What changed in this filing

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Item 1. Financial Statements

2023-02-10 compared with 2022-11-10 · 171 added, 144 removed, 610 unchanged (34% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

September 30, Six Months Ended

September 30,

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

December 31, Nine Months Ended

2022 2021 2022 2021

20 unchanged sentences

Gain on forgiveness of Paycheck Protection Program (“PPP”) loan — — — 8,331

Other-than-temporary impairment loss on investments — ( 348 ) — ( 348 )

Other ( 97 ) ( 11 ) ( 608 ) 1,329

1 unchanged sentence

(Loss) Income before income taxes ( 48 ) ( 1,471 ) ( 2,565 ) 6,892

Income Taxes (Benefit) Expense ( 572 ) 38 ( 380 ) 33

Net (Loss) Income ( 1,336 ) 8,003 ( 2,137 ) 8,329

Net Loss (Income) Attributable to Non-controlling Interests $ 104 $ ( 448 ) $ ( 528 ) $ ( 486 )

Income Taxes Benefit ( 156 ) ( 282 ) ( 536 ) ( 249 )

Net Income (Loss) 108 ( 1,189 ) ( 2,029 ) 7,141

Net Income Attributable to Non-controlling Interests $ ( 698 ) $ ( 73 ) $ ( 1,226 ) $ ( 559 )

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

10 unchanged sentences

Three Months Ended

September 30, Six Months Ended

September 30,

December 31, Nine Months Ended

(In Thousands) 2022 2021 2022 2021

Net (Loss) Income $ ( 1,336 ) $ 8,003 $ ( 2,137 ) $ 8,329

Foreign currency translation (loss) income ( 606 ) 103 ( 1,135 ) 54

Unrealized gain on interest rate swaps 957 46 1,432 57

Net Income (Loss) $ 108 $ ( 1,189 ) $ ( 2,029 ) $ 7,141

Foreign currency translation income (loss) 775 19 ( 360 ) 73

Unrealized (loss) gain on interest rate swaps ( 61 ) ( 20 ) 1,371 37

Reclassification of interest rate swaps into earnings 18 22 52 19

Total Other Comprehensive Income 732 21 1,063 129

Total Comprehensive (Loss) Income ( 968 ) 8,150 ( 1,806 ) 8,437

Comprehensive Loss (Income) Attributable to Non-controlling Interests 104 ( 448 ) ( 528 ) ( 486 )

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

Total Comprehensive Income (Loss) 840 ( 1,168 ) ( 966 ) 7,270

Comprehensive Income Attributable to Non-controlling Interests ( 698 ) ( 73 ) ( 1,226 ) ( 559 )

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

Stockholders $ 142 $ ( 1,241 ) $ ( 2,192 ) $ 6,711

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts) September 30, 2022 March 31, 2022

(In thousands, except share amounts) December 31, 2022 March 31, 2022

Current Assets:

53 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) Six Months Ended

September 30,

(In Thousands) Nine Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Gain on forgiveness of PPP loan — ( 8,331 )

Income from equity method of investments ( 2,917 ) ( 197 )

Inventory write-down 1,658 228

10 unchanged sentences

Investment in unconsolidated entities ( 2,609 ) ( 4,461 )

Acquisition of assets — ( 13,408 )

Capital expenditures related to property & equipment ( 1,008 ) ( 1,205 )

11 unchanged sentences

Effect of foreign currency exchange rates on cash and cash equivalents 181 69

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 1,097 ( 9,653 )

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 1,858 ) ( 10,088 )

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 8,368 15,927

22 unchanged sentences

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 interests — — — — — ( 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

(In Thousands) Common Stock Treasury Stock Additional

20 unchanged sentences

Balance, September 30, 2022 3,026 757 175 ( 3,353 ) $ 571 24,802 $ 68 1,094 $ 23,939

Net loss* — — — — — ( 590 ) — ( 7 ) ( 597 )

Repurchase of common stock — — 29 ( 642 ) — — — — ( 642 )

Stock compensation expense — — — — 79 — — — 79

Foreign currency translation gain — — — — — — 775 — 775

Adjustment to fair value of redeemable non-controlling interest — — — — — ( 1,059 ) — — ( 1,059 )

Unrealized loss on interest rate swaps, net of tax — — — — — — ( 61 ) — ( 61 )

Reclassification of interest rate swaps into earnings — — — — — — 18 — 18

Balance, December 31, 2022 3,026 $ 757 204 $ ( 3,995 ) $ 650 $ 23,153 $ 800 $ 1,087 $ 22,452

* Excludes amount attributable to redeemable non-controlling interests in Contrail Aviation Support, LLC ("Contrail") and Shanwick B.V.

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, 2022.

The results of operations for the period ended September 30, 2022 are not necessarily indicative of the operating results for the full year.

The results of operations for the period ended December 31, 2022 are not necessarily indicative of the operating results for the full year.

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Impacts from Geopolitical, Macroeconomic, and COVID-19 Challenges

1 unchanged sentence

Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a number of disruptions, and we experienced and continue to experience to a lesser degree 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 fiscal 2023.

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

Although many of the restrictions and other containment measures implemented by authorities in response to the COVID-19 pandemic have since been lifted or scaled back, 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, as a result, present material uncertainty and risk with respect to us and our results of operations.

The Company believes the estimates and assumptions underlying the Company’s condensed consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2022;

however, uncertainty over the ultimate direct and indirect impact COVID-19 will have on the global economy generally, and the Company’s businesses in particular, makes any estimates and assumptions as of September 30, 2022 inherently less certain than they would be absent the current and potential impacts of COVID-19.

The war in Eastern Europe and related sanctions imposed on Russia and related actors have resulted in interest rate acceleration and inflation, including, but not limited to, a significant increase in the price of commodities.

We expect that these factors will continue to negatively impact our businesses at least in the short-term.

The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of these activities.

We continue to evaluate the long-term impact that these may have on our business model, however there can be no assurance that the measures we have taken or will take will completely offset the negative impact.

Recently Adopted Accounting Pronouncements

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 adopted this amendment on April 1, 2022.

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

however, uncertainty over the ultimate direct and indirect impact COVID-19 will have on the global economy generally, and the Company’s businesses in particular, makes any estimates and assumptions as of December 31, 2022 inherently less certain than they would be absent the current and potential impacts of COVID-19.

The war in Eastern Europe and related sanctions imposed on Russia and related actors and other macroeconomic factors have resulted in interest rate acceleration and in inflation, including, but not limited to, a significant increase in the price of commodities.

These factors may negatively impact our businesses at least in the short-term.

The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of these activities and macroeconomic factors.

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 $12.0 million.

The Company is in compliance with such financial covenants as of December 31, 2022.

However, management is forecasting that the Company will be in violation of the debt service coverage ratio during the twelve-month period subsequent to the date of this filing, primarily because the first principal payment of its Main Street loan ("Term Note G - ONB") becomes due in November 2023.

Non-compliance with a debt covenant that is not subsequently cured gives Old National Bank ("ONB") the right to accelerate the maturity of the Contrail Credit Agreement and declare the entire amount of Contrail’s outstanding debt at the time of non-compliance immediately due and payable and exercise its remedies with respect to the collateral that secures the debt.

Should ONB accelerate the maturity of the Contrail Credit Agreement, the Company would not have sufficient cash on hand or available liquidity to repay the outstanding debt in the event of default.

In response to these conditions, Contrail management is currently in discussion with ONB to obtain a waiver to its financial covenants, to seek to revise the financing documents and/or to secure alternative financing to avoid an event of non-compliance.

However, these plans have not been finalized and there is no assurance that management will be able to execute these plans.

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

The Company is not liable for any other assets or liabilities of Contrail and there are no cross-default provisions with respect to Contrail’s debt in any of the Company’s debt agreements with other lenders.

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

As a result, management believes it is probable that the cash on hand and current financings, net cash provided by operations from its remaining operating segments, together with amounts available under our current revolving lines of credit, as amended, 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.

Management has concluded that the plans are probable of being achieved to alleviate substantial doubt about the Company’s ability to continue as a going concern.

Recently Issued Accounting Pronouncements

4 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.

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.

In December 2022, the FASB issued ASU 2022-06- Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

The amendments in this Update defer the implementation deadline of Topic 848 from December 31, 2022, to December 31, 2024.

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

82 unchanged sentences

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

Three Months Ended September 30, Six Months Ended September 30,

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

2022 2021 2022 2021

23 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, 2022 and September 30, 2022 and the amount of contract liabilities as of April 1, 2022 that were recognized as revenue during the six-month period ended September 30, 2022 (in thousands):

The following table presents outstanding contract liabilities as of April 1, 2022 and December 31, 2022 and the amount of contract liabilities as of April 1, 2022 that were recognized as revenue during the nine-month period ended December 31, 2022 (in thousands):

Outstanding contract liabilities Outstanding contract liabilities as of April 1, 2022

Recognized as Revenue

As of September 30, 2022 $ 4,676

As of December 31, 2022 $ 6,306

As of April 1, 2022 $ 4,727

For the six months ended September 30, 2022 $ 3,636

For the nine months ended December 31, 2022 $ 3,952

Accrued Expenses and Other

(in thousands) September 30, 2022 March 31, 2022

(in thousands) December 31, 2022 March 31, 2022

Salaries, wages and related items $ 4,598 $ 4,232

3 unchanged sentences

Total $ 14,940 $ 13,391

During the three-month period ended September 30, 2022, the Company recorded global income tax benefit of $ 0.6 million at an effective tax rate of 30.0 %.

During the three-month period ended December 31, 2022, the Company recorded global income tax benefit of $ 0.2 million at an effective tax rate of 325.0 %.

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 September 30, 2022 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc.

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, 2022 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"), 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 September 30, 2021, the Company recorded $ 38.0 thousand in income tax expense at an ETR of 0.5 %.

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 September 30, 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, and the exclusion of 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 six-month period ended September 30, 2022, the Company recorded global income tax benefit of $ 0.4 million at an effective tax rate of 15.1 %.

(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), the foreign rate differentials between the federal and foreign tax rates for Air T’s ownership of foreign operations in Puerto Rico, the Netherlands, and Singapore, 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, 2021, the Company recorded $ 0.3 million in income tax expense at an ETR of 19.2 %.

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 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.

During the nine-month period ended December 31, 2022, the Company recorded global income tax benefit of $ 0.5 million at an effective tax rate of 20.9 %.

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% and the Company's effective tax rate for the six-month period ended September 30, 2022 were the change in valuation allowance related to Delphax, other capital losses, 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 six-month period ended September 30, 2021, the Company recorded $ 33.0 thousand in income tax expense at an effective rate of 0.4 %.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 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.

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, 2022 were the change in valuation allowance related to Delphax and other capital losses, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the foreign rate differentials between the federal and foreign tax rates for Air T’s ownership of foreign operations in Puerto Rico, the Netherlands, and Singapore, 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 expense at an effective rate of ( 3.6 )%.

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.

Net Earnings (Loss) Per Share

3 unchanged sentences

During the three months ended September 30, 2022, 3,750 options were exercised under the Air T's 2012 Stock Option Plan at $ 5.75 per share, which was disclosed within our condensed consolidated statement of equity.

7,500 unexpired options remain outstanding under this plan.

7,500 unexpired options remain outstanding under this plan as of December 31, 2022.

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

Three Months Ended September 30, Six Months Ended September 30,

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

2022 2021 2022 2021

Net (loss) income $ ( 1,336 ) $ 8,003 $ ( 2,137 ) $ 8,329

Net loss (income) attributable to non-controlling interests 104 ( 448 ) ( 528 ) ( 486 )

Net income (loss) $ 108 $ ( 1,189 ) $ ( 2,029 ) $ 7,141

Net income attributable to non-controlling interests ( 698 ) ( 73 ) ( 1,226 ) ( 559 )

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

8 unchanged sentences

Intangible Assets and Goodwill

Intangible assets as of September 30, 2022 and March 31, 2022 consisted of the following (in thousands):

September 30, 2022

Intangible assets as of December 31, 2022 and March 31, 2022 consisted of the following (in thousands):

December 31, 2022

Gross Carrying Amount Accumulated Amortization Net Book Value

20 unchanged sentences

During the quarter ended September 30, 2022, the Company impaired $ 0.3 million of previously capitalized costs related to a software project that was deemed no longer probable to be completed and placed in service.

Based on the intangible assets recorded at September 30, 2022 and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:

Based on the intangible assets recorded at December 31, 2022 and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:

(In thousands)

Year ending March 31, Amortization

2023 (excluding the six months ended September 30, 2022) $ 567

2023 (excluding the nine months ended December 31, 2022) $ 299

Thereafter 5,958

The carrying amount of goodwill as of September 30, 2022 and March 31, 2022 was $ 10.1 million.

There was no impairment on goodwill during the quarter ended September 30, 2022.

The carrying amount of goodwill as of December 31, 2022 and March 31, 2022 was $ 10.4 million and $ 10.1 million, respectively.

The change from March 31, 2022 to December 31, 2022 was due to foreign exchange translation.

There was no impairment on goodwill during the nine months ended December 31, 2022.

Investments in Securities and Derivative Instruments

15 unchanged sentences

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

As of September 30, 2022 and March 31, 2022, the fair value of these interest-rate swap contracts was an asset of $ 3.0 million and $ 0.9 million, respectively, which is included within other assets in the condensed consolidated balance sheets.

During the three and six months ended September 30, 2022, the Company recorded a gain of approximately $ 1.0 million and $ 1.4 million, net of tax, respectively.

During the three and six months ended September 30, 2021, the Company recorded a gain of approximately $ 46.0 thousand and $ 57.0 thousand, net of tax, respectively.

These gains are included in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of these instruments.

As of December 31, 2022 and March 31, 2022, the fair value of these interest-rate swap contracts was an asset of $ 2.9 million and $ 0.9 million, respectively, which is included within other assets in the condensed consolidated balance sheets.

During the three and nine months ended December 31, 2022, the Company recorded a loss of approximately $ 0.1 million and gain of $ 1.4 million, net of tax, respectively.

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.

These gains and losses are included in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of these 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 and six months ended September 30, 2022, related to these derivative instruments, the Company had a gross gain aggregating to $ 46.0 thousand and no gross loss.

During the three and six months ended September 30, 2021, the Company did no t record any gain or loss related to derivative instruments.

The following table presents these derivative instruments at fair value in the condensed consolidated balance sheets as of September 30, 2022 and March 31, 2022 (in thousands):

(In thousands) September 30, 2022 March 31, 2022

During the three months ended December 31, 2022, related to these derivative instruments, the Company had no gross gain and a gross loss aggregating to $ 0.1 million.

During the nine months ended December 31, 2022, the Company had a gross gain aggregating to $ 46.0 thousand and a gross loss aggregating to $ 0.1 million.

During the three and nine months ended December 31, 2021, the Company did no t record any gain or loss related to derivative instruments.

The following table presents these derivative instruments at fair value in the condensed consolidated balance sheets as of December 31, 2022 and March 31, 2022 (in thousands):

(In thousands) December 31, 2022 March 31, 2022

Exchange-traded options & futures

7 unchanged sentences

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 September 30, 2022, the Company had a gross unrealized gain aggregating to $ 43.0 thousand and a gross unrealized loss aggregating to $ 0.2 million.

During the six months ended September 30, 2022, the Company had a gross unrealized gain aggregating to $ 86.0 thousand and a gross unrealized loss aggregating to $ 0.3 million.

During the three months ended September 30, 2021, the Company had a gross unrealized gain aggregating to $ 0.4 million and a gross unrealized loss aggregating to $ 0.1 million.

During the six months ended September 30, 2021, the Company had a gross unrealized gain aggregating to $ 0.8 million and a gross unrealized loss aggregating to $ 0.2 million.

During the three months ended December 31, 2022, the Company had a gross unrealized gain aggregating to $ 0.3 million and a gross unrealized loss aggregating to $ 0.5 million.

During the nine months ended December 31, 2022, the Company had a gross unrealized gain aggregating to $ 0.3 million and a gross unrealized loss aggregating to $ 0.8 million.

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.

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 September 30, 2022 and 2021, the Company had no outstanding borrowings under its margin account.

As of December 31, 2022 and 2021, the Company had no outstanding borrowings under its margin account.

Equity Method Investments

2 unchanged sentences

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

As of September 30, 2022, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 27 % of the outstanding shares.

As of December 31, 2022, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 27.3 % 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 not record as of September 30, 2022 any additional share of Insignia's net loss for the three months ended June 30, 2022.

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.

During the three months ended September 30, 2022, Insignia recorded net income of $ 11.8 million, which was primarily driven by a gain on litigation settlement of $ 12.0 million.

As a result, during the three months ended December 31, 2022, the Company's share of Insignia's net income for three months ended September 30, 2022 was $ 3.2 million.

The Company applied $ 1.4 million to offset the cumulative value of unrecorded share of losses, resulting in net income recognition of $ 1.8 million.

The Company's 20.1 % investment in Cadillac Casting, Inc.

1 unchanged sentence

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 income of $ 0.4 million and $ 0.7 million as its share of CCI's net income for the three and six months ended September 30, 2022, along with a basis difference adjustment of $ 12.0 thousand and $ 25.0 thousand, respectively.

The Company's net investment basis in CCI is $ 3.4 million as of September 30, 2022.

The Company also executed a $ 2.0 million promissory note payable to CCI on September 30, 2022.

The Company recorded income of $ 0.3 million and $ 1.0 million as its share of CCI's net income for the three and nine months ended December 31, 2022, along with a basis difference adjustment of $ 12.0 thousand and $ 37.0 thousand, respectively.

The Company's net investment basis in CCI is $ 3.4 million as of December 31, 2022.

During the quarter ended December 31, 2022, the Company also paid off the $ 2.0 million promissory note payable to CCI.

See Note 12 .

Summarized unaudited financial information for the Company's equity method investees for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):

Three Months Ended Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

Summarized unaudited financial information for the Company's equity method investees for the three and nine months ended September 30, 2022 and 2021 is as follows (in thousands):

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Revenue $ 37,532 $ 29,408 $ 111,522 $ 87,396

5 unchanged sentences

Inventories consisted of the following (in thousands):

September 30,

2022 March 31,

8 unchanged sentences

Commercial jet engines and parts:

Whole engines available for sale or tear-down 6,703 15,403

Parts 68,328 45,036

Total inventories 90,567 78,289

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 six months ended September 30, 2022 and 2021 are as follows (in thousands):

Three Months Ended September 30, Six Months Ended September 30,

The components of lease cost for the three and nine months ended December 31, 2022 and 2021 are as follows (in thousands):

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

2022 2021 2022 2021

3 unchanged sentences

Total lease cost $ 870 $ 998 $ 2,508 $ 2,813

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of September 30, 2022 and March 31, 2022 were as follows (in thousands):

September 30, 2022 March 31, 2022

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of December 31, 2022 and March 31, 2022 were as follows (in thousands):

December 31, 2022 March 31, 2022

Operating leases

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Weighted-average remaining lease term

Operating leases 13 years, 8 months

Operating leases 13 years, 11 months 13 years, 5 months

Weighted-average discount rate

Operating leases 4.37 % 4.33 %

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of September 30, 2022 are as follows (in thousands):

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of December 31, 2022 are as follows (in thousands):

Operating Leases

2023 (excluding the six months ended September 30, 2022) $ 886

2023 (excluding the nine months ended December 31, 2022) $ 431

Thereafter 5,028

4 unchanged sentences

Financing Arrangements

Borrowings of the Company and its subsidiaries are summarized below at September 30, 2022 and March 31, 2022, respectively.

Borrowings of the Company and its subsidiaries are summarized below at December 31, 2022 and March 31, 2022, respectively.

On June 9, 2022, the Company, Jet Yard and MBT entered into Amendment No.

1 unchanged sentence

The Amendment and Note memorialize an increase to the amount that may be drawn by the Company on the MBT revolving credit agreement from $ 17.0 million to $ 22.0 million.

As of September 30, 2022, the unused commitment on the Overline Note was $ 4.1 million and there was no unused commitment on the MBT Revolver.

As of December 31, 2022, the unused commitment on the Overline Note and the MBT revolver was $ 5.0 million and $ 8.2 million, respectively.

The total amount of borrowings under the facility as revised is now the Company’s calculated borrowing base or $ 22.0 million.

7 unchanged sentences

Both were applied for under different components of the CARES Act.

As of September 30, 2022, the Company has received $ 1.4 million of the ERC and none of the carryback tax refunds.

As of December 31, 2022, the Company has received $ 2.5 million of the ERC and $ 1.2 million of the carryback tax refunds.

It is not possible to estimate when, or if, the remainder of these funds may be received.

Each of the Company subsidiaries that has guaranteed the MBT revolving facility executed a guaranty acknowledgment in which they agreed to guaranty the Overline Loan and acknowledged, among other things, that the Overline Loan would not impair the lenders rights under the previously executed guaranty or security agreement.

On September 30, 2022, the Company executed a promissory note payable to CCI ("Promissory Note - CCI") for $ 2.0 million that bears interest at 10 % per annum and matures on December 30, 2022.

The note may be prepaid at any time without penalty.

The note is subordinate and junior to any and all indebtedness of the Company to MBT.

The following table provides certain information about the current financing arrangements of the Company and its subsidiaries as of September 30, 2022:

(In Thousands) September 30,

On September 30, 2022, the Company executed a promissory note payable to CCI ("Promissory Note - CCI") for $ 2.0 million that bears interest at 10.00 % per annum and matured on December 30, 2022.

As of December 31, 2022, this note has been repaid without penalty.

On November 8, 2022, Contrail entered into the Second Amendment to Master Loan Agreement (the “Amendment”) with ONB.

The Amendment amends the Master Loan Agreement dated as of June 24, 2019, as amended.

The principal revisions made in the Amendment are:

(i) the tangible net worth covenant was revised to require that Contrail maintain a tangible net worth of at least $ 12.0 million at all times prior to March 31, 2024 and $ 15.0 million at all times on or following March 31, 2024;

and, (ii) that all proceeds from certain asset sales during the period beginning on October 1, 2022 and ending on March 31, 2023 be applied as prepayments on Term Loan G.

Contrail executed a Collateral Assignment of two Aircraft engines in connection with the Amendment.

The following table provides certain information about the current financing arrangements of the Company and its subsidiaries as of December 31, 2022:

(In Thousands) December 31,

2022 March 31,

2022 Maturity Date Interest Rate Unused commitments at September 30, 2022

2022 Maturity Date Interest Rate Unused commitments at December 31, 2022

Revolver - MBT $ 8,843 $ 10,969 8/31/2023 Greater of 2.50 % or Prime - 1.00 %

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1 Earlier of 3/31/23 or the date on which Air T has received the payment from the federal income tax refunds in the amount of approximately $ 2.6 million and Employee Retention Tax Credits in an amount not less than $ 9.1 million.

As of September 30, 2022, the Company has received $ 1.4 million of the ERC and none of the federal income tax refunds.

At September 30, 2022, our contractual financing obligations, including payments due by period, are as follows (in thousands):

As of December 31, 2022, the Company has received $ 2.5 million of the ERC and $ 1.2 million of the federal income tax refunds.

2 On September 30, 2022, the Company executed a promissory note payable to CCI for $ 2.0 million.

As of December 31, 2022, this note has been repaid.

At December 31, 2022, our contractual financing obligations, including payments due by period, are as follows (in thousands):

Due by Amount

September 30, 2023 $ 44,704

September 30, 2024 10,130

September 30, 2025 12,183

September 30, 2026 39,085

September 30, 2027 5,982

December 31, 2023 $ 42,260

December 31, 2024 10,198

December 31, 2025 40,416

December 31, 2026 2,812

December 31, 2027 6,976

Thereafter 40,134

Unamortized Debt Issuance Costs ( 912 )

During the second quarter ended September 30, 2022 the Company did not sell any TruPs.

The amount outstanding on the Company's Debt - Trust Preferred Securities is $ 25.6 million as of September 30, 2022.

During the third quarter ended December 31, 2022, the Company did not sell any TruPs.

The amount outstanding on the Company's Debt - Trust Preferred Securities is $ 25.6 million as of December 31, 2022.

Shares Repurchased

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

During the three months ended September 30, 2022, the Company repurchased 19,420 shares at an aggregate cost of $ 0.4 million.

All of these repurchased shares were recorded as treasury shares as of September 30, 2022.

During the three months ended December 31, 2022, the Company repurchased 28,752 shares at an aggregate cost of $ 0.6 million.

All of these repurchased shares were recorded as treasury shares as of December 31, 2022.

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 September 30, 2022 and March 31, 2022 (in thousands):

September 30, 2022 March 31, 2022

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, 2022 and March 31, 2022 (in thousands):

December 31, 2022 March 31, 2022

United States $ 21,241 $ 34,067

1 unchanged sentence

Total tangible long-lived assets, net $ 34,129 $ 35,721

The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at September 30, 2022.

The net book value located within each individual country at September 30, 2022 and March 31, 2022 is listed below (in thousands):

September 30, 2022 March 31, 2022

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, 2022.

The net book value located within each individual country at December 31, 2022 and March 31, 2022 is listed below (in thousands):

December 31, 2022 March 31, 2022

Lithuania $ 12,820 $ —

1 unchanged sentence

Total tangible long-lived assets, net $ 12,888 $ 1,654

Total revenue, in and outside the United States, is summarized in the following table for the six months ended September 30, 2022 and September 30, 2021 (in thousands):

September 30, 2022 September 30, 2021

Total revenue, in and outside the United States, is summarized in the following table for the nine months ended December 31, 2022 and December 31, 2021 (in thousands):

December 31, 2022 December 31, 2021

United States $ 143,433 $ 109,261

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(In Thousands) Three Months Ended

September 30, Six Months Ended

September 30,

December 31, Nine Months Ended

2022 2021 2022 2021

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Total $ 1,097 $ 442 $ 2,984 $ 1,146

The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA by reportable segment for the six months ended September 30, 2022 and 2021 (in thousands):

Six Months Ended September 30, 2022

The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA by reportable segment for the nine months ended December 31, 2022 and 2021 (in thousands):

Nine Months Ended December 31, 2022

Overnight Air Cargo Ground Equipment Sales Commercial Jet Engines and Parts Corporate and Other Total

2 unchanged sentences

Asset impairment, restructuring or impairment charges 337 — 1,658 179 2,174

Gain on sale of property and equipment ( 1 ) — ( 2 ) 1 ( 2 )

Security expenses — — — 34 34

(Gain) Loss on sale of property and equipment ( 1 ) — ( 2 ) 1 ( 2 )

Securities expenses — — — 38 38

Adjusted EBITDA $ 3,331 $ 3,252 $ 5,802 $ ( 7,218 ) $ 5,167

Six Months Ended September 30, 2021

Nine Months Ended December 31, 2021

Overnight Air Cargo Ground Equipment Sales Commercial Jet Engines and Parts Corporate and Other Total

2 unchanged sentences

Loss on sale of property and equipment 2 1 — — 3

Security expenses — — — 65 65

Securities expenses — — — 215 215

Adjusted EBITDA $ 2,106 $ 3,074 $ 2,524 $ ( 5,806 ) $ 1,898

5 unchanged sentences

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 $ 6.5 million as of September 30, 2022.

The change in the redemption value compared to March 31, 2022 is a decrease of $ 0.7 million, which was driven by the decrease in fair value of $ 0.7 million and distributions to non-controlling interest of $ 0.2 million, partially offset by net income attributable to non-controlling interest of $ 0.2 million.

The Contrail RNCI is a Level 3 fair value measurement that is valued at $ 7.7 million as of December 31, 2022.

The change in the redemption value compared to March 31, 2022 is an increase of $ 0.5 million, which was driven by the increase in fair value of $ 0.3 million and net income attributable to non-controlling interest of $ 0.3 million, partially offset by distributions to non-controlling interest of $ 0.1 million.

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

8 unchanged sentences

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 September 30, 2022, CAM's remaining capital commitments are approximately $ 0.8 million from the Company and $ 17.3 million from MRC.

As of December 31, 2022, CAM's remaining capital commitments are approximately $ 0.7 million from the Company and $ 16.0 million from MRC.

In connection with the formation of CAM, MRC has a fixed price put option of $ 1.0 million to sell its common equity in CAM to the Company at each of the first 3 anniversary dates.

12 unchanged sentences

Changes in its estimated redemption value are recorded on our consolidated statements of operations within non-controlling interests.

The Shanwick RNCI's estimated redemption value is $ 3.8 million as of September 30, 2022, which was comprised of the following (in thousands):

The Shanwick RNCI's estimated redemption value is $ 4.4 million as of December 31, 2022, which was comprised of the following (in thousands):

Shanwick RNCI

4 unchanged sentences

Redemption value adjustments 829

Ending Balance as of September 30, 2022 $ 3,769

Ending Balance as of December 31, 2022 $ 4,401

2020 Omnibus Stock and Incentive Plan

2 unchanged sentences

Among other instruments, the Plan permits the Company to grant stock option awards.

As of September 30, 2022, options to purchase up to 293,400 shares are outstanding under the Plan.

As of December 31, 2022, options to purchase up to 293,400 shares are outstanding 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.

For the three and six months ended September 30, 2022, total compensation cost recognized under the Plan was $ 79.0 thousand and $ 0.2 million, respectively.

For the three and nine months ended December 31, 2022, total compensation cost recognized under the Plan was $ 79.0 thousand and $ 0.2 million, respectively.

Subsequent Events

On November 8, 2022, Contrail entered into the Second Amendment to Master Loan Agreement (the “Amendment”) with ONB.

The Amendment amends the Master Loan Agreement dated as of June 24, 2019, as amended.

The principal revisions made in the Amendment are:

and, (ii) that all proceeds from certain asset sales during the period beginning on October 1, 2022 and ending on March 31, 2023 be applied as prepayments on Term Loan G.

The effectiveness of the Amendment is conditioned on Contrail executing a Collateral Assignment of two Aircraft Engine Lease Agreements.

The form of Collateral Assignment is attached as an exhibit to the Amendment.

The foregoing summary of the terms of the Amendment is qualified in its entirety by reference to the form of Second Amendment to Master Loan Agreement with Exhibit filed as Exhibit 10.2 herewith, which is incorporated herein by reference.

On January 31, 2023, Air T entered into a new secured loan with MBT ("Term Note F").

The loan is in the principal amount of $ 1.0 million and bears a fluctuating annual rate of interest equal to the greater of (a) 6.00 % or (b) the sum of (i) the Prime Rate plus (ii) 1.00 %.

The note obligates the Company to make monthly payments of principal in the amount of $ 17 .0 thousand plus accrued interest commencing March 1, 2023.

The loan matures on January 31, 2028.

In addition, the Company also entered into a promissory note agreement ("Seller's Note") with Worldwide Aviation LLC ("WASI") in the principal amount of $ 1.5 million.

The note bears a fixed annual interest rate of 6.00 % and matures on January 1, 2026.

The proceeds from Term Note F and Seller's Note, as well as additional cash of $ 0.6 million were used to acquire 100.0 % interest in WASI, a Missouri-based company involved in the aircraft servicing business, on January 31, 2023.

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