2021 2020 2021 2020 Operating lease cost $ 499 $ 547 $ 1,366 $ 1,599 Short-term lease cost 325 50 983 251 Variable lease cost 174 241 464 532 Total lease cost $ 998 $ 838 $ 2,813 $ 2,382 Amounts reported in the consolidated balance sheets for leases where we are the lessee as of December 31, 2021 and March 31, 2021 were as follows (in thousands): December 31, 2021 March 31, 2021 Operating leases Operating lease ROU assets 7,099 7,757 Operating lease liabilities 7,892 8,445 Weighted-average remaining lease term Operating leases 13 years, 10 months 13 years, 9 months Weighted-average discount rate Operating leases 4.33 % 4.37 % Maturities of lease liabilities under non-cancellable leases where we are the lessee as of December 31, 2021 are as follows (in thousands): Operating Leases 2022 (excluding the nine months ended December 31, 2021) $ 440 2023 1,733 2024 1,372 2025 1,116 2026 870 2027 704 Thereafter 5,300 Total undiscounted lease payments $ 11,535 Less: Interest ( 3,144 ) Less: Discount ( 499 ) Total lease liabilities $ 7,892 18 11. Financing Arrangements As mentioned in Note 2 , on December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the real estate located at 5000 36th Street West, St. Louis Park, Minnesota pursuant to the real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company dated October 11, 2021. The purchase price was $ 13.2 million, which was paid for with approximately $ 3.3 million in cash and a new secured loan from Bridgewater with an aggregate principal amount of $ 9.9 million and a fixed interest rate of 3.65 % which matures on December 2, 2031 ("Wolfe Lake Debt"). The promissory note provides for monthly payments of principal and interest commencing January 1, 2022 and continuing to the maturity date in the amount of $ 50.9 thousand. On April 13, 2020, the Company entered into a loan with Minnesota Bank & Trust ("MBT") with 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. As of December 31, 2021, the Company's PPP Loan was fully forgiven by the SBA. As such, the Company accounted for its then outstanding principal and accrued interest as a gain on extinguishment in accordance with ASC 470. The following table provides certain information about the current financing arrangements of the Company's and its subsidiaries as of December 31, 2021: (In Thousands) December 31, 2021 March 31, 2021 Maturity Date Interest Rate Unused commitments Air T Debt Revolver - MBT $ 3,680 $ — August 31, 2023 Greater of 2.5 % or Prime - 1 % $ 13,320 Term Note A - MBT 8,734 6,750 August 31, 2031 3.42 % Term Note B - MBT 3,081 3,375 August 31, 2031 3.42 % Term Note D - MBT 1,422 1,472 January 1, 2028 1-month LIBOR + 2 % Term Note E - MBT 2,856 4,706 June 25, 2025 Greater of LIBOR + 1.5 % or 2.5 % Debt - Trust Preferred Securities 24,960 14,289 June 7, 2049 8.00 % PPP Loan — 8,215 December 24, 2022 1 1.00 % Total 44,733 38,807 AirCo 1 Debt Term Loan - PSB 6,393 6,200 December 11, 2025 3-month LIBOR + 3.00 % Total 6,393 6,200 Jet Yard Debt Term Loan - MBT 1,968 — August 31, 2031 4.14 % Total 1,968 — Contrail Debt Revolver - Old National Bank ("ONB") 1,503 — September 5, 2023 1-month LIBOR + 3.45 % 23,497 Term Loan G - ONB 44,918 43,598 November 24, 2025 1-month LIBOR + 3.00 % Total 46,421 43,598 Delphax Solutions Debt Canadian Emergency Business Account Loan 32 32 December 31, 2025 5.00 % Total 32 32 Wolfe Lake Debt Term Loan - Bridgewater 9,900 — December 2, 2031 3.65 % Total 9,900 — Total Debt 109,447 88,637 Less: Unamortized Debt Issuance Costs ( 1,049 ) ( 1,141 ) Total Debt, net $ 108,398 $ 87,496 At December 31, 2021, our contractual financing obligations, including payments due by period, are as follows (in thousands): Due by Amount December 31, 2022 $ 2,963 December 31, 2023 12,688 December 31, 2024 9,058 December 31, 2025 40,817 December 31, 2026 1,672 Thereafter 42,249 109,447 Less: Unamortized Debt Issuance Costs ( 1,049 ) $ 108,398 On June 10, 2019, the Company completed a transaction with all holders of the Company’s Common Stock to receive a special, pro-rata distribution of three securities as enumerated below: • 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). • The Company issued and distributed to existing common stockholders an aggregate of 1.6 million 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). 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. 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, 2021, 5.3 million Warrants have been exercised. The remaining 3.1 million Warrants were not exercised and expired on August 30, 2021. During the first three quarters of fiscal 2022, the Company received $ 7.9 million in gross proceeds from the sale of TruPs through a S-3 Registration Statement filed by the Company. The TruPs were sold and issued under the S-3 “shelf” Registration Statement base prospectus filed with the Securities and Exchange Commission on March 10, 2021 and declared effective by the SEC on March 19, 2021, and under an At the Market Offering Agreement and a First Amendment to the At the Market Offering Agreement filed with the SEC on May 14, 2021 and November 19, 2021, respectively, and prospectus supplements filed with the SEC on May 14, 2021 and November 19, 2021, respectively. The amount outstanding on the Company's Debt - Trust Preferred Securities is $ 25.0 million as of December 31, 2021. 1 The PPP loan was fully forgiven by the SBA in September 2021. 19 12. 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, 2021 and March 31, 2021 (in thousands): December 31, 2021 March 31, 2021 United States $ 25,683 $ 8,632 Foreign 1,541 2,018 Total tangible long-lived assets, net $ 27,224 $ 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, 2021. The net book value located within each individual country at December 31, 2021 and March 31, 2021 is listed below (in thousands): December 31, 2021 March 31, 2021 Macau $ 1,430 $ 1,896 Other 111 122 Total tangible long-lived assets, net $ 1,541 $ 2,018 Total revenue, in and outside the United States, is summarized in the following table for the nine months ended December 31, 2021 and December 31, 2020 (in thousands): December 31, 2021 December 31, 2020 United States $ 109,261 $ 113,563 Foreign 16,379 14,831 Total revenue $ 125,640 $ 128,394 20 13. Segment Information The Company has four business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment and corporate and other. 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 December 31, 2021 2020 2021 2020 Operating Revenues by Segment: Overnight Air Cargo Domestic $ 18,248 $ 16,322 $ 55,694 $ 49,789 International — — 252 — Total Overnight Air Cargo 18,248 16,322 55,946 49,789 Ground Equipment Sales: Domestic 12,835 13,680 26,991 40,486 International 2,397 7,089 5,612 8,170 Total Ground Equipment Sales 15,232 20,769 32,603 48,656 Commercial Jet Engines and Parts: Domestic 8,426 15,851 25,656 22,476 International 2,966 2,227 10,246 6,410 Total Commercial Jet Engines and Parts 11,392 18,078 35,902 28,886 Corporate and Other: Domestic 456 548 920 811 International 105 102 269 252 Total Corporate and Other 561 650 1,189 1,063 Total $ 45,433 $ 55,819 $ 125,640 $ 128,394 Operating Income (Loss): Overnight Air Cargo 475 490 2,063 1,617 Ground Equipment Sales 1,463 4,229 2,929 7,369 Commercial Jet Engines and Parts 336 ( 1,598 ) 2,000 ( 4,776 ) Corporate and Other ( 2,249 ) ( 2,053 ) ( 6,268 ) ( 7,091 ) Total $ 25 $ 1,068 $ 724 $ ( 2,881 ) Capital Expenditures: Overnight Air Cargo 15 85 82 228 Ground Equipment Sales 97 4 114 115 Commercial Jet Engines and Parts 239 1,656 977 3,166 Corporate and Other 12 2 32 30 Total $ 363 $ 1,747 $ 1,205 $ 3,539 Depreciation and Amortization: Overnight Air Cargo 14 17 41 52 Ground Equipment Sales 81 38 145 152 Commercial Jet Engines and Parts 234 754 714 2,114 Corporate and Other 113 77 246 326 Total $ 442 $ 886 $ 1,146 $ 2,644 21 14. Commitments and Contingencies Redeemable Non-controlling Interest Contrail entered into an Operating Agreement (the “Contrail Operating Agreement”) in connection with the acquisition of Contrail providing for the governance of and the terms of membership interests in Contrail 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 to purchase all of the Seller’s equity membership interests in Contrail 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 ("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 Contrail RNCI is a Level 3 fair value measurement that is valued at $ 7.9 million as of December 31, 2021. The change in the redemption value compared to March 31, 2021 is an increase of $ 1.3 million. The increase was driven by $ 0.3 million of contributions made from the non-controlling interest and $ 0.6 million of the net change in fair value, in addition to $ 0.4 million of net income attributable to the non-controlling interest during the nine months ended December 31, 2021. As of the date of this filing, neither the Seller nor Air T has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations. On May 5, 2021, the Company formed a new aircraft asset management business called CAM, and a new aircraft capital joint venture called CJVII. The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII will target investments in current generation narrow-body aircraft and engines, building on Contrail’s origination and asset management expertise. CAM will serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners. CAM has an initial commitment to CJVII of approximately $ 53.0 million, which is comprised of an $ 8.0 million initial commitment from the Company and an approximately $ 45.0 million initial commitment from MRC. As of December 31, 2021, CAM's remaining capital commitments are approximately $ 4.2 million from the Company and $ 28.9 million from MRC. 2020 Omnibus Stock and Incentive Plan On December 29, 2020, the Company’s Board of Directors unanimously approved the Omnibus Stock and Incentive Plan (the "Plan"), which was subsequently approved by the Company's stockholders at the August 18, 2021 Annual Meeting of Stockholders. The total number of shares authorized under the Plan is 420,000 . Among other instruments, the Plan permits the Company to grant stock option awards. Through December 31, 2021, options to purchase up to 326,000 shares have been granted under the Plan. Vesting of options is based on the grantee meeting specified service conditions. Furthermore, the number of vested options that a grantee is able to exercise, if any, is based on the Company’s stock price as of the vesting dates specified in the respective option grant agreements. As of December 31, 2021, total compensation cost recognized under the Plan was $ 0.3 million. 22 15. Subsequent Events Contrail's Interest Rate Swap On January 7, 2022, Contrail completed an interest rate swap transaction with ONB with respect to the $ 43.6 million loan made to Contrail in November 2020 pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve. The purpose of the floating-to-fixed interest rate swap transaction was to effectively fix the loan interest rate at 4.68 %. Notwithstanding the terms of the interest rate swap transaction, Contrail is ultimately obligated for all amounts due and payable under the financing. Employee Retention Credit On January 24, 2022, the Company filed an application with the Internal Revenue Service for an Employee Retention Credit in an amount approximating $ 9.1 million. The Employee Retention Credit, originally included in the CARES Act in 2020 and subsequently modified by Congress, is a refundable tax credit against certain employment taxes equal to 50-70% of the qualified wages an eligible employer pays to its employees. The Company’s application was made with respect to wages paid between the period January 1, 2001 and September 30, 2021. There is no assurance that the Company will qualify for this credit or when, or in what amount, the application will be approved. GdW Beheer B.V. acquisition On February 8, 2022, Air T Acquisition 22.1, LLC, a wholly-owned subsidiary of the Company, entered into a new secured loan with Bridgewater Bank, a Minnesota banking corporation. The loan is in the principal amount of $ 5.0 million and bears a fixed interest rate of 4.00 %. The loan provides for monthly payments of accrued interest and annual principal payments of $ 0.5 million each for years 2023 through 2027, and matures on February 8, 2027 at which time the entire unpaid balance will be due and payable in full. In addition, the loan agreement contains affirmative and negative covenants. The loan is secured by a first lien on all of the assets of Air T Acquisition 22.1, LLC, a pledge of $ 5.0 million 8.0 % Cumulative Capital Security Certificates (also referred to as the TruPs) which were contributed to the Air T Acquisition 22.1, LLC by the Company upon its formation, and a personal guaranty of the Company’s Chairman, President and Chief Executive Officer, Nicholas Swenson. The proceeds from the loan, as well as additional cash of $2.7 million were used to acquire a 70 % interest in GdW Beheer B.V., a Dutch holding company involved in the global aviation data and information business, on February 10, 2022. 23