What changed in this filing

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Item 1. Financial Statements

2023-08-11 compared with 2023-02-10 · 218 added, 289 removed, 492 unchanged (51% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

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

December 31, Nine Months Ended

2022 2021 2022 2021

(in thousands, except per share data) Three Months Ended

Operating Revenues:

10 unchanged sentences

Depreciation and amortization 690 861

Inventory write-down 638 173 1,658 228

Asset impairment — — 516 —

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

70,773 50,028

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Income from equity method investments 691 532

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

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

Other 643 ( 154 )

( 474 ) ( 1,444 )

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

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

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

Income (Loss) before income taxes 184 ( 610 )

Income Tax Expense 211 192

Net Loss ( 27 ) ( 802 )

Net Income Attributable to Non-controlling Interests ( 504 ) ( 631 )

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

Net Loss Attributable to Air T, Inc.

Stockholders $ ( 531 ) $ ( 1,433 )

(Loss) Income per share (Note 6)

Loss per share (Note 6)

Basic $ ( 0.19 ) $ ( 0.50 )

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Three Months Ended

December 31, Nine Months Ended

(In Thousands) 2023 2022

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

Net Loss $ ( 27 ) $ ( 802 )

Foreign currency translation loss ( 65 ) ( 529 )

Unrealized gain on interest rate swaps 24 475

Reclassification of interest rate swaps into earnings ( 192 ) 17

Total Other Comprehensive Income 732 21 1,063 129

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

Total Other Comprehensive Loss ( 233 ) ( 37 )

Total Comprehensive Loss ( 260 ) ( 839 )

Comprehensive Income Attributable to Non-controlling Interests ( 504 ) ( 631 )

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

Comprehensive Loss Attributable to Air T, Inc.

Stockholders $ ( 764 ) $ ( 1,470 )

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CONDENSED CONSOLIDATED BALANCE SHEETS

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

(In thousands, except per share data) June 30, 2023 March 31, 2023

Current Assets:

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Assets on lease or held for lease, net of accumulated depreciation of $ 38 and $ 223

12,877 14,509

Property and equipment, net of accumulated depreciation of $ 6,946 and $ 6,624

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Retained earnings 13,289 13,686

Accumulated other comprehensive income (loss) 800 ( 263 )

Accumulated other comprehensive income 583 816

Total Air T, Inc.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) Nine Months Ended

(In Thousands) Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (Loss) Income $ ( 2,029 ) $ 7,141

Adjustments to reconcile Net (Loss) Income to net cash provided by operating activities:

Net loss $ ( 27 ) $ ( 802 )

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

Depreciation and amortization 690 861

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

Income from equity method of investments ( 691 ) ( 532 )

Inventory write-down 1,658 228

Asset impairment 516 —

Other 479 272

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Accrued expenses 1,424 700

Employee retention credit receivable 940 1,449

Other ( 1,292 ) ( 1,993 )

Net cash used in operating activities ( 3,815 ) ( 19,690 )

Net cash provided by (used in) operating activities 3,484 ( 2,531 )

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in unconsolidated entities ( 417 ) ( 880 )

Acquisition of assets — ( 13,408 )

Capital expenditures related to property & equipment ( 404 ) ( 351 )

7 unchanged sentences

Payments on term loan ( 1,261 ) ( 836 )

Proceeds received from issuance of Trust Preferred Securities ("TruPs") — 10,671

Other ( 181 ) ( 24 )

Net cash provided by financing activities 4,866 29,079

Net cash (used in) provided by financing activities ( 4,076 ) 4,573

Effect of foreign currency exchange rates on cash and cash equivalents ( 56 ) 173

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

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 669 ) 1,155

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 7,090 8,368

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Balance, March 31, 2022 3,023 $ 756 156 $ ( 3,002 ) $ 393 $ 26,729 $ ( 263 ) $ 1,104 $ 25,717

Net income* — — — — — 289 — 153 442

Net loss* — — — — — ( 1,433 ) — ( 6 ) ( 1,439 )

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

Foreign currency translation loss — — — — — — ( 529 ) — ( 529 )

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Balance, June 30, 2022 3,023 $ 756 156 $ ( 3,002 ) $ 472 $ 26,222 $ ( 300 ) $ 1,098 $ 25,246

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 interests — — — — — 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 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

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Net loss* — — — — — ( 531 ) — ( 9 ) ( 540 )

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

Foreign currency translation loss — — — — — — ( 529 ) — ( 529 )

Adjustment to fair value of redeemable non-controlling interest — — — — — 926 — — 926

Unrealized gain on interest rate swaps, net of tax — — — — — — 475 — 475

Reclassification of interest rate swaps into earnings — — — — — — 17 — 17

Balance, June 30, 2022 3,023 756 156 ( 3,002 ) $ 472 26,222 $ ( 300 ) 1,098 $ 25,246

Net loss* — — — — — ( 1,232 ) — ( 4 ) ( 1,236 )

Repurchase of common stock — — 1 ( 15 ) — — — ( 15 )

Exercise of stock options 3 1 — — 20 — — — 21

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

3 unchanged sentences

Reclassification of interest rate swaps into earnings — — — — — — ( 192 ) — ( 192 )

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

Balance, June 30, 2023 3,027 $ 757 209 $ ( 4,098 ) $ 807 $ 13,289 $ 583 $ 1,069 $ 12,407

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

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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, 2023.

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

The results of operations for the period ended June 30, 2023 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

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

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

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 December 31, 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 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.

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 any negative impact.

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

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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.

Wolfe Lake HQ, LLC

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 a real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company (an unaffiliated third-party) 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 Air T's Minnesota 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 12 .

In accordance with ASC 805, the purchase price consideration was allocated as follows (in thousands):

Building 8,439

Site Improvements 798

Tenant Improvements 269

In-place lease and other intangibles 1,108

The Company is currently in the process of converting its LIBOR-based contracts, hedging relationships, and other transactions to other reference rates and anticipates that this process will be complete by September 30, 2023.

Worldwide Aviation Services, Inc.

On January 31, 2023, the Company acquired Worldwide Aircraft Services, Inc.

("WASI"), a Kansas corporation that services the aircraft industry across the United States and internationally through the operation of a repair station which is located in Springfield, Missouri at the Branson National Airport.

The acquisition was funded with cash and the loans described in Note 12 of this report.

WASI is included within the Overnight air cargo segment.

The acquisition date's fair value of the consideration is summarized in the table below (in thousands):

January 31, 2023

Cash consideration $ 1,628

Seller's Note 1,370

Total consideration $ 2,998

The transaction was accounted for as a business combination in accordance with ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their fair values as of January 31, 2023, with the excess of total consideration above fair value of net assets acquired recorded as goodwill.

The following table outlines the consideration transferred and purchase price allocation at the respective fair values as of January 31, 2023 (in thousands):

January 31, 2023

Accounts receivable $ 1,037

Inventory 517

Other current assets 97

Property, plant and equipment, net 403

Intangible -Trade Name 342

Intangible - Non-competition Agreement 19

Intangible - Customer Relationships 683

Other assets 20

Total assets $ 3,118

Accounts payable 61

Accrued expenses and deferred revenue 635

Total liabilities $ 696

Net assets acquired $ 2,422

Consideration paid 2,998

Cash acquired ( 500 )

Net assets acquired ( 2,422 )

Goodwill $ 76

As of March 31, 2023, the purchase price allocation was final.

The following table sets forth the revenue and expenses of WASI that are included in the Company’s condensed consolidated statement of income for the fiscal year ended March 31, 2023 (in thousands):

Income Statement

Post-Acquisition

Revenue $ 929

Cost of Sales 676

Operating Expenses 425

Operating Loss ( 172 )

Non-operating expense ( 22 )

Net loss $ ( 194 )

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

GdW Beheer B.V.

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Air T Acquisition 22.1 and its consolidated subsidiaries are included within the Corporate and other segment.

GdW was administratively dissolved on June 24, 2022 with Shanwick as the surviving entity.

Subsequent to the acquisition date, the Company made certain measurement period adjustments to the preliminary purchase price allocation, which resulted in an increase to goodwill of $ 0.3 million.

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Net assets acquired $ 6,520

The following table sets forth the revenue and expenses of GdW, prior to intercompany eliminations, that are included in the Company’s condensed consolidated statement of income for the fiscal year ended March 31, 2022 (in thousands):

The following table sets forth the revenue and expenses of GdW, prior to intercompany eliminations, which are included in the Company’s condensed consolidated statement of income for the fiscal year ended March 31, 2022 (in thousands):

Income Statement

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

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

2022 2021 2022 2021

Three Months Ended June 30,

Product Sales

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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, 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):

Contract liabilities relate to deferred revenue, our unconditional right to receive consideration in advance of performance with respect to subscription revenue and advanced customer deposits with respect to product sales.

The following table presents outstanding contract liabilities as of April 1, 2023 and June 30, 2023 and the amount of contract liabilities as of April 1, 2023 that were recognized as revenue during the three-month period ended June 30, 2023 (in thousands):

Outstanding contract liabilities Outstanding contract liabilities as of April 1, 2023

Recognized as Revenue

As of December 31, 2022 $ 6,306

As of June 30, 2023 $ 6,315

As of April 1, 2023 $ 5,000

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

For the three months ended June 30, 2023 $ 2,078

Accrued Expenses and Other

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

(in thousands) June 30, 2023 March 31, 2023

Salaries, wages and related items $ 6,351 $ 4,748

3 unchanged sentences

Total $ 14,643 $ 13,133

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 %.

During the three-month period ended June 30, 2023, the Company recorded $ 0.2 million in income tax expense at an effective tax rate ("ETR") of 114.7 %.

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

consolidated group, Delphax Solutions, Inc.

and Delphax Technologies, Inc.

(collectively known as "Delphax") and other capital losses, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), 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 21.0% 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.

(collectively known as "Delphax") and Landing Gear Support Services PTE LTD (known as "LGSS"), 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, and the foreign rate differentials for Air T's operations located in the Netherlands, Puerto Rico, and Singapore.

During the three-month period ended June 30, 2022, the Company recorded $ 0.2 million in income tax expense at an ETR of ( 31.5 )%.

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 June 30, 2022 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax, other capital losses, the estimated benefit for the exclusion of income for the SAIC under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

Net Earnings (Loss) Per Share

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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.

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 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 December 31, Nine Months Ended December 31,

2022 2021 2022 2021

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

Three Months Ended June 30,

Net loss $ ( 27 ) $ ( 802 )

Net income attributable to non-controlling interests ( 504 ) ( 631 )

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

Net loss attributable to Air T, Inc.

Stockholders $ ( 531 ) $ ( 1,433 )

(Loss) Income per share:

Loss per share:

Basic $ ( 0.19 ) $ ( 0.50 )

Diluted $ ( 0.19 ) $ ( 0.50 )

Antidilutive shares excluded from computation of (loss) income per share 5 11 5 —

Antidilutive shares excluded from computation of loss per share 5 7

Weighted Average Shares Outstanding:

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Intangible Assets and Goodwill

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

December 31, 2022

Intangible assets as of June 30, 2023 and March 31, 2023 consisted of the following (in thousands):

June 30, 2023

Gross Carrying Amount Accumulated Amortization Net Book Value

19 unchanged sentences

Intangible assets, total $ 16,294 $ ( 4,191 ) $ 12,103

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 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:

Based on the intangible assets recorded at June 30, 2023 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 nine months ended December 31, 2022) $ 299

2024 (excluding the three months ended June 30, 2023) $ 920

Thereafter 5,639

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.

The carrying amount of goodwill as of June 30, 2023 and March 31, 2023 was $ 10.6 million.

There was no impairment of goodwill during the three months ended June 30, 2023.

Investments in Securities and Derivative Instruments

13 unchanged sentences

After it was deemed an effective hedge, the Company recorded changes in the fair value of the instrument in the consolidated statement of comprehensive income (loss).

For the swaps related to Air T Term Note D and Contrail - Term Note G, the effective portion of changes in the fair value on these instruments is recorded in other comprehensive income (loss) and is reclassified into the consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transactions affect earnings.

On March 30, 2023, Contrail made a prepayment of $ 6.7 million on Contrail - Term Note G.

As a result of this prepayment, the Company determined that the interest rate swap on Contrail - Term Note G 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 (loss) associated with Contrail - Term Note G at the time of de-designation into earnings over the remainder of its term.

In addition, any changes in the fair value of Contrail - Term Note G's swap after March 30, 2023 are recognized directly into earnings.

For the swap related to Air T Term Note D, the effective portion of changes in the fair value on this instrument is recorded in other comprehensive income (loss) and is reclassified into the consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transactions affect earnings.

During the three months ended June 30, 2023 and 2022, the Company recorded a gain of approximately $ 24.0 thousand and $ 0.5 million, net of tax, respectively, with prior year's gain inclusive of Contrail - Term Note G due to its effective hedge designation at the time.

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

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

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.

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 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

Other current assets $ 484 $ —

Total assets 484 —

Exchange-traded options & futures

Accrued Expenses and other 41 —

Total liabilities $ 41 $ —

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

As of June 30, 2023 and March 31, 2023, the fair value of these interest-rate swap contracts was an asset of $ 2.8 million and $ 2.4 million, respectively, which is included within other assets in the condensed consolidated balance sheets.

Equity Method Investments

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

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 .

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.

As of June 30, 2023, the Company owned 0.5 million Insignia shares, representing approximately 27.1 % of Insignia's outstanding shares.

During the three months ended June 30, 2023, the Company's share of Insignia's net income for three months ended March 31, 2023 was $ 0.4 million.

As of June 30, 2023, the Company's net investment basis in Insignia is $ 2.1 million.

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

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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 $ 0.3 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 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

The Company recorded income of $ 0.7 million as its share of CCI's net income for the three months ended June 30, 2023 , along with a basis difference adjustment of $ 12.0 thousand.

The Company's net investment basis in CCI is $ 3.5 million as of June 30, 2023.

Summarized unaudited financial information for the Company's equity method investees for the three months ended March 31, 2023 and 2022 is as follows (in thousands):

Three Months Ended

March 31, 2023 March 31, 2022

Revenue $ 51,157 $ 35,602

Gross Profit 7,803 4,375

Operating income (loss) 13,382 ( 1,339 ) 17,172 ( 6,544 )

Net income (loss) 13,375 ( 1,434 ) 16,180 ( 5,847 )

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

Operating income 5,261 1,981

Net income 5,116 1,750

Net income attributable to Air T, Inc.

stockholders $ 1,130 $ 308

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Overnight air cargo:

Finished goods $ 746 $ 546

Ground equipment manufacturing:

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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;

The majority of our leases have a term of 2 to 5 years;

however, we have certain leases with longer terms of up to 30 years.

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

The components of lease cost for the 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

The components of lease cost for the three months ended June 30, 2023 and 2022 are as follows (in thousands):

Three Months Ended June 30,

Operating lease cost $ 683 $ 491

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Total lease cost $ 953 $ 812

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

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of June 30, 2023 and March 31, 2023 were as follows (in thousands):

June 30, 2023 March 31, 2023

Operating leases

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Operating leases 5.03 % 4.99 %

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

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of June 30, 2023 are as follows (in thousands):

Operating Leases

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

2024 (excluding the three months ended June 30, 2023) $ 1,843

Thereafter 8,227

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Financing Arrangements

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 to Third Amended and Restated Credit Agreement (“Amendment”) and a related Overline Note (“Overline Note”) in the original principal amount of $ 5.0 million.

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 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.

The borrowing base calculation methodology remains unchanged.

The interest rate on borrowings under the facility that are less than $ 17.0 million remains at the greater of 2.50 % or Prime minus 1.00 %.

The interest rate applicable to borrowings under the facility that exceed $ 17.0 million is the greater of 2.50 % or Prime plus 0.50 %.

The commitment fee on unused borrowings below $ 17.0 million remains at 0.11 %.

The commitment fee on unused borrowings above $ 17.0 million is 0.20 %.

The Amendment also includes an additional covenant to the credit agreement, namely the requirement that the Company provide inventory appraisals for AirCo, AirCo Services and Worthington to MBT twice a year.

The Overline loan and commitment mature on the earlier of March 31, 2023 or the date on which the Company receives all funds from the Company’s Employee Retention Credit ("ERC") application (estimated at approximately $ 9.1 million) filed on or about January 24, 2022 plus the full receipt of the Company’s carryback tax refund for the year (estimated at approximately $ 2.6 million) filed on or about August 19, 2021.

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

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 10.00 % 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,

Borrowings of the Company and its subsidiaries are summarized below at June 30, 2023 and March 31, 2023, respectively.

Effective May 26, 2023, Contrail entered into the Fourth Amendment to Master Loan Agreement and the Amended and Restated Promissory Note Term Note G with Old National Bank ("ONB").

The purpose of the amended documents was to replace the one-month LIBOR based interest rate with a one-month SOFR-based rate.

All other material terms of the obligations remain the same.

The principal amount of the loan was $ 38.2 million on the effective date of the amended documents and the applicable interest rate is now the one-month SOFR based rate, as defined in the loan agreement, plus 3.11 %.

Effective May 26, 2023, Contrail entered into the First Amendment to Supplement #8 to Master Loan Agreement, the Fifth Amendment to Supplement #2 to the Master Loan Agreement and the Fourth Amended and Restated Promissory Note Revolving Note with ONB.

The purpose of the amended documents was to replace the LIBOR based interest rate with a one-month SOFR based rate.

All other material terms of the obligation remain the same.

The maximum principal amount of the revolving note remains at $ 25.0 million and the applicable interest rate is now the one-month SOFR-based rate, as defined in the loan agreement, plus 3.56 %.

On May 26, 2023, AirCo 1 executed an Amendment to Main Street Priority Loan Facility Term Loan Agreement with Park State Bank ("PSB").

The Amendment replaces the three-month LIBOR benchmark applicable to the loan with a three-month SOFR based rate, which is defined as the three-month SOFR rate plus 3.26 %.

The principal amount of the loan was $ 6.4 million on the effective date of the amended agreement.

The interest rate is to be determined on the 11th day of each month on the amounts that remain outstanding, commencing June 11, 2023.

On June 23, 2023, the Company and MBT entered into amendments to the MBT revolving credit agreement and related promissory note.

The amendments extended the maturity date of the credit facility to August 31, 2024 and include the following changes:

A $ 2.0 million seasonal increase in the maximum amount available under the facility.

The maximum amount of the facility will now increase to $ 19.0 million between May 1 and November 30 of each year and will decrease to $ 17.0 million between December 1 and April 30 of each year;

The reference rate for the interest rate payable on the revolving facility will change from Prime to SOFR, plus a spread.

The exact spread over SOFR will change every September 30 and March 31 based on the Company calculated funded debt leverage ratio (defined as total debt divided by EBITDA).

Depending on the result of the calculation, the interest rate spread applicable to the facility will range between 2.25 % and 3.25 %;

The unused commitment fee on the revolving credit facility will increase from 0.11 % to 0.15 %;

The covenant restricting the Company’s use of funds for “Other Investments” was revised to limit the Company to $ 5.0 million of “Other Investments” per year.

The following table provides certain information about the current financing arrangements of the Company and its subsidiaries as of June 30, 2023:

(In Thousands) June 30,

2023 March 31,

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 %

Overline Note - MBT — — 3/31/2023 1

Greater of 2.50 % or Prime + 0.50 %

2023 Maturity Date Interest Rate Unused commitments at June 30, 2023

Revolver - MBT $ 13,366 $ 8,742 8/31/2024 SOFR + range of 2.25 % - 3.25 %

Term Note A - MBT 7,563 7,762 8/31/2031 3.42 %

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Term Note D - MBT 1,321 1,338 1/1/2028 1-month LIBOR + 2.00 %

Promissory Note - CCI — — 12/30/2022 2

Term Note E - MBT 235 800 6/25/2025 Greater of LIBOR + 1.50 % or 2.50 %

Term Note F - MBT 933 983 1/31/2028 Greater of 6.00 % or Prime + 1.00 %

Debt - Trust Preferred Securities 25,602 25,598 6/7/2049 8.00 %

Total 51,690 47,963

Term Loan - Park State Bank 6,393 6,393 12/11/2025 3-month LIBOR + 3.00 %

Term Loan - PSB 6,393 6,393 12/11/2025 3-month SOFR + 3.26 %

Total 6,393 6,393

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Contrail Debt

Revolver - Old National Bank ("ONB") 16,119 3,843 9/5/2023 1-month LIBOR + 3.45 %

Term Loan G - ONB 44,918 44,918 11/24/2025 1-month LIBOR + 3.00 %

Term Loan H - ONB 7,150 8,698 8/18/2023 Wall Street Journal (WSJ) Prime Rate + 0.75 %

Revolver - ONB 5,183 12,441 9/5/2023 1-month SOFR + 3.56 %

Term Loan G - ONB 38,180 38,180 11/24/2025 1-month SOFR + 3.11 %

Total 43,363 50,621

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Total 8,032 8,198

Promissory Note - Seller's Note 1,171 1,279 1/1/2026 6.00 %

Total 1,171 1,279

Total Debt 122,021 125,914

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Total Debt, net $ 121,258 $ 125,085

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 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):

At June 30, 2023, our contractual financing obligations, including payments due by period, are as follows (in thousands):

Due by Amount

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

June 30, 2024 $ 22,721

June 30, 2025 24,499

June 30, 2026 26,160

June 30, 2027 6,476

June 30, 2028 2,877

Thereafter 39,288

Unamortized Debt Issuance Costs ( 763 )

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 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.

During the three months ended June 30, 2023, the Company repurchased 620 shares at an aggregate cost of $ 15.0 thousand.

All of these repurchased shares were recorded as treasury shares as of June 30, 2023.

On August 16, 2022, President Biden signed the Inflation Reduction Act ("IRA") into law.

The IRA enacted a 15% corporate minimum tax rate (subject to certain thresholds being met), a 1% excise tax on share repurchases made after December 31, 2022, and created and extended certain tax-related energy incentives.

As a result of the IRA's enactment into law, the Company is now subject to a 1% excise tax on share repurchases, effective for share repurchases made after December 31, 2022.

This excise tax may be reduced for the value of certain share issuances.

The excise tax incurred in connection with the Company's stock repurchases during the three months ended June 30, 2023 was not material.

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

December 31, 2022 March 31, 2022

June 30, 2023 March 31, 2023

United States $ 21,454 $ 21,433

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Total tangible long-lived assets, net $ 21,504 $ 21,522

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 $ —

Macau — 1,351

The net book value located within each individual country at June 30, 2023 and March 31, 2023 is listed below (in thousands):

June 30, 2023 March 31, 2023

The Netherlands $ 42 $ 42

Total tangible long-lived assets, net $ 50 $ 89

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

Total revenue, in and outside the United States, is summarized in the following table for the three months ended June 30, 2023 and June 30, 2022 (in thousands):

June 30, 2023 June 30, 2022

United States $ 61,722 $ 41,952

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(In Thousands) Three Months Ended

December 31, Nine Months Ended

2022 2021 2022 2021

Operating Revenues by Segment:

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Total $ 690 $ 861

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

The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA by reportable segment for the three months ended June 30, 2023 and 2022 (in thousands):

Three Months Ended June 30, 2023

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

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Depreciation and amortization (excluding leased engines depreciation) 85 34 190 381 690

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

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

Gain on sale of property and equipment ( 6 ) — — — ( 6 )

Securities expenses — — — 45 45

Adjusted EBITDA $ 2,014 $ ( 51 ) $ 1,668 $ ( 2,244 ) $ 1,387

Nine Months Ended December 31, 2021

Three Months Ended June 30, 2022

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

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Depreciation and amortization (excluding leased engines depreciation) 19 49 179 358 605

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

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

Securities expenses — — — 15 15

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Commitments and Contingencies

Redeemable Non-controlling Interests

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

Contrail Put/Call Option

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 to require Contrail to purchase all of the Seller’s equity membership interests in Contrail commencing on the fifth anniversary of the acquisition, which occurred 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 $ 7.7 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.

The Contrail RNCI is a Level 3 fair value measurement that is valued at $ 8.0 million as of June 30, 2023.

The change in the redemption value compared to March 31, 2023 is an increase of $ 7.0 thousand, which was driven by the decrease in fair value of $ 0.1 million and net income attributable to non-controlling interest of $ 0.2 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.

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

Contrail Asset Management, LLC and CJVII, LLC

On May 5, 2021, the Company formed an aircraft asset management business called Contrail Asset Management, LLC ("CAM"), and an aircraft capital joint venture called Contrail JV II LLC ("CJVII").

The venture focuses on acquiring commercial aircraft and jet engines for leasing, trading and disassembly.

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

The Company and Mill Road Capital (“MRC”) agreed to become common members in CAM.

CAM serves 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, 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.

At the later of (a) five years after execution of the agreement and (b) distributions to MRC per the waterfall equal to their capital contributions, the Company has a call option and MRC has a put option on the MRC common interests in CAM.

If either party exercises the option, the exercise price will be fair market value if the Company pays in cash at closing or 112.5 % of fair market value if the Company opts to pay in three equal annual installments after exercise.

The Company recorded MRC's $ 1.0 million put option within "Other non-current liabilities" on our consolidated balance sheets.

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

The joint venture, CJVII, was formed as a series LLC ("CJVII Series").

It consists of several individual series that target investments in current generation narrow-body aircraft and engines, building on Contrail’s origination and asset management expertise.

CAM was formed to serve two separate and distinct functions:

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

CAM has two classes of equity interests:

1) common interests and 2) investor interests.

Neither interest votes as the entity is operated by a Board of Directors.

The common interests of CAM relate to its Asset Management Function.

The investor interests of CAM relate to the Company’s and Mill Road Capital’s (“MRC”) investments through CAM into CJVII (the Investment Function) and ultimately into the individual CJVII Series.

With regard to CAM’s common interests, the Company currently owns 90 % of the economic common interests in CAM, and MRC owns the remaining 10 %.

MRC invested $ 1.0 million directly into CAM in exchange for 10 % of the common interests.

For the Asset Management Function, CAM receives origination fees, management fees, consignment fees (where applicable) and a carried interest from the direct investors into each CJVII Series.

Such fee income and carried interest will be distributed to the Company and MRC in proportion to their respective common interests.

For its Investment Function, CAM's initial commitment to CJVII was approximately $ 51.0 million.

The Company and MRC have commitments to CAM in the respective amounts of $ 7.0 million and $ 44.0 million.

These represent the investor interests of CAM, separate and distinct from the common interests.

Any investment returns on CAM’s investor interests are shared pro-rata between the Company and MRC for each individual investment at the CJVII Series.

As of March 31, 2023, Air T has fulfilled its Investment Function initial commitment to CAM.

Per its Operating Agreement, CAM is comprised of only two Series:

the Onshore and the Offshore Series.

Participation in each is determined solely based on whether a potential investment at the CJVII Series is a domestic (Onshore) or international (Offshore) investment.

As of June 30, 2023, for its Investment Function, the Company has contributed $ 1.0 million to CAM’s Offshore Series and $ 6.9 million to CAM’s Onshore Series.

The Company determined that CAM is a variable interest entity and that the Company is not the primary beneficiary.

This is primarily the result of the Company's conclusion that it does not control CAM’s Board of Directors, which has the power to direct the activities that most significantly impact the economic performance of CAM.

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

As of June 30, 2023, the Company's net investment basis in CAM is $ 5.3 million.

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 three ( 3 ) anniversary dates.

At the later of (a) five ( 5 ) years after execution of the agreement and (b) distributions to MRC per the waterfall equal to their capital contributions, Air T has a call option and MRC has a put option on the MRC common interests in CAM.

If either party exercises the option, the exercise price will be fair market value if Air T pays in cash at closing or 112.5 % of fair market value if Air T opts to pay in three ( 3 ) equal annual installments after exercise.

With respect to the secondary put and call option, as it is priced at fair value, the Company also determined that there is no potential loss or gain upon exercise that would need to be recognized

Shanwick Put/Call Option

In February 2022, in connection with the Company's acquisition of GdW, a consolidated subsidiary of Shanwick, the Company entered into a shareholder agreement with the 30.0 % non-controlling interest owners of Shanwick, providing for the governance of and the terms of membership interests in Shanwick.

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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 $ 4.4 million as of December 31, 2022, which was comprised of the following (in thousands):

The Shanwick RNCI's estimated redemption value is $ 4.9 million as of June 30, 2023, which was comprised of the following (in thousands):

Shanwick RNCI

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Redemption value adjustments 199

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

Ending Balance as of June 30, 2023 $ 4,857

2020 Omnibus Stock and Incentive Plan

2 unchanged sentences

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

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

As of June 30, 2023, options to purchase up to 260,670 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 nine months ended December 31, 2022, total compensation cost recognized under the Plan was $ 79.0 thousand and $ 0.2 million, respectively.

For the three months ended June 30, 2023, total compensation cost recognized under the Plan was $ 79.0 thousand.

Subsequent Events

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.

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

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

What changed 10-Q

Item 1. Financial Statements