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Item 2. Management’s Discussion and Analysis

2024-02-12 compared with 2023-11-14 · 102 added, 100 removed, 178 unchanged (53% of the section changed)

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This section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results.

The MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition during the period from the most recent fiscal year-end, March 31, 2023, to and including September 30, 2023 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year.

The MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition during the period from the most recent fiscal year-end, March 31, 2023, to and including December 31, 2023 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year.

This Quarterly Report on Form 10-Q, including the MD&A, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

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Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of us are subject to uncertainties and other factors that could cause actual results to differ materially from such statements, because of, among other things, potential risks and uncertainties, such as:

• An inability to finance our operations through bank or other financing or through the sale of issuance of debt or equity securities as a result of the existence of substantial doubt about our ability to continue as a going concern;

• An inability to finance our operations through bank or other financing or through the sale of issuance of debt or equity securities;

• Economic and industry conditions in the Company’s markets;

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• Mild winter weather conditions reducing the demand for deicing equipment;

• Market acceptance and operational success of the Company’s relatively new aircraft asset management business and related aircraft capital joint venture;

• Market acceptance and operational success of the Company’s commercial jet engines and parts segment or its aircraft asset management business and related aircraft capital joint venture;

• Despite our current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage.

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Results of Operations

Second Quarter Fiscal 2024 Compared to Second Quarter Fiscal 2023

Consolidated revenue for the three-month period ended September 30, 2023 increased by $18.3 million (30.1%) compared to the same quarter in the prior fiscal year.

Following is a table detailing revenue by segment, net of intercompany during the three months ended September 30, 2023 compared to the same quarter in the prior fiscal year (in thousands):

Third Quarter Fiscal 2024 Compared to Third Quarter Fiscal 2023

Consolidated revenue for the three-month period ended December 31, 2023 increased by $2.4 million (3.8%) compared to the same quarter in the prior fiscal year.

Following is a table detailing revenue by segment, net of intercompany during the three months ended December 31, 2023 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

September 30, Change

December 31, Change

Overnight Air Cargo $ 29,018 $ 21,831 $ 7,187 32.9 %

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$ 63,756 $ 61,396 $ 2,360 3.8 %

Revenues from the air cargo segment for the three-month period ended September 30, 2023 increased by $6.1 million (27.8%) compared to the second quarter of the prior fiscal year.

The increase was principally attributable to higher administrative fees due to increased fleet, higher pass-through revenues from FedEx, and the WASI acquisition mentioned in Note 2 of the Notes to Condensed Consolidated Financial Statements of this report, which contributed revenues for a full quarter in 2023 but was not part of the segment in the prior comparable quarter.

The ground equipment sales segment contributed approximately $12.2 million and $18.0 million to the Company’s revenues for the three-month periods ended September 30, 2023 and 2022 respectively, representing a $5.8 million (32.0%) decrease in the current quarter.

Revenues from the air cargo segment for the three-month period ended December 31, 2023 increased by $7.2 million (32.9%) compared to the third quarter of the prior fiscal year.

The increase was principally attributable to higher administrative fees due to increased fleet, higher pass-through revenues from FedEx, higher maintenance and outside customer revenue, and the WASI acquisition mentioned in Note 2 of the Notes to Condensed Consolidated Financial Statements of this report, which contributed $2.0 million of revenues to the current year quarter but none in the prior year comparable period.

The ground equipment sales segment contributed approximately $8.4 million and $16.1 million to the Company’s revenues for the three-month periods ended December 31, 2023 and 2022 respectively, representing a $7.7 million (47.7%) decrease in the current quarter.

The decrease was primarily driven by the lower number of deicing trucks sold in the current year quarter compared to prior year's comparable quarter.

At September 30, 2023, the ground equipment sales segment’s order backlog was $7.0 million compared to $21.1 million at September 30, 2022.

The commercial jet engines and parts segment contributed $36.5 million of revenues in the quarter ended September 30, 2023 compared to $19.0 million in the comparable prior year quarter, which is an increase of $17.5 million (92.1%).

The increase was primarily driven by engine sales at Contrail and higher component part sales across multiple companies within the segment in the current quarter compared to prior year comparable quarter.

Revenues from the corporate and other segment for the three-month period ended September 30, 2023 increased by $0.4 million (26.7%) compared to the second quarter of the prior fiscal year.

At December 31, 2023, the ground equipment sales segment’s order backlog was $6.2 million compared to $12.5 million at December 31, 2022.

The commercial jet engines and parts segment contributed $24.1 million of revenues in the quarter ended December 31, 2023 compared to $21.7 million in the comparable prior year quarter, which is an increase of $2.4 million (11.1%).

The increase in the current quarter compared to prior year comparable quarter was primarily driven by higher pass-through revenue at Worthington Aviation, LLC ("Worthington"), a wholly-owned subsidiary of the Company, in transactions that Worthington acted as the principal of the consignment agreements ("pass-through consignment revenue").

Revenues from the corporate and other segment for the three-month period ended December 31, 2023 increased by $0.5 million (28.3%) compared to the third quarter of the prior fiscal year.

The increase was primarily attributable to increased software subscriptions at Shanwick.

Following is a table detailing operating income (loss) by segment during the three months ended September 30, 2023 compared to the same quarter in the prior fiscal year (in thousands):

Following is a table detailing operating income (loss) by segment during the three months ended December 31, 2023 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

September 30, Change

December 31, Change

Overnight Air Cargo $ 1,594 $ 1,009 $ 585

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$ (1,608) $ 135 $ (1,743)

Consolidated operating income for the quarter ended September 30, 2023 was $0.8 million, compared to an operating income of $0.2 million in the comparable quarter of the prior year.

The air cargo segment's operating income for the three-month period ended September 30, 2023 was $2.0 million compared to operating income of $0.8 million in the same quarter in the prior fiscal year.

This increase was primarily attributable to the increased sales noted in the segment revenue discussion above.

The ground equipment sales segment's operating loss for the quarter ended September 30, 2023 was $12.0 thousand compared to the prior year comparable quarter's operating income of $1.9 million.

Consolidated operating loss for the quarter ended December 31, 2023 was $1.6 million, compared to an operating income of $0.1 million in the comparable quarter of the prior year.

The air cargo segment's operating income for the three-month period ended December 31, 2023 was $1.6 million compared to operating income of $1.0 million in the same quarter in the prior fiscal year.

This increase was primarily attributable to the increased revenue noted in the segment revenue discussion above.

The ground equipment sales segment's operating loss for the quarter ended December 31, 2023 was $0.5 million compared to the prior year comparable quarter's operating income of $1.1 million.

This decrease was primarily attributable to the decreased sales noted in the segment revenue discussion above.

The commercial jet engines and parts segment generated an operating income of $1.2 million in the current-year quarter compared to an operating loss of $0.2 million in the prior-year quarter.

The change was primarily attributable to the increased sales noted in the segment revenue discussion above.

In addition, this segment incurred an inventory write-down of $1.0 million in the prior-year comparable quarter compared to none in the current year comparable quarter.

The corporate and other segment's operating loss for the three-month period ended September 30, 2023 was relatively flat compared to the same quarter in the prior fiscal year.

Following is a table detailing non-operating income (expense) during the three months ended September 30, 2023 compared to the same quarter in the prior fiscal year (in thousands):

The commercial jet engines and parts segment generated an operating loss of $0.6 million in the current year quarter compared to an operating income of $0.7 million in the prior year quarter.

The change was primarily attributable to lower component sales at Contrail in the current quarter, partially offset by higher revenue driven by pass-through consignment revenue at Worthington compared to the prior year comparable quarter.

The corporate and other segment's operating loss for the three-month period ended December 31, 2023 was $2.1 million compared to the prior year comparable quarter's operating loss of $2.7 million.

The decrease in operating loss was attributable to increased sales noted in the segment revenue discussion above in addition to lower general and administrative expenses.

Following is a table detailing non-operating income (expense) during the three months ended December 31, 2023 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended

September 30, Change

December 31, Change

Interest expense $ (1,528) $ (2,204) $ 676

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$ (348) $ (183) $ (165)

The Company had a net non-operating loss of $1.9 million during the quarter ended September 30, 2023, compared to net non-operating loss of $2.1 million in the prior-year quarter.

The decrease in non-operating loss was primarily driven by the increase of net income allocated to the Company from equity method investments and fluctuations in foreign currency exchange rates causing a lower exchange loss of $0.2 million compared to the same quarter in the prior fiscal year.

The decrease in non-operating loss is offset by a higher investment loss due to the fair value adjustments on marketable securities.

During the three-month period ended September 30, 2023, the Company recorded $0.5 million in income tax expense at an ETR of (43.4)%.

The Company had a net non-operating loss of $0.3 million during the quarter ended December 31, 2023, compared to net non-operating loss of $0.2 million in the prior year quarter.

The increase in non-operating loss was primarily driven by the decrease of net income allocated to the Company from equity method investments, partially offset by lower interest expense in the current year quarter.

During the three-month period ended December 31, 2023, the Company recorded $0.2 million in income tax expense at an ETR of (7.8)%.

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.

consolidated group, Delphax and 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 effective tax rate 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 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.

First Six Months of Fiscal 2024 Compared to First Six Months of Fiscal 2023

Following is a table detailing revenue by segment, net of intercompany during the six months ended September 30, 2023 compared to the same period in the prior fiscal year (in thousands):

Six Months Ended

September 30, Change

consolidated group, DTI, LGSS, DSI, BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

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

The Company records income taxes using an estimated 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, DSI and DTI, other capital losses, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the foreign rate differentials between the federal 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.

First Nine Months of Fiscal 2024 Compared to First Nine Months of Fiscal 2023

Following is a table detailing revenue by segment, net of intercompany during the nine months ended December 31, 2023 compared to the same period in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Overnight Air Cargo $ 84,944 $ 64,464 $ 20,480 31.8 %

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$ 214,154 $ 172,946 $ 41,208 23.8 %

Revenues from the air cargo segment for the six months ended September 30, 2023 increased by $13.3 million (31.2%) compared to the six months ended September 30, 2022.

The increase was principally attributable to higher administrative fees due to increased fleet, higher pass-through revenues from FedEx, and the WASI acquisition mentioned in Note 2 of the Notes to Condensed Consolidated Financial Statements of this report, which contributed revenues for the full six month period in 2023 but was not part of the segment in the prior-year comparable six-month period.

The ground equipment sales segment's revenue for the six-month period ended September 30, 2023 was relatively flat compared to the same period in the prior fiscal year.

The commercial jet engines and parts segment contributed $66.3 million of revenues in the six months ended September 30, 2023 compared to $41.8 million in the comparable prior year six months period.

The increase was primarily driven by higher component part sales across multiple companies within the segment and engine sales at Contrail that did not occur in the prior fiscal year's six month period.

Revenues from the corporate and other segment in the six months ended September 30, 2023 increased by $0.9 million (26.9%) compared to the six months ended September 30, 2022.

Revenues from the air cargo segment for the nine months ended December 31, 2023 increased by $20.5 million (31.8%) compared to the nine months ended December 31, 2022.

The increase was principally attributable to higher administrative fees due to increased fleet, higher pass-through revenues from FedEx and outside customer revenue, and the WASI acquisition mentioned in Note 2 of the Notes to Condensed Consolidated Financial Statements of this report, which contributed $9.0 million of revenues to the current year nine-month period but none in the prior year comparable nine-month period.

The ground equipment sales segment's revenue for the nine-month period ended December 31, 2023 was $32.5 million compared to $40.0 million in the same period in the prior fiscal year.

The decrease was primarily driven by the lower number of deicing trucks sold in the current year compared to the prior year.

The commercial jet engines and parts segment contributed $90.5 million of revenues in the nine months ended December 31, 2023 compared to $63.6 million in the comparable prior year nine months period.

The increase was primarily driven by Contrail's higher component part sales in the first six months of the current fiscal year and Worthington's higher pass-through consignment revenue in the current year quarter.

In addition, Contrail also sold three engines at zero profit margin in the current year as they had previously written these assets down to the sales price in the prior year.

Revenues from the corporate and other segment in the nine months ended December 31, 2023 increased by $1.3 million (27.4%) compared to the nine months ended December 31, 2022.

The increase was primarily attributable increased software subscriptions at Shanwick.

Following is a table detailing operating income (loss) by segment during the six months ended September 30, 2023 compared to the same six months in the prior fiscal year (in thousands):

Six Months Ended

September 30, Change

Following is a table detailing operating income (loss) by segment during the nine months ended December 31, 2023 compared to the same nine months in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Overnight Air Cargo $ 5,568 $ 2,931 $ 2,637

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$ (189) $ 1,147 $ (1,336)

Consolidated operating income for the six months ended September 30, 2023 was $1.4 million compared to an operating income of $1.0 million for the comparable six months of the prior year.

The air cargo segment's operating income for the six months ended September 30, 2023 was $4.0 million compared to operating income of $1.9 million in the prior year comparable period primarily due to the revenue increase noted above.

The ground equipment sales segment's operating loss for the six months ended September 30, 2023 was $0.1 million compared to operating income of $2.0 million in the prior year comparable period primarily attributable to the decline in revenue in the second fiscal quarter mentioned above as well as an increase in cost of parts due in part to the global supply chain disruption.

The commercial jet engines and parts segment generated operating income of $2.6 million in the current-year six-month period compared to operating income of $2.9 million in the prior year six-month period.

The decrease was primarily attributable to lower profit margins on component sales at Contrail compared to the prior year comparable period.

The corporate and other segment's operating loss for the six-month period ended September 30, 2023 was $5.1 million compared to an operating loss of $5.8 million in the prior year comparable period.

The decrease in operating loss was primarily driven by the revenue increase noted above.

Following is a table detailing non-operating income (expense) during the six months ended September 30, 2023 compared to the same six months in the prior fiscal year (in thousands):

Six Months Ended

September 30, Change

Consolidated operating income for the nine months ended December 31, 2023 was $189.0 thousand compared to an operating income of $1.1 million for the comparable nine months of the prior year.

The air cargo segment's operating income for the nine months ended December 31, 2023 was $5.6 million compared to operating income of $2.9 million in the prior year comparable period primarily due to the revenue increase noted above.

The ground equipment sales segment's operating loss for the nine months ended December 31, 2023 was $0.6 million compared to operating income of $3.1 million in the prior year comparable period was primarily attributable to the decline in sales noted above.

The commercial jet engines and parts segment generated operating income of $2.0 million in the current year nine-month period compared to operating income of $3.6 million in the prior year nine-month period.

The decrease was primarily attributable to Contrail's zero profit margin engine sales mentioned above, in addition to a lower profit margin on component sales in the current nine-month period compared to the prior year comparable period.

The corporate and other segment's operating loss for the nine-month period ended December 31, 2023 was $7.1 million compared to an operating loss of $8.5 million in the prior year comparable period.

The decrease in operating loss was primarily driven by the revenue increase noted above in addition to lower general and administrative expenses.

Following is a table detailing non-operating income (expense) during the nine months ended December 31, 2023 compared to the same nine months in the prior fiscal year (in thousands):

Nine Months Ended

December 31, Change

Interest expense $ (5,189) $ (6,021) $ 832

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$ (2,704) $ (3,712) $ 1,008

The Company had a net non-operating loss of $2.4 million for the six months ended September 30, 2023 compared to a net non-operating loss of $3.5 million in the prior-year six-month period.

During the six-month period ended September 30, 2023, the Company recorded income tax expense of $0.7 million at an ETR of (74.5)%.

The Company had a net non-operating loss of $2.7 million for the nine months ended December 31, 2023 compared to a net non-operating loss of $3.7 million in the prior year nine-month period.

The decrease in non-operating loss was primarily driven by a $0.8 million decrease in interest expense and a $0.6 million fluctuation in foreign currency exchange rates, partially offset by a $0.4 million decrease in net income allocated to the Company from equity method investments.

During the nine-month period ended December 31, 2023, the Company recorded income tax expense of $0.9 million at an ETR of (29.4)%.

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.

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 effective tax rate of 15.1%.

consolidated group, DTI, LGSS, DSI and BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico.

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

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

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the six-month period ended September 30, 2022 were the change in valuation allowance related to Delphax and 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.

The primary factors contributing to the difference between the federal statutory rate of 21% 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.

Critical Accounting Policies and Estimates

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Accordingly, actual results could differ materially from estimates.

There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended September 30, 2023.

There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended December 31, 2023.

The ground equipment sales segment business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season.

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Future economic developments such as inflation and increased interest rates as well as further business issues present uncertainty and risk with respect to our financial condition and results of operations.

Supply chain disruption caused an increase in material costs, which has directly impacted the performance of our ground equipment sales segment.

Supply chain disruption caused an increase in material costs, which directly impacted the performance of our ground equipment sales segment.

We expect that issues caused by economic and business issues will continue beyond fiscal 2024.

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

The Company believes the estimates and assumptions underlying the Company’s consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2023.

Liquidity and Capital Resources

As of September 30, 2023, the Company held approximately $5.9 million in cash and cash equivalents and restricted cash.

As of December 31, 2023, the Company held approximately $5.2 million in cash and cash equivalents and restricted cash.

The Company also held $1.5 million in restricted investments held as statutory reserve of SAIC.

The Company has an aggregate of approximately $24.4 million in available funds under its lines of credit as of September 30, 2023.

As of September 30, 2023, the Company’s working capital amounted to $47.5 million, a decrease of $4.8 million compared to March 31, 2023.

The Company has an aggregate of approximately $35.5 million in available funds under its lines of credit as of December 31, 2023.

As of December 31, 2023, the Company’s working capital amounted to $44.5 million, a decrease of $7.7 million compared to March 31, 2023.

As mentioned in Note 12 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on June 23, 2023, the Company and MBT entered into amendments to the MBT revolving credit agreement and related promissory note.

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

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.

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As mentioned in Note 15 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this report, on May 5, 2021, the Company formed CAM and acquired its ownership interest in CAM.

The operations of CAM are not consolidated

into the operations of the Company.

The operations of CAM are not consolidated into the operations of the Company.

For its Investment Function (as defined in Note 15 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this report), CAM's initial commitment to CJVII was approximately $51.0 million.

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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 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 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.

As mentioned in Note 12 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, the Revolver - MBT has $6.5 million outstanding as of December 31, 2023 and matures on August 31, 2024.

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 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.

Following is a table of changes in cash flow for the six months ended September 30, 2023 and 2022 (in thousands):

Six Months Ended September 30,

As previously reported in the Company's September 30, 2023 Form 10-Q, a condition existed that raised substantial doubt about its ability to continue as a going concern, for which management's plans alleviated such condition.

As of the issuance of this report, management has executed their plans and such condition no longer exists.

As described in Not e 12 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, the Company successfully raised $7.3 million of additional funds via sales of our TruPs through the Company's at-the-market offering that commenced on October 18, 2023 and through various private placements.

In addition, the Company also implemented cost reduction measures and liquidated select investments as well as reduced capital expenditures.

The Company believes they have sufficient cash on hand and available liquidity, 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.

Following is a table of changes in cash flow for the nine months ended December 31, 2023 and 2022 (in thousands):

Nine Months Ended December 31,

Net cash provided by (used in) operating activities $ 23,145 $ (3,815)

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Effect of foreign currency exchange rates on cash and cash equivalents (116) 181

Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash $ (1,167) $ 1,097

Net cash provided by operating activities was $15.9 million for the six-month period ended September 30, 2023 compared to net cash used in operating activities of $13.9 million in the prior year six-month period.

The change in operating cash flows was primarily driven by a net decrease in inventory of $17.0 million driven by increased sales in the current six month period compared to prior year period's net increase of $14.2 million due to higher inventory purchases.

Net cash provided by investing activities for the six-month period ended September 30, 2023 was $0.2 million compared to net cash used in investing activities of $1.8 million in the prior-year period.

The cash provided by investing activities was primarily driven by higher distributions received from equity method investments in the current year compared to the prior year six month period.

Net cash used in financing activities for the six-month period ended September 30, 2023 was $17.2 million compared to net cash provided by financing activities of $16.8 million in the prior-year period.

The cash used in financing activities in the current year six month period was primarily driven by less proceeds and more payments on the Company's term loans and revolving lines of credit compared to the prior year six month period.

Net Decrease in Cash and Cash Equivalents and Restricted Cash $ (1,903) $ (1,858)

Net cash provided by operating activities was $23.1 million for the nine-month period ended December 31, 2023 compared to net cash used in operating activities of $3.8 million in the prior year nine-month period.

The change in operating cash flows was primarily driven by a net change of $29.5 million in the inventory balance, as inventory decreased by $17.0 million in the current year due to increased sales, whereas inventory increased by $12.5 million in the prior year due to increased purchases.

This was partially offset by a net change of $2.6 million in customer deposits in our ground equipment sales segment in the current year nine-month period compared to the prior year period.

Net cash provided by investing activities for the nine-month period ended December 31, 2023 was $0.2 million compared to net cash used in investing activities of $3.1 million in the prior year period.

The cash provided by investing activities was primarily driven by having received $1.5 million less distributions from equity method investments in the prior year period compared to the current year

In addition, the Company also made $1.5 million more investments in unconsolidated entities in the prior year period compared to the current year period.

Net cash used in financing activities for the nine-month period ended December 31, 2023 was $25.2 million compared to net cash provided by financing activities of $4.9 million in the prior year period.

The cash used in financing activities in the current year nine-month period was primarily driven by $25.5 million less proceeds and $12.4 million more payments on the Company's term loans and revolving lines of credit compared to the prior year nine-month period, partially offset by $7.3 million of proceeds from the sale of TruPs through ATM offerings and private placements that did not occur in the prior year nine-month period.

Non-GAAP Financial Measures

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When calculating Adjusted EBITDA, the Company does not add back depreciation expense for aircraft engines that are on lease, as the Company believes this expense matches with the corresponding revenue earned on engine leases.

Depreciation expense for leased engines totaled $0 and $0.4 million for the three months ended September 30, 2023 and 2022, respectively.

Depreciation expense for leased engines totaled $0 and $0.5 million for the three months ended December 31, 2023 and 2022, respectively.

Management believes that Adjusted EBITDA is a useful measure of the Company's performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability.

Adjusted EBITDA is not intended to replace or be an alternative to operating income (loss), the most directly comparable amounts reported under GAAP.

The tables below provide a reconciliation of operating income to Adjusted EBITDA for the three and six months ended September 30, 2023 and 2022 (in thousands):

Three months ended Six months ended

The tables below provide a reconciliation of operating income to Adjusted EBITDA for the three and nine months ended December 31, 2023 and 2022 (in thousands):

Three months ended Nine months ended

12/31/2023 12/31/2022 12/31/2023 12/31/2022

Operating income $ 761 $ 179 $ 1,422 $ 1,012

Operating (loss) income $ (1,608) $ 135 $ (189) $ 1,147

Depreciation and amortization (excluding leased engines depreciation) 699 560 2,088 1,810

Asset impairment, restructuring or impairment charges 321 638 326 2,174

Gain on sale of property and equipment (2) (1) (8) (2)

Loss (gain) on sale of property and equipment 1 — (7) (2)

TruPs issuance expenses 185 4 277 38

Adjusted EBITDA $ (402) $ 1,337 $ 2,495 $ 5,167

The table below provides Adjusted EBITDA by segment for the three and six months ended September 30, 2023 and 2022 (in thousands):

Three months ended Six months ended

The asset impairment, restructuring or impairment charges for the three months ended December 31, 2023 was attributable to a write-down of $0.3 million on the commercial jet engines and parts segment's inventory.

The table below provides Adjusted EBITDA by segment for the three and nine months ended December 31, 2023 and 2022 (in thousands):

Three months ended Nine months ended

12/31/2023 12/31/2022 12/31/2023 12/31/2022

5 unchanged sentences

Issuer and guarantor subsidiary summarized information

Air T Funding (the “Trust”) is a statutory business trust formed under Delaware law in September 2018.

Air T Funding is a statutory business trust formed under Delaware law in September 2018.

Air T Funding exists for the exclusive purposes of (i) issuing and selling its Alpha Income Trust Preferred Securities (also referred to as the 8.0% Cumulative Securities, Capital Securities or “Trust Preferred Securities”), par value $25.00 per share, (ii) using the proceeds from the sale of the Trust Preferred Securities to acquire Junior Subordinated Debentures issued by the Company, and (iii) engaging in only those other activities necessary, advisable or incidental thereto (such as registering the transfer of the Trust Preferred Securities).

12 unchanged sentences

In the event a Tax Event, an Investment Company Event or Capital Treatment Event has occurred and is continuing and the Company does not elect to redeem the Junior Subordinated Debentures and thereby cause a mandatory redemption of the Trust Preferred Securities or to liquidate Air T Funding and cause the Junior Subordinated Debentures to be distributed to holders of the Trust Securities in liquidation of Air T Funding, such Trust Preferred Securities will remain outstanding and additional sums may be payable on the Junior Subordinated Debentures.

So long as no Debenture event of default has occurred and is continuing, at any time on or after June 7, 2024, the Company has the right under the indenture to defer the payment of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each such period (each, an “Extension Period”), provided that no Extension Period may extend beyond the stated maturity of the Junior Subordinated Debentures.

As a consequence of any such election, quarterly distributions on the Trust Preferred Securities will be deferred by Air T Funding during any such Extension Period.

7 unchanged sentences

The Trust Agreement was most recently amended on March 3, 2021 and on January 28, 2022 and currently allows for the issuance of up to $100.0 million of Trust Preferred Securities.

As of September 30, 2023, there are $25.6 million in Trust Preferred Securities outstanding.

As of December 31, 2023, there are $32.7 million in Trust Preferred Securities outstanding.

The Trust is a “finance subsidiary” of Air T within the meaning of Rule 3‑10 of Regulation S‑X under the Securities Act of 1933, as amended, and as a result the Air T Funding does not file periodic reports with the SEC under the Securities Exchange Act of 1934, as amended.

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 2. Management’s Discussion and Analysis