AIR T INC 10-Q

Item 1. Financial Statements AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) (in thousands, except per share data) Three Months Ended September 30, Six Months Ended September 30, 2023 2022 2023 2022 Operating Revenues: Overnight air cargo $ 28,197 $ 22,069 $ 55,925 $ 42,633 Ground equipment sales 12,246 18,019 24,033 23,834 Commercial jet engines and parts 36,478 18,986 66,324 41,841 Corporate and other 2,045 1,614 4,115 3,242 78,966 60,688 150,397 111,550 Operating Expenses: Overnight air cargo 23,625 19,451 47,337 37,522 Ground equipment sales 10,553 14,438 20,891 18,870 Commercial jet engines and parts 29,962 13,443 53,240 28,328 General and administrative 13,362 10,663 26,113 22,394 Depreciation and amortization 700 1,026 1,389 1,888 Inventory write-down 3 1,003 5 1,020 Asset impairment — 485 — 516 78,205 60,509 148,975 110,538 Operating Income 761 179 1,422 1,012 Non-operating (Expense) Income: Interest expense ( 1,853 ) ( 1,996 ) ( 3,662 ) ( 3,818 ) Income from equity method investments 748 266 1,439 798 Other ( 777 ) ( 357 ) ( 136 ) ( 509 ) ( 1,882 ) ( 2,087 ) ( 2,359 ) ( 3,529 ) Loss before income taxes ( 1,121 ) ( 1,908 ) ( 937 ) ( 2,517 ) Income Taxes Expense (Benefit) 487 ( 572 ) 698 ( 380 ) Net Loss ( 1,608 ) ( 1,336 ) ( 1,635 ) ( 2,137 ) Net (Income) Loss Attributable to Non-controlling Interests ( 1 ) 104 ( 505 ) ( 528 ) Net Loss Attributable to Air T, Inc. Stockholders $ ( 1,609 ) $ ( 1,232 ) $ ( 2,140 ) $ ( 2,665 ) Loss per share (Note 6) Basic $ ( 0.57 ) $ ( 0.43 ) $ ( 0.76 ) $ ( 0.93 ) Diluted $ ( 0.57 ) $ ( 0.43 ) $ ( 0.76 ) $ ( 0.93 ) Weighted Average Shares Outstanding: Basic 2,820 2,865 2,820 2,866 Diluted 2,820 2,865 2,820 2,866 See notes to condensed consolidated financial statements. 3 AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Three Months Ended September 30, Six Months Ended September 30, (In Thousands) 2023 2022 2023 2022 Net Loss $ ( 1,608 ) $ ( 1,336 ) $ ( 1,635 ) $ ( 2,137 ) Foreign currency translation loss ( 170 ) ( 606 ) ( 235 ) ( 1,135 ) Unrealized gain on interest rate swaps 16 957 40 1,432 Reclassification of interest rate swaps into earnings ( 188 ) 17 ( 380 ) 34 Total Other Comprehensive (Loss) Income ( 342 ) 368 ( 575 ) 331 Total Comprehensive Loss ( 1,950 ) ( 968 ) ( 2,210 ) ( 1,806 ) Comprehensive (Income) Loss Attributable to Non-controlling Interests ( 1 ) 104 ( 505 ) ( 528 ) Comprehensive Loss Attributable to Air T, Inc. Stockholders $ ( 1,951 ) $ ( 864 ) $ ( 2,715 ) $ ( 2,334 ) See notes to condensed consolidated financial statements. 4 AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share amounts) September 30, 2023 March 31, 2023 ASSETS Current Assets: Cash and cash equivalents $ 4,999 $ 5,806 Restricted cash 924 1,284 Restricted investments 1,253 2,161 Accounts receivable, net of allowance for doubtful accounts of $ 1,156 and $ 1,160 26,585 27,218 Income tax receivable 285 536 Inventories, net 54,456 71,125 Employee retention credit receivable — 940 Other current assets 9,769 7,487 Total Current Assets 98,271 116,557 Property and equipment, net of accumulated depreciation of $ 7,150 and $ 6,624 21,151 21,439 Intangible assets, net of accumulated amortization of $ 4,776 and $ 4,191 11,360 12,103 Right-of-use ("ROU") assets 12,071 11,666 Equity method investments 14,179 13,230 Goodwill 10,464 10,563 Other assets 4,277 4,004 Total Assets 171,773 189,562 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable 12,443 10,449 Income tax payable 214 304 Accrued expenses and other (Note 4) 12,303 13,133 Current portion of long-term debt 23,904 38,736 Short-term lease liability 1,893 1,664 Total Current Liabilities 50,757 64,286 Long-term debt 84,154 86,349 Deferred income tax liabilities, net 2,581 2,417 Long-term lease liability 11,024 10,771 Other non-current liabilities — 47 Total Liabilities 148,516 163,870 Redeemable non-controlling interest 12,303 12,710 Commitments and contingencies (Note 15) Equity: Air T, Inc. Stockholders' Equity: Preferred stock, $ 1.00 par value, 2,000,000 shares authorized — — Common stock, $ 0.25 par value; 4,000,000 shares authorized, 3,030,245 and 3,026,495 shares issued, 2,821,504 and 2,818,374 shares outstanding 758 757 Treasury stock, 208,741 shares at $ 19.63 and 208,121 shares at $ 19.62 ( 4,098 ) ( 4,083 ) Additional paid-in capital 911 728 Retained earnings 12,092 13,686 Accumulated other comprehensive income 241 816 Total Air T, Inc. Stockholders' Equity 9,904 11,904 Non-controlling Interests 1,050 1,078 Total Equity 10,954 12,982 Total Liabilities and Equity $ 171,773 $ 189,562 See notes to condensed consolidated financial statements. 5 AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands) Six Months Ended September 30, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ ( 1,635 ) $ ( 2,137 ) Adjustments to reconcile Net Loss to net cash provided by (used in) operating activities: Depreciation and amortization 1,389 1,888 Inventory write-down 5 1,020 Asset impairment — 516 Income from equity method of investments ( 1,439 ) ( 798 ) Other 1,341 608 Change in operating assets and liabilities: Accounts receivable 637 ( 2,848 ) Inventories 16,699 ( 14,246 ) Accounts payable 1,994 3,852 Accrued expenses ( 1,059 ) 84 Employee retention credit receivable 940 1,449 Other ( 2,975 ) ( 3,334 ) Net cash provided by (used in) operating activities 15,897 ( 13,946 ) CASH FLOWS FROM INVESTING ACTIVITIES: Investment in unconsolidated entities ( 995 ) ( 1,187 ) Capital expenditures related to property & equipment ( 557 ) ( 763 ) Capital expenditures related to assets on lease or held for lease — ( 28 ) Other 1,708 202 Net cash provided by (used in) investing activities 156 ( 1,776 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from lines of credit 65,708 68,532 Payments on lines of credit ( 67,274 ) ( 55,322 ) Proceeds from term loan — 8,177 Payments on term loan ( 15,438 ) ( 4,112 ) Other ( 225 ) ( 518 ) Net cash (used in) provided by financing activities ( 17,229 ) 16,757 Effect of foreign currency exchange rates on cash and cash equivalents 9 62 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 1,167 ) 1,097 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 7,090 8,368 CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD $ 5,923 $ 9,465 See notes to condensed consolidated financial statements. 6 AIR T, INC AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) (In Thousands) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interests Total Equity Shares Amount Shares Amount Balance, March 31, 2022 3,023 $ 756 156 $ ( 3,002 ) $ 393 $ 26,729 $ ( 263 ) $ 1,104 $ 25,717 Net loss* — — — — — ( 1,433 ) — ( 6 ) ( 1,439 ) 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 — — 19 ( 351 ) — — — — ( 351 ) Exercise of stock options 3 1 — — 20 — — — 21 Stock compensation expense — — — — 79 — — — 79 Foreign currency translation loss — — — — — — ( 606 ) — ( 606 ) Adjustment to fair value of redeemable non-controlling interest — — — — — ( 188 ) — — ( 188 ) Unrealized gain on interest rate swaps, net of tax — — — — — — 957 — 957 Reclassification of interest rate swaps into earnings — — — — — — 17 — 17 Balance, September 30, 2022 3,026 $ 757 175 $ ( 3,353 ) $ 571 $ 24,802 $ 68 $ 1,094 $ 23,939 (In Thousands) Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-controlling Interests Total Equity Shares Amount Shares Amount Balance, March 31, 2023 3,027 $ 757 208 $ ( 4,083 ) $ 728 $ 13,686 $ 816 $ 1,078 $ 12,982 Net loss* — — — — — ( 531 ) — ( 9 ) ( 540 ) Repurchase of common stock — — 1 ( 15 ) — — — — - 15 Stock compensation expense — — — — 79 — — — 79 Foreign currency translation loss — — — — — — ( 65 ) — ( 65 ) Adjustment to fair value of redeemable non-controlling interest — — — — — 134 — — 134 Unrealized gain on interest rate swaps, net of tax — — — — — — 24 — 24 Reclassification of interest rate swaps into earnings — — — — — — ( 192 ) — ( 192 ) Balance, June 30, 2023 3,027 $ 757 209 $ ( 4,098 ) $ 807 $ 13,289 $ 583 $ 1,069 $ 12,407 Net loss* — — — — — ( 1,609 ) — ( 19 ) ( 1,628 ) Repurchase of common stock — — — — — — — — — Exercise of stock options 3 1 — — 25 — — — 26 Stock compensation expense — — — — 79 — — — 79 Foreign currency translation loss — — — — — — ( 170 ) — ( 170 ) Adjustment to fair value of redeemable non-controlling interest — — — — — 412 — — 412 Unrealized gain on interest rate swaps, net of tax — — — — — — 16 — 16 Reclassification of interest rate swaps into earnings — — — — — — ( 188 ) — ( 188 ) Balance, September 30, 2023 3,030 $ 758 209 $ ( 4,098 ) $ 911 $ 12,092 $ 241 $ 1,050 $ 10,954 * Excludes amount attributable to redeemable non-controlling interests in Contrail Aviation Support, LLC ("Contrail") and Shanwick B.V. ("Shanwick") See notes to condensed consolidated financial statements. 7 AIR T, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Financial Statement Presentation The condensed consolidated financial statements of Air T, Inc. (“Air T”, the “Company”, “we”, “us” or “our”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the periods presented have been made. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2023. The results of operations for the period ended September 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. Liquidity The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The revolving line of credit at Air T with MBT ("Revolver - MBT") with $ 16.4 million outstanding as of September 30, 2023 matures on August 31, 2024. The Company does not have sufficient cash on hand or available liquidity to repay the outstanding debt which is due within one year after the date that the financial statements are issued. This condition raises substantial doubt about the Company’s ability to continue as a going concern. In response to this condition, management has plans to alleviate the substantial doubt. We are currently seeking to refinance the Revolver - MBT prior to its maturity date; however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance this obligation, that the terms of such refinancing would be as favorable as the terms of our existing credit facility. Other plans include raising additional funds via sales of our trust preferred securities ("TruPs") through the Company's at-the-market offering that commenced on October 18, 2023 or through a private placement offering including possible incremental sales to existing shareholders, implementing cost reduction measures, reevaluating future investments in selected startups, and considering liquidation or sale of select investments in addition to the reduction of capital expenditures. As a result of these plans, management believes it is probable that the cash on hand and current financings, net cash provided by operations from operating segments will be sufficient to meet 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 Adopted Accounting Pronouncements In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. 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 has completed the process of converting its material LIBOR-based contracts, hedging relationships, and other transactions to other reference rates as of September 30, 2023. 8 2. Acquisitions 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 ASSETS 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 LIABILITIES Accounts payable 61 Accrued expenses and deferred revenue 635 Total liabilities $ 696 Net assets acquired $ 2,422 Consideration paid 2,998 Less: Cash acquired ( 500 ) Less: 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. 9 3. Revenue Recognition Substantially all of the Company’s non-lease revenue is derived from contracts with an initial expected duration of one year or less. As a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations. The following is a description of the Company’s performance obligations: Type of Revenue Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms Product Sales The Company generates revenue from sales of various distinct products such as parts, aircraft equipment, jet engines, airframes, and scrap metal to its customers. A performance obligation is created when the Company accepts an order from a customer to provide a specified product. Each product ordered by a customer represents a performance obligation. The Company recognizes revenue when obligations under the terms of the contract are satisfied; generally, this occurs at a point-in-time upon shipment or when control is transferred to the customer. Transaction prices are based on contracted terms, which are at fixed amounts based on standalone selling prices. While the majority of the Company's contracts do not have variable consideration, for the limited number of contracts that do, the Company records revenue based on the standalone selling price less an estimate of variable consideration (such as rebates, discounts or prompt payment discounts). The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue. The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service agreement or by the contract. Support Services The Company provides a variety of support services such as aircraft maintenance and short-term repair services to its customers. Additionally, the Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis. For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is appropriate as the Company is performing labor hours and installing parts to enhance an asset that the customer controls. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service. Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis. In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are immaterial for disclosure under Topic 606. The following table summarizes disaggregated revenues by type (in thousands): Three Months Ended September 30, Six Months Ended September 30, 2023 2022 2023 2022 Product Sales Air Cargo $ 9,207 $ 7,533 $ 18,378 $ 13,887 Ground equipment sales 11,901 17,639 23,476 23,216 Commercial jet engines and parts 33,395 15,720 60,154 36,030 Corporate and other 286 19 621 135 Support Services Air Cargo 18,899 14,520 37,449 28,580 Ground equipment sales 159 159 252 300 Commercial jet engines and parts 2,914 2,555 5,860 4,529 Corporate and other 1,233 974 2,489 1,998 Leasing Revenue Ground equipment sales 10 29 34 73 Commercial jet engines and parts 12 669 23 1,210 Corporate and other 425 483 812 870 Other Air Cargo 91 16 98 166 Ground equipment sales 176 192 271 245 Commercial jet engines and parts 157 42 287 72 Corporate and other 101 138 193 239 Total $ 78,966 $ 60,688 $ 150,397 $ 111,550 See Note 1 3 for the Company's disaggregated revenues by geographic region and Note 1 4 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Contract Balances and Costs Contract liabilities relate to deferred 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 September 30, 2023 and the amount of contract liabilities as of April 1, 2023 that were recognized as revenue during the six-month period ended September 30, 2023 (in thousands): Outstanding contract liabilities Outstanding contract liabilities as of April 1, 2023 Recognized as Revenue As of September 30, 2023 $ 3,629 As of April 1, 2023 $ 5,000 For the six months ended September 30, 2023 $ 4,368 10 4. Accrued Expenses and Other (in thousands) September 30, 2023 March 31, 2023 Salaries, wages and related items $ 5,605 $ 4,748 Profit sharing and bonus 1,146 1,672 Other Deposits 1,122 2,560 Other 4,430 4,153 Total $ 12,303 $ 13,133 11 5. Income Taxes During the three-month period ended September 30, 2023, the Company recorded $ 0.5 million in income tax expense at an effective rate ("ETR") of ( 43.4 )%. The Company has computed the provision for income taxes based on the estimated annual effective tax rate excluding loss jurisdictions with no tax benefit and the application of discrete items, if any, 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, 2023 were the valuation allowance related to the Company’s U.S. consolidated group, Delphax Solutions, Inc. and Delphax Technologies, Inc. (collectively known as “Delphax”) and Landing Gear Support Services PTE LTD (known as “LGSS”), and the foreign rate differentials for Air T’s operations located in the Netherlands and Puerto Rico. During the three-month period ended September 30, 2022, the Company recorded income tax benefit of $ 0.6 million at an ETR of 30.0 %. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 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 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, 2023, the Company recorded $ 0.7 million in income tax expense at an ETR of ( 74.5 )%. The Company has computed the provision for income taxes based on the estimated annual effective tax rate excluding loss jurisdictions with no tax benefit and the application of discrete items, if any, 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 six-month period ended September 30, 2023, were the valuation allowance related to the Company’s U.S. consolidated group, Delphax and LGSS, and the foreign rate differentials for Air T’s operations located in the Netherlands and Puerto Rico. During the six-month period ended September 30, 2022, the Company recorded income tax benefit of $ 0.4 million at an ETR of 15.1 %. 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. 12 6. Net Earnings (Loss) Per Share Basic earnings (loss) per share has been calculated by dividing net income (loss) attributable to Air T, Inc. stockholders by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings (loss) per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive. During the three months ended September 30, 2023, 3,750 options were exercised under the Air T's 2012 Stock Option Plan at $ 7.04 per share, which was disclosed within our condensed consolidated statement of equity. Thus, as of September 30, 2023, all stock options under the Air T's 2012 Stock Option Plan have either been exercised or expired. Further, no options under the Air T's 2020 Omnibus Stock and Incentive Plan were exercisable as of September 30, 2023. 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, 2023 2022 2023 2022 Net loss $ ( 1,608 ) $ ( 1,336 ) $ ( 1,635 ) $ ( 2,137 ) Net (income) loss attributable to non-controlling interests ( 1 ) 104 ( 505 ) ( 528 ) Net loss attributable to Air T, Inc. Stockholders $ ( 1,609 ) $ ( 1,232 ) $ ( 2,140 ) $ ( 2,665 ) Loss per share: Basic $ ( 0.57 ) $ ( 0.43 ) $ ( 0.76 ) $ ( 0.93 ) Diluted $ ( 0.57 ) $ ( 0.43 ) $ ( 0.76 ) $ ( 0.93 ) Antidilutive shares excluded from computation of loss per share — 4 — 4 Weighted Average Shares Outstanding: Basic 2,820 2,865 2,820 2,866 Diluted 2,820 2,865 2,820 2,866 13 7. Intangible Assets and Goodwill Intangible assets as of September 30, 2023 and March 31, 2023 consisted of the following (in thousands): September 30, 2023 Gross Carrying Amount Accumulated Amortization Net Book Value Purchased software $ 623 $ ( 464 ) $ 159 Internally developed software 3,608 ( 621 ) 2,987 In-place lease and other intangibles 1,094 ( 289 ) 805 Customer relationships 7,871 ( 1,122 ) 6,749 Patents 1,112 ( 1,107 ) 5 Other 1,768 ( 1,173 ) 595 16,076 ( 4,776 ) 11,300 In-process software 60 — 60 Intangible assets, total $ 16,136 $ ( 4,776 ) $ 11,360 March 31, 2023 Gross Carrying Amount Accumulated Amortization Net Book Value Purchased software $ 544 $ ( 433 ) $ 111 Internally developed software 3,672 ( 465 ) 3,207 In-place lease and other intangibles 1,094 ( 229 ) 865 Customer relationships 8,050 ( 851 ) 7,199 Patents 1,112 ( 1,105 ) 7 Other 1,782 ( 1,108 ) 674 16,254 ( 4,191 ) 12,063 In-process software 40 — 40 Intangible assets, total $ 16,294 $ ( 4,191 ) $ 12,103 Based on the intangible assets recorded at September 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 2024 (excluding the six months ended September 30, 2023) $ 609 2025 1,172 2026 1,088 2027 1,015 2028 960 2029 952 Thereafter 5,504 $ 11,300 The carrying amount of goodwill as of September 30, 2023 and March 31, 2023 was $ 10.5 million and $ 10.6 million, respectively. There was no impairment on goodwill during the six months ended September 30, 2023. 14 8. Investments in Securities and Derivative Instruments As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56 % and 5.09 %, respectively, on Term Notes A and D. The swaps mature in January 2028. On August 31, 2021, Air T and Minnesota Bank & Trust ("MBT") refinanced Term Note A and fixed its interest rate at 3.42 %. As a result of this refinancing, the Company determined that the interest rate swap on Term Note A was no longer an effective hedge. The Company will amortize the fair value of the interest-rate swap contract included in accumulated other comprehensive income (loss) associated with Term Note A at the time of de-designation into earnings over the remainder of its term. In addition, any changes in the fair value of Term Note A's swap after August 31, 2021 are recognized directly into earnings. The remaining swap contract associated with Term Note D is designated as an effective cash flow hedging instrument in accordance with ASC 815. On January 7, 2022, Contrail completed an interest rate swap transaction with Old National Bank ("ONB") with respect to the $ 43.6 million loan made to Contrail in November 2020 pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve ("Contrail - Term Note G"). The purpose of the floating-to-fixed interest rate swap transaction was to effectively fix the loan interest rate at 4.68 %. As of February 24, 2022, this swap contract has been designated as a cash flow hedging instrument and qualified as an effective hedge in accordance with ASC 815. During the period between January 7, 2022 and February 24, 2022, the Company recorded a loss of approximately $ 0.1 million in the consolidated statement of income (loss) due to the changes in the fair value of the instrument prior to the designation and qualification of this instrument as an effective hedge. 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). 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 swaps 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 transaction affects earnings. During the three and six months ended September 30, 2023, the Company recorded a gain of approximately $ 16.0 thousand and $ 40.0 thousand, net of tax, respectively. 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, 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 September 30, 2023 and March 31, 2023, the fair value of these interest-rate swap contracts was an asset of $ 2.7 million and $ 2.4 million, respectively, which is included within other assets in the condensed consolidated balance sheets. 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 September 30, 2023, the Company had a gross unrealized gain aggregating to $ 0.4 million and a gross unrealized loss aggregating to $ 1.1 million. During the six months ended September 30, 2023, the Company had a gross unrealized gain aggregating to $ 0.9 million and a gross unrealized loss aggregating to $ 1.8 million. 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 $ 0.1 million and a gross unrealized loss aggregating to $ 0.3 million. These unrealized gains and losses are included in other income (loss) on the condensed consolidated statement of income (loss). 15 9. Equity Method Investments The Company’s investment in Lendway, Inc. - NASDAQ: LDWY ("Lendway"), formerly Insignia Systems, Inc. ("Insignia"), is accounted for under the equity method of accounting. On August 2, 2023, Insignia reincorporated in the state of Delaware as Lendway, Inc. Subsequent to reincorporation, Lendway sold its legacy business on August 4, 2023 to pivot the business towards non-bank lending. The Company elected a three-month lag upon adoption of the equity method. As of September 30, 2023, the Company owned 0.5 million Lendway shares, representing approximately 27.1 % of Lendway's outstanding shares. During the three and six months ended September 30, 2023, the Company's share of Lendway's net loss and income for the three and six months ended June 30, 2023 was $ 10.0 thousand and $ 0.4 million, respectively. The Company's net investment basis in Lendway is $ 2.1 million as of September 30, 2023. The Company's 20.1 % investment in Cadillac Casting, Inc. ("CCI") is accounted for under the equity method of accounting. Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost, with a basis difference of $ 0.3 million. The Company recorded income of $ 0.7 million and $ 1.4 million as its share of CCI's net income for the three and six months ended September 30, 2023, along with a basis difference adjustment of $ 12.0 thousand and $ 25.0 thousand, respectively. The Company's net investment basis in CCI is $ 4.0 million as of September 30, 2023. Summarized unaudited financial information for the Company's equity method investees for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands): Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Revenue $ 47,905 $ 38,388 $ 99,062 $ 73,989 Gross Profit 7,548 4,791 15,352 9,166 Operating income 3,984 1,809 9,245 3,790 Net income 3,295 1,055 8,410 2,805 Net income attributable to Air T, Inc. stockholders $ 646 $ 435 $ 1,776 $ 743 16 10. Inventories Inventories consisted of the following (in thousands): September 30, 2023 March 31, 2023 Overnight air cargo: Finished goods $ 703 $ 546 Ground equipment manufacturing: Raw materials 5,885 4,589 Work in process 1,697 153 Finished goods 3,641 6,976 Corporate and other: Raw materials 917 794 Finished goods 725 726 Commercial jet engines and parts: Whole engines available for sale or tear-down — 10,141 Parts 44,527 50,813 Total inventories 58,095 74,738 Reserves ( 3,639 ) ( 3,613 ) Total inventories, net of reserves $ 54,456 $ 71,125 17 11. Leases The Company has operating leases for the use of real estate, machinery, and office equipment. The majority of our leases have a lease term of 2 to 5 years; however, we have certain leases with longer terms of up to 30 years. Many of our leases include options to extend the lease for an additional period. The lease term for all of the Company’s leases includes the non-cancellable period of the lease, plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor that is considered likely to be exercised. Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments. Variable payments are typically operating costs associated with the underlying asset and are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Our leases do not contain residual value guarantees. The Company has elected to combine lease and non-lease components as a single component and not to recognize leases on the balance sheet with an initial term of one year or less. The interest rate implicit in lease contracts is typically not readily determinable, and as such the Company utilizes the incremental borrowing rate to calculate lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The components of lease cost for the three and six months ended September 30, 2023 and 2022 are as follows (in thousands): Three Months Ended September 30, Six Months Ended September 30, 2023 2022 2023 2022 Operating lease cost $ 742 $ 498 $ 1,424 $ 989 Short-term lease cost 298 139 384 275 Variable lease cost 178 189 363 374 Total lease cost $ 1,218 $ 826 $ 2,171 $ 1,638 Amounts reported in the consolidated balance sheets for leases where we are the lessee as of September 30, 2023 and March 31, 2023 were as follows (in thousands): September 30, 2023 March 31, 2023 Operating leases Operating lease ROU assets $ 12,071 $ 11,666 Operating lease liabilities $ 12,917 $ 12,435 Weighted-average remaining lease term Operating leases 12 years, 2 months 12 years, 10 months Weighted-average discount rate Operating leases 5.04 % 4.95 % Maturities of lease liabilities under non-cancellable leases where we are the lessee as of September 30, 2023 are as follows (in thousands): Operating Leases 2024 (excluding the six months ended September 30, 2023) $ 1,254 2025 2,288 2026 2,006 2027 1,853 2028 1,382 2029 748 Thereafter 8,227 Total undiscounted lease payments 17,758 Interest ( 3,946 ) Discount ( 895 ) Total lease liabilities $ 12,917 18 12. Financing Arrangements Borrowings of the Company and its subsidiaries are summarized below at September 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 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: 1. 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; 2. 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 %; 3. The unused commitment fee on the revolving credit facility will increase from 0.11 % to 0.15 %; and, 4. 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. On September 5, 2023, Contrail entered into the Sixth Amendment to Supplement #2 to Master Loan Agreement and the Fifth Amended and Restated Promissory Note with ONB. The principal purpose of the amended documents was to extend the maturity date of the revolving $ 25.0 million facility to November 24, 2025 or such earlier date on which the revolving note becomes due and payable pursuant to the supplement or the master loan agreement. The material terms of the revolving facility remain the same, including the payment terms and interest rate except that the change in control event of default provision was revised to provide as follows: "(h) Change in control of operations. If the CEO Joe Kuhn, or a CEO acceptable to ONB, in its reasonable discretion, has its employment with Contrail terminated for any reason, or ceases to oversee the day-to-day operations of Contrail." The following table provides certain information about the current financing arrangements of the Company and its subsidiaries as of September 30, 2023: (In Thousands) September 30, 2023 March 31, 2023 Maturity Date Interest Rate Unused commitments at September 30, 2023 Air T Debt Revolver - MBT $ 16,395 $ 8,742 8/31/2024 SOFR + range of 2.25 % - 3.25 % $ 2,605 Term Note A - MBT 7,363 7,762 8/31/2031 3.42 % Term Note B - MBT 2,599 2,740 8/31/2031 3.42 % Term Note D - MBT 1,304 1,338 1/1/2028 1-month LIBOR + 2.00 % Term Note E - MBT — 800 6/25/2025 Greater of LIBOR + 1.50 % or 2.50 % Term Note F - MBT 883 983 1/31/2028 Greater of 6.00 % or Prime + 1.00 % Debt - Trust Preferred Securities 25,605 25,598 6/7/2049 8.00 % Total 54,149 47,963 AirCo 1 Debt Term Loan - PSB 6,393 6,393 12/11/2025 3-month SOFR + 3.26 % Total 6,393 6,393 Jet Yard Debt Term Loan - MBT 1,801 1,844 8/31/2031 4.14 % Total 1,801 1,844 Contrail Debt Revolver - ONB 3,221 12,441 11/24/2025 1-month SOFR + 3.56 % $ 21,779 Term Loan G - ONB 24,918 38,180 11/24/2025 1-month SOFR + 3.11 % Total 28,139 50,621 Delphax Solutions Debt Canadian Emergency Business Account Loan 29 30 12/31/2025 5.00 % Total 29 30 Wolfe Lake Debt Term Loan - Bridgewater 9,459 9,586 12/2/2031 3.65 % Total 9,459 9,586 Air T Acquisition 22.1 Term Loan - Bridgewater 4,500 4,500 2/8/2027 4.00 % Term Loan A - ING 2,225 2,610 2/1/2027 3.50 % Term Loan B - ING 1,059 1,088 5/1/2027 4.00 % Total 7,784 8,198 WASI Debt Promissory Note - Seller's Note 1,065 1,279 1/1/2026 6.00 % Total 1,065 1,279 Total Debt 108,819 125,914 Unamortized Debt Issuance Costs ( 761 ) ( 829 ) Total Debt, net $ 108,058 $ 125,085 At September 30, 2023, our contractual financing obligations, including payments due by period, are as follows (in thousands): Due by Amount September 30, 2024 $ 23,904 September 30, 2025 10,902 September 30, 2026 26,038 September 30, 2027 6,292 September 30, 2028 2,825 Thereafter 38,858 108,819 Unamortized Debt Issuance Costs ( 761 ) $ 108,058 19 13. Geographical Information Total tangible long-lived assets, which include property and equipment as well as assets on lease, 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, 2023 and March 31, 2023 (in thousands): September 30, 2023 March 31, 2023 United States $ 21,114 $ 21,433 Foreign 51 89 Total tangible long-lived assets, net $ 21,165 $ 21,522 The net book value of tangible long-lived assets located within each individual foreign country at September 30, 2023 and March 31, 2023 is listed below (in thousands): September 30, 2023 March 31, 2023 The Netherlands $ 43 $ 42 Other 8 47 Total tangible long-lived assets, net $ 51 $ 89 Total revenue, in and outside the United States, is summarized in the following table for the six months ended September 30, 2023 and September 30, 2022 (in thousands): September 30, 2023 September 30, 2022 United States $ 128,435 $ 91,323 Foreign 21,962 20,227 Total revenue $ 150,397 $ 111,550 20 14. Segment Information The Company has four business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment and corporate and other. Segment data is summarized as follows (in thousands): (In Thousands) Three Months Ended September 30, Six Months Ended September 30, 2023 2022 2023 2022 Operating Revenues by Segment: Overnight Air Cargo Domestic $ 28,099 $ 22,069 $ 55,236 $ 42,633 International 98 — 689 — Total Overnight Air Cargo 28,197 22,069 55,925 42,633 Ground Equipment Sales: Domestic 8,833 14,913 20,532 18,821 International 3,413 3,106 3,501 5,013 Total Ground Equipment Sales 12,246 18,019 24,033 23,834 Commercial Jet Engines and Parts: Domestic 28,763 11,611 50,730 28,343 International 7,715 7,375 15,594 13,498 Total Commercial Jet Engines and Parts 36,478 18,986 66,324 41,841 Corporate and Other: Domestic 1,019 778 1,937 1,526 International 1,026 836 2,178 1,716 Total Corporate and Other 2,045 1,614 4,115 3,242 Total 78,966 60,688 150,397 111,550 Operating Income (Loss): Overnight Air Cargo 2,039 845 3,974 1,922 Ground Equipment Sales ( 12 ) 1,887 ( 97 ) 2,029 Commercial Jet Engines and Parts 1,152 ( 204 ) 2,629 2,870 Corporate and Other ( 2,418 ) ( 2,349 ) ( 5,084 ) ( 5,809 ) Total 761 179 1,422 1,012 Capital Expenditures: Overnight Air Cargo 46 92 204 191 Ground Equipment Sales 25 6 58 16 Commercial Jet Engines and Parts 21 278 141 352 Corporate and Other 61 43 154 232 Total 153 419 557 791 Depreciation and Amortization: Overnight Air Cargo 90 23 175 42 Ground Equipment Sales 35 46 70 95 Commercial Jet Engines and Parts 189 563 380 996 Corporate and Other 386 394 764 755 Total $ 700 $ 1,026 $ 1,389 $ 1,888 The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA for the six months ended September 30, 2023 and 2022 (in thousands): Six Months Ended September 30, 2023 Total Operating income $ 1,422 Depreciation and amortization (excluding leased engines depreciation) 1,389 Asset impairment, restructuring or impairment charges 5 Gain on sale of property and equipment ( 8 ) TruPs issuance expenses 93 Adjusted EBITDA $ 2,901 Six Months Ended September 30, 2022 Total Operating income $ 1,012 Depreciation and amortization (excluding leased engines depreciation) 1,252 Asset impairment, restructuring or impairment charges 1,536 Gain on sale of property and equipment ( 2 ) TruPs issuance expenses 34 Adjusted EBITDA $ 3,832 21 15. Commitments and Contingencies 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 September 30, 2023. The change in the redemption value compared to March 31, 2023 is a decrease of $ 0.3 million, which was driven by the decrease in fair value of $ 0.6 million and distributions to non-controlling interest of $ 0.2 million, partially offset by net income attributable to non-controlling interest of $ 0.5 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. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations. 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 new venture 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 September 30, 2023, for its Investment Function, the Company has contributed $ 1.0 million to CAM’s Onshore Series and $ 6.9 million to CAM’s Offshore 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 September 30, 2023, the Company's net investment basis in CAM is $ 4.5 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. The shareholder agreement includes the Shanwick Put/Call Option with regard to the 30.0 % non-controlling interest. The non-controlling interest holders are the executive management of the underlying business. The Shanwick Put/Call Option grants the Company an option to purchase the 30.0 % interest at the call option price that equals to the average EBIT over the 3 Financial Years prior to the exercise of the Call Option multiplied by 8. In addition, the Shanwick Put/Call Option also grants the non-controlling interest owners an option to require the Company to purchase from them their respective ownership interests at the Put Option price, that is equal to the average EBIT over the 3 Financial Years prior to the exercise of the Put Option multiplied by 7.5 . The Call Option and the Put Option may be exercised at any time from the fifth anniversary of the shareholder agreement and then only at the end of each fiscal year of Air T ("Shanwick RNCI"). The Company has presented this redeemable non-controlling interest in Shanwick 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 estimated redemption value at the end of each reporting period. As the Shanwick RNCI will be redeemed at established multiples of EBIT, it is considered redeemable at other than fair value. 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 $ 4.6 million as of September 30, 2023, which was comprised of the following (in thousands): Shanwick RNCI Beginning Balance as of April 1, 2023 $ 4,738 Contribution from non-controlling members — Distribution to non-controlling members ( 166 ) Net income attributable to non-controlling interests 182 Redemption value adjustments ( 116 ) Ending Balance as of September 30, 2023 $ 4,638 2020 Omnibus Stock and Incentive Plan On December 29, 2020, the Company’s Board of Directors unanimously approved the Omnibus Stock and Incentive Plan (the "Plan"), which was subsequently approved by the Company's stockholders at the August 18, 2021 Annual Meeting of Stockholders. The total number of shares authorized under the Plan is 420,000 . Among other instruments, the Plan permits the Company to grant stock option awards. As of September 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 six months ended September 30, 2023, total compensation cost recognized under the Plan was $ 0.1 million and $ 0.2 million, respectively. 22 16. Guarantees Financial Guarantees Our financial guarantees consist of debt obligations of certain CJVII Series. Expiration dates vary through 2028, and guarantees will terminate on payment and/or cancellation of the underlying obligation. A payment by us would be triggered by failure of the series to fulfill its obligation covered by the guarantee. We are entitled to recover from amounts paid by us under the guarantee by other unrelated institutional investment partners ("CJVII Series investors"), up to their pro rata ownership of the CJVII Series. The maximum potential payments for financial guarantees were $ 12.8 million and $ 13.6 million as of September 30, 2023 and March 31, 2023, respectively. Financial guarantees and indemnifications are recorded at fair value at their inception. Subsequent to initial recognition, the guarantee liability is adjusted at each reporting period to reflect the current estimate of expected payments resulting from possible default events over the remaining life of the guarantee. The financial guarantees were made only for the convenience of other CJVII Series investors in the process of obtaining third-party debt to fund acquisitions of aircraft assets. The guarantees did not provide any value to the debt and, as such, the Company did not record a liability related to these financial guarantees. Nonfinancial Guarantees From time to time, we may issue guarantees or indemnifications to third parties assuring performance of lease agreements pertaining to aircraft assets owned by certain CJVII Series ("nonfinancial guarantees"). Air T's performance under these guarantees would be triggered by failure of the series to perform in accordance with the terms stated in the lease agreements. Nonfinancial guarantees and indemnifications are recorded at fair value at their inception. We regularly review our performance risk under these arrangements, and in the event it becomes probable that we will be required to perform under a guarantee or indemnity, the amount of probable payment will be recorded. The maximum potential payments for nonfinancial guarantees were $ 4.0 million at both September 30, 2023 and March 31, 2023. The carrying value of recorded liabilities related to nonfinancial guarantees was $ 0 at both September 30, 2023 and March 31, 2023. 23 17. Subsequent Events 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. 24