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 December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Operating Revenues: Overnight air cargo $ 29,018 $ 21,831 $ 84,944 $ 64,464 Ground equipment sales 8,441 16,147 32,474 39,981 Commercial jet engines and parts 24,139 21,736 90,463 63,577 Corporate and other 2,158 1,682 6,273 4,924 63,756 61,396 214,154 172,946 Operating Expenses: Overnight air cargo 24,504 19,174 71,841 56,696 Ground equipment sales 6,964 13,492 27,854 32,362 Commercial jet engines and parts 19,322 15,357 72,562 43,685 General and administrative 13,554 11,503 39,672 33,898 Depreciation and amortization 699 1,097 2,088 2,984 Inventory write-down 321 638 326 1,658 Asset impairment — — — 516 65,364 61,261 214,343 171,799 Operating (Loss) Income ( 1,608 ) 135 ( 189 ) 1,147 Non-operating (Expense) Income: Interest expense ( 1,528 ) ( 2,204 ) ( 5,189 ) ( 6,021 ) Income from equity method investments 1,038 2,118 2,477 2,917 Other 142 ( 97 ) 8 ( 608 ) ( 348 ) ( 183 ) ( 2,704 ) ( 3,712 ) Loss before income taxes ( 1,956 ) ( 48 ) ( 2,893 ) ( 2,565 ) Income Taxes Expense (Benefit) 153 ( 156 ) 851 ( 536 ) Net (Loss) Income ( 2,109 ) 108 ( 3,744 ) ( 2,029 ) Net Income Attributable to Non-controlling Interests ( 870 ) ( 698 ) ( 1,375 ) ( 1,226 ) Net Loss Attributable to Air T, Inc. Stockholders $ ( 2,979 ) $ ( 590 ) $ ( 5,119 ) $ ( 3,255 ) Loss per share (Note 6) Basic $ ( 1.06 ) $ ( 0.21 ) $ ( 1.82 ) $ ( 1.14 ) Diluted $ ( 1.06 ) $ ( 0.21 ) $ ( 1.82 ) $ ( 1.14 ) Weighted Average Shares Outstanding: Basic 2,822 2,836 2,820 2,855 Diluted 2,822 2,836 2,820 2,855 See notes to condensed consolidated financial statements. 3 AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) Three Months Ended December 31, Nine Months Ended December 31, (In Thousands) 2023 2022 2023 2022 Net (Loss) Income $ ( 2,109 ) $ 108 $ ( 3,744 ) $ ( 2,029 ) Foreign currency translation gain (loss) 216 775 ( 19 ) ( 360 ) Unrealized (loss) gain on interest rate swaps ( 38 ) ( 61 ) 2 1,371 Reclassification of interest rate swaps into earnings ( 188 ) 18 ( 568 ) 52 Total Other Comprehensive (Loss) Income ( 10 ) 732 ( 585 ) 1,063 Total Comprehensive (Loss) Income ( 2,119 ) 840 ( 4,329 ) ( 966 ) Comprehensive Income Attributable to Non-controlling Interests ( 870 ) ( 698 ) ( 1,375 ) ( 1,226 ) Comprehensive (Loss) Income Attributable to Air T, Inc. Stockholders $ ( 2,989 ) $ 142 $ ( 5,704 ) $ ( 2,192 ) See notes to condensed consolidated financial statements. 4 AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (In thousands, except share amounts) December 31, 2023 March 31, 2023 ASSETS Current Assets: Cash and cash equivalents $ 4,480 $ 5,806 Marketable securities 326 — Restricted cash 707 1,284 Restricted investments 1,463 2,161 Accounts receivable, net of allowance for doubtful accounts of $ 1,371 and $ 1,160 18,141 27,218 Income tax receivable 354 536 Inventories, net 53,887 71,125 Employee retention credit receivable — 940 Other current assets 9,971 7,487 Total Current Assets 89,329 116,557 Property and equipment, net of accumulated depreciation of $ 7,520 and $ 6,624 20,883 21,439 Intangible assets, net of accumulated amortization of $ 5,141 and $ 4,191 11,459 12,103 Right-of-use ("ROU") assets 11,893 11,666 Equity method investments 15,038 13,230 Goodwill 10,624 10,563 Other assets 3,556 4,004 Total Assets 162,782 189,562 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable 13,537 10,449 Income tax payable 36 304 Accrued expenses and other (Note 4) 12,029 13,133 Current portion of long-term debt 17,367 38,736 Short-term lease liability 1,832 1,664 Total Current Liabilities 44,801 64,286 Long-term debt 83,419 86,349 Deferred income tax liabilities, net 2,581 2,417 Long-term lease liability 10,941 10,771 Other non-current liabilities — 47 Total Liabilities 141,742 163,870 Redeemable non-controlling interests 13,086 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 990 728 Retained earnings 9,014 13,686 Accumulated other comprehensive income 231 816 Total Air T, Inc. Stockholders' Equity 6,895 11,904 Non-controlling Interests 1,059 1,078 Total Equity 7,954 12,982 Total Liabilities and Equity $ 162,782 $ 189,562 See notes to condensed consolidated financial statements. 5 AIR T, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands) Nine Months Ended December 31, 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss $ ( 3,744 ) $ ( 2,029 ) Adjustments to reconcile Net Loss to net cash provided by (used in) operating activities: Depreciation and amortization 2,088 2,984 Inventory write-down 326 1,658 Asset impairment — 516 Income from equity method of investments ( 2,477 ) ( 2,917 ) Other 1,132 614 Change in operating assets and liabilities: Accounts receivable 8,865 4,936 Inventories 17,061 ( 12,469 ) Accounts payable 3,087 ( 109 ) Accrued expenses ( 1,105 ) 1,447 Employee retention credit receivable 940 2,456 Other ( 3,028 ) ( 902 ) Net cash provided by (used in) operating activities 23,145 ( 3,815 ) CASH FLOWS FROM INVESTING ACTIVITIES: Investment in unconsolidated entities ( 1,086 ) ( 2,609 ) Capital expenditures related to property & equipment ( 678 ) ( 1,008 ) Capital expenditures related to assets on lease or held for lease — ( 29 ) Other 1,983 556 Net cash provided by (used in) investing activities 219 ( 3,090 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from lines of credit 84,735 102,015 Payments on lines of credit ( 99,426 ) ( 91,865 ) Proceeds from term loan — 8,177 Payments on term loan ( 17,116 ) ( 12,300 ) Proceeds from issuance of Trust Preferred Securities ("TruPs") 7,285 — Other ( 629 ) ( 1,161 ) Net cash (used in) provided by financing activities ( 25,151 ) 4,866 Effect of foreign currency exchange rates on cash and cash equivalents ( 116 ) 181 NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 1,903 ) ( 1,858 ) 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 $ 5,187 $ 6,510 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 Net loss* — — — — — ( 590 ) — ( 7 ) ( 597 ) Repurchase of common stock — — 29 ( 642 ) — — — — ( 642 ) Stock compensation expense — — — — 79 — — — 79 Foreign currency translation gain — — — — — — 775 — 775 Adjustment to fair value of redeemable non-controlling interest — — — — — ( 1,059 ) — — ( 1,059 ) Unrealized loss on interest rate swaps, net of tax — — — — — — ( 61 ) — ( 61 ) Reclassification of interest rate swaps into earnings — — — — — — 18 — 18 Balance, December 31, 2022 3,026 $ 757 204 $ ( 3,995 ) $ 650 $ 23,153 $ 800 $ 1,087 $ 22,452 (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 ) 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 Net (loss) income* — — — — — ( 2,979 ) — 9 ( 2,970 ) Stock compensation expense — — — — 79 — — — 79 Foreign currency translation gain — — — — — — 216 — 216 Adjustment to fair value of redeemable non-controlling interest — — — — — ( 99 ) — — ( 99 ) Unrealized loss on interest rate swaps, net of tax — — — — — — ( 38 ) — ( 38 ) Reclassification of interest rate swaps into earnings — — — — — — ( 188 ) — ( 188 ) Balance, December 31, 2023 3,030 $ 758 209 $ ( 4,098 ) $ 990 $ 9,014 $ 231 $ 1,059 $ 7,954 * 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 December 31, 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. 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 Note 12 , the Company successfully raised $ 7.3 million of additional funds via sales of our trust preferred securities 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. 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 completed the process of converting its material LIBOR-based contracts, hedging relationships, and other transactions to other reference rates as of September 30, 2023. Recently Issued Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07- Segment Reporting (Topic 848): Improvements to Reportable Segment Disclosures. The amendments in this Update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses utilized by the chief operating decision maker for a company along with details about who the chief operating decision maker is and their title. The Update additionally requires that all annual disclosures under Topic 280 be included in interim periods financial statements, clarifies when an entity can disclose multiple segment measures of profit or loss, and provides new segment disclosure requirements for entities with a single reportable segment. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 31, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of this amendment on its condensed consolidated financial statements and disclosures. In December 2023, the FASB issued ASU 2023-09- Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this Update require the addition of specific categories to be disclosed in the rate reconciliation if they meet a quantitative threshold, disclosure of disaggregated income taxes paid to federal, state, and foreign jurisdictions, and disclosure of income or loss from continuing operations disaggregated by federal, state, and foreign jurisdictions. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures. 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 December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Product Sales Air Cargo $ 10,050 $ 6,416 $ 28,428 $ 20,303 Ground equipment sales 8,080 15,909 31,556 39,125 Commercial jet engines and parts 21,381 18,515 81,535 54,545 Corporate and other 153 112 775 247 Support Services Air Cargo 18,929 15,399 56,378 43,979 Ground equipment sales 223 96 474 396 Commercial jet engines and parts 2,533 2,428 8,393 6,958 Corporate and other 1,478 1,157 3,967 3,155 Leasing Revenue Ground equipment sales 24 42 58 115 Commercial jet engines and parts 12 729 35 1,939 Corporate and other 397 353 1,209 1,223 Other Air Cargo 39 16 138 182 Ground equipment sales 114 100 386 345 Commercial jet engines and parts 213 64 500 135 Corporate and other 130 60 322 299 Total $ 63,756 $ 61,396 $ 214,154 $ 172,946 See Note 13 for the Company's disaggregated revenues by geographic region and Note 14 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 December 31, 2023 and the amount of contract liabilities as of April 1, 2023 that were recognized as revenue during the nine-month period ended December 31, 2023 (in thousands): Outstanding contract liabilities Outstanding contract liabilities as of April 1, 2023 Recognized as Revenue As of December 31, 2023 $ 3,389 As of April 1, 2023 $ 5,000 For the nine months ended December 31, 2023 $ 4,433 10 4. Accrued Expenses and Other (In thousands) December 31, 2023 March 31, 2023 Salaries, wages and related items $ 5,707 $ 4,748 Profit sharing and bonus 1,379 1,672 Other Deposits 794 2,560 Other 4,149 4,153 Total $ 12,029 $ 13,133 11 5. Income Taxes During the three-month period ended December 31, 2023, the Company recorded $ 0.2 million in income tax expense at an effective rate ("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. 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, 2023 were the valuation allowance related to the Company’s U.S. consolidated group, Delphax Technologies, Inc. (“DTI”) and Landing Gear Support Services PTE LTD (“LGSS”), Delphax Solutions, Inc. ("DSI") and BCCM Advisors (Kenya) Limited ("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, and other capital losses, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), the foreign rate differentials between the federal and foreign tax rates for Air T's ownership of foreign operations in Puerto Rico, the Netherlands, and Singapore, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail. During the nine-month period ended December 31, 2023, the Company recorded $ 0.9 million in income tax expense 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. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the nine-month period ended December 31, 2023, were the valuation allowance related to the Company’s U.S. 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 nine-month period ended December 31, 2022 were the change in valuation allowance related to DSI and DTI 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. 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. 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 December 31, 2023. The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures): Three Months Ended December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Net (loss) income $ ( 2,109 ) $ 108 $ ( 3,744 ) $ ( 2,029 ) Net income attributable to non-controlling interests ( 870 ) ( 698 ) ( 1375 ) ( 1,226 ) Net loss attributable to Air T, Inc. Stockholders $ ( 2,979 ) $ ( 590 ) $ ( 5,119 ) $ ( 3,255 ) Loss per share: Basic $ ( 1.06 ) $ ( 0.21 ) $ ( 1.82 ) $ ( 1.14 ) Diluted $ ( 1.06 ) $ ( 0.21 ) $ ( 1.82 ) $ ( 1.14 ) Antidilutive shares excluded from computation of loss per share — 5 — 5 Weighted Average Shares Outstanding: Basic 2,822 2,836 2,820 2,855 Diluted 2,822 2,836 2,820 2,855 13 7. Intangible Assets and Goodwill Intangible assets as of December 31, 2023 and March 31, 2023 consisted of the following (in thousands): December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Book Value Purchased software $ 623 $ ( 484 ) $ 139 Internally developed software 3,711 ( 720 ) 2,991 In-place lease and other intangibles 1,094 ( 318 ) 776 Customer relationships 8,162 ( 1,302 ) 6,860 Patents 1,112 ( 1,108 ) 4 Other 1,768 ( 1,209 ) 559 16,470 ( 5,141 ) 11,329 In-process software 130 130 Intangible assets, total $ 16,600 $ ( 5,141 ) $ 11,459 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 December 31, 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 nine months ended December 31, 2023) $ 310 2025 1,201 2026 1,118 2027 1,045 2028 990 2029 982 Thereafter 5,683 $ 11,329 The carrying amount of goodwill as of December 31, 2023 and March 31, 2023 was $ 10.6 million. There was no impairment on goodwill during the nine months ended December 31, 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 nine months ended December 31, 2023, the Company recorded a loss of approximately $ 38.0 thousand and a gain of $ 2.0 thousand, net of tax, respectively. During the three and nine months ended December 31, 2022, the Company recorded a loss of approximately $ 0.1 million and a gain of $ 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 and losses are included in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of these instruments. The interest rate swaps are considered Level 2 fair value measurements. As of December 31, 2023 and March 31, 2023, the fair value of these interest-rate swap contracts was an asset of $ 1.8 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 December 31, 2023, the Company had a gross unrealized gain aggregating to $ 0.5 million and no gross unrealized loss. During the nine months ended December 31, 2023, the Company had a gross unrealized gain aggregating to $ 1.4 million and a gross unrealized loss aggregating to $ 1.8 million. During the three months ended December 31, 2022, the Company had a gross unrealized gain aggregating to $ 0.3 million and a gross unrealized loss aggregating to $ 0.5 million. During the nine months ended December 31, 2022, the Company had a gross unrealized gain aggregating to $ 0.3 million and a gross unrealized loss aggregating to $ 0.8 million. 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. The Company elected a three-month lag upon adoption of the equity method. 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. As of December 31, 2023, the Company owned 0.5 million Lendway shares, representing approximately 27.8 % of Lendway's outstanding shares. During the three and nine months ended December 31, 2023, the Company's share of Lendway's net income for the three and nine months ended September 30, 2023 was $ 0.3 million and $ 0.8 million, respectively, principally driven by the gain recognized on the aforementioned sale of Lendway's legacy business on August 4, 2023. The Company's net investment basis in Lendway is $ 2.4 million as of December 31, 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 $ 0.2 million and $ 1.5 million as its share of CCI's net income for the three and nine months ended December 31, 2023, along with a basis difference adjustment of $ 12.0 thousand and $ 37.0 thousand, respectively. The Company's net investment basis in CCI is $ 4.2 million as of December 31, 2023. Summarized unaudited financial information for the Company's equity method investees for the three and nine months ended September 30, 2023 and 2022 is as follows (in thousands): Three Months Ended Nine Months Ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Revenue $ 34,365 $ 37,532 $ 133,427 $ 111,522 Gross Profit 2,746 4,045 18,076 13,210 Operating (loss) income ( 124 ) 13,382 9,100 17,172 Net income 2,050 13,375 10,439 16,180 Net income attributable to Air T, Inc. stockholders $ 499 $ 2,183 $ 2,295 $ 2,926 16 10. Inventories Inventories consisted of the following (in thousands): December 31, 2023 March 31, 2023 Overnight air cargo: Finished goods $ 931 $ 546 Ground equipment manufacturing: Raw materials 5,921 4,589 Work in process 2,997 153 Finished goods 2,344 6,976 Corporate and other: Raw materials 1,118 794 Finished goods 725 726 Commercial jet engines and parts: Whole engines available for sale or tear-down — 10,141 Parts 43,693 50,813 Total inventories 57,729 74,738 Reserves ( 3,842 ) ( 3,613 ) Total inventories, net of reserves $ 53,887 $ 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 nine months ended December 31, 2023 and 2022 are as follows (in thousands): Three Months Ended December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Operating lease cost $ 473 $ 537 $ 1,897 $ 1,529 Short-term lease cost 245 193 628 564 Variable lease cost 247 140 610 415 Total lease cost $ 965 $ 870 $ 3,135 $ 2,508 Amounts reported in the consolidated balance sheets for leases where we are the lessee as of December 31, 2023 and March 31, 2023 were as follows (in thousands): December 31, 2023 March 31, 2023 Operating leases Operating lease ROU assets $ 11,893 $ 11,666 Operating lease liabilities $ 12,773 $ 12,435 Weighted-average remaining lease term Operating leases 12 years 12 years, 10 months Weighted-average discount rate Operating leases 5.08 % 4.95 % Maturities of lease liabilities under non-cancellable leases where we are the lessee as of December 31, 2023 are as follows (in thousands): Operating Leases 2024 (excluding the nine months ended December 31, 2023) $ 640 2025 2,344 2026 2,127 2027 1,979 2028 1,438 2029 750 Thereafter 8,225 Total undiscounted lease payments 17,503 Interest ( 3,840 ) Discount ( 890 ) Total lease liabilities $ 12,773 18 12. Financing Arrangements Borrowings of the Company and its subsidiaries are summarized below at December 31, 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 revolving line of credit at Air T with MBT ("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. The following table provides certain information about the current financing arrangements of the Company and its subsidiaries as of December 31, 2023: (In Thousands) December 31, 2023 March 31, 2023 Maturity Date Interest Rate Unused commitments at December 31, 2023 Air T Debt Revolver - MBT $ 6,492 $ 8,742 8/31/2024 SOFR + range of 2.25 % - 3.25 % $ 10,508 Term Note A - MBT 7,160 7,762 8/31/2031 3.42 % Term Note B - MBT 2,528 2,740 8/31/2031 3.42 % Term Note D - MBT 1,287 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 833 983 1/31/2028 Greater of 6.00 % or Prime + 1.00 % Debt - Trust Preferred Securities 32,662 25,598 6/7/2049 8.00 % Total 50,962 47,963 AirCo 1 Debt Term Loan - PSB 5,434 6,393 12/11/2025 3-month SOFR + 3.26 % Total 5,434 6,393 Jet Yard Debt Term Loan - MBT 1,776 1,844 8/31/2031 4.14 % Total 1,776 1,844 Contrail Debt Revolver - ONB — 12,441 11/24/2025 1-month SOFR + 3.56 % $ 25,000 Term Loan G - ONB 24,918 38,180 11/24/2025 1-month SOFR + 3.11 % Total 24,918 50,621 Delphax Solutions Debt Canadian Emergency Business Account Loan 30 30 12/31/2025 5.00 % Total 30 30 Wolfe Lake Debt Term Loan - Bridgewater 9,393 9,586 12/2/2031 3.65 % Total 9,393 9,586 Air T Acquisition 22.1 Term Loan - Bridgewater 4,500 4,500 2/8/2027 4.00 % Term Loan A - ING 2,155 2,610 2/1/2027 3.50 % Term Loan B - ING 1,105 1,088 5/1/2027 4.00 % Total 7,760 8,198 WASI Debt Promissory Note - Seller's Note 958 1,279 1/1/2026 6.00 % Total 958 1,279 Total Debt 101,231 125,914 Unamortized Premiums and Debt Issuance Costs ( 445 ) ( 829 ) Total Debt, net $ 100,786 $ 125,085 At December 31, 2023, our contractual financing obligations, including payments due by period, are as follows (in thousands): Due by Amount December 31, 2024 $ 17,367 December 31, 2025 26,335 December 31, 2026 3,075 December 31, 2027 7,219 December 31, 2028 1,755 Thereafter 45,480 101,231 Unamortized Premiums and Debt Issuance Costs ( 445 ) $ 100,786 On October 17, 2023, the Company and Air T Funding (the “Trust”) entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (the “sales agent” or “Ascendiant”), pursuant to which the Trust may sell and issue its TruPs having an aggregate offering price of up to $ 6.5 million from time to time through Ascendiant, as the Trust’s sales agent (the “ATM Offering”). During the three months ended December 31, 2023, the Trust issued 15,000 TruPs and received $ 0.3 million in gross proceeds from the sale of TruPs through a S-3 Registration Statement filed by the Company. The TruPs shares were offered and sold pursuant to the Company’s and the Trust’s shelf registration statement on Form S-3 (File Nos. 333-254110-01 and 333-254110) and a prospectus supplement relating to the ATM Offering filed with the Securities and Exchange Commission on October 18, 2023. During the three months ended December 31, 2023, the Trust also issued 413,000 TruPs and received $ 7.0 million in gross proceeds from the sale of TruPs under various private placement offerings in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated under the Securities Act. The TruPs were issued solely to “accredited investors” as defined in Rule 501(a) of Regulation D. The proceeds from the sale of the TruPs were used to purchase junior subordinated debentures which funds are available to the Company for general corporate purposes. The amount outstanding on the Company's Debt - Trust Preferred Securities was $ 32.7 million as of December 31, 2023. 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 December 31, 2023 and March 31, 2023 (in thousands): December 31, 2023 March 31, 2023 United States $ 20,845 $ 21,433 Foreign 51 89 Total tangible long-lived assets, net $ 20,896 $ 21,522 The net book value of tangible long-lived assets located within each individual foreign country at December 31, 2023 and March 31, 2023 is listed below (in thousands): December 31, 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 nine months ended December 31, 2023 and December 31, 2022 (in thousands): December 31, 2023 December 31, 2022 United States $ 182,334 $ 143,433 Foreign 31,820 29,513 Total revenue $ 214,154 $ 172,946 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 December 31, Nine Months Ended December 31, 2023 2022 2023 2022 Operating Revenues by Segment: Overnight Air Cargo Domestic $ 28,818 $ 21,831 $ 84,054 $ 64,464 International 200 — 890 — Total Overnight Air Cargo 29,018 21,831 84,944 64,464 Ground Equipment Sales: Domestic 8,178 16,009 28,709 34,830 International 263 138 3,765 5,151 Total Ground Equipment Sales 8,441 16,147 32,474 39,981 Commercial Jet Engines and Parts: Domestic 15,967 13,704 66,698 42,047 International 8,172 8,032 23,765 21,530 Total Commercial Jet Engines and Parts 24,139 21,736 90,463 63,577 Corporate and Other: Domestic 935 565 2,873 2,092 International 1,223 1,117 3,400 2,832 Total Corporate and Other 2,158 1,682 6,273 4,924 Total 63,756 61,396 214,154 172,946 Operating Income (Loss): Overnight Air Cargo 1,594 1,009 5,568 2,931 Ground Equipment Sales ( 522 ) 1,093 ( 619 ) 3,122 Commercial Jet Engines and Parts ( 627 ) 733 2,002 3,603 Corporate and Other ( 2,053 ) ( 2,700 ) ( 7,140 ) ( 8,509 ) Total ( 1,608 ) 135 ( 189 ) 1,147 Capital Expenditures: Overnight Air Cargo 60 37 263 228 Ground Equipment Sales 24 16 82 32 Commercial Jet Engines and Parts 24 132 166 484 Corporate and Other 12 60 167 293 Total 120 245 678 1,037 Depreciation and Amortization: Overnight Air Cargo 95 22 269 64 Ground Equipment Sales 37 35 107 130 Commercial Jet Engines and Parts 185 721 565 1,717 Corporate and Other 382 319 1,147 1,073 Total $ 699 $ 1,097 $ 2,088 $ 2,984 The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA for the nine months ended December 31, 2023 and 2022 (in thousands): Nine Months Ended December 31, 2023 Total Operating loss $ ( 189 ) Depreciation and amortization (excluding leased engines depreciation) 2,088 Asset impairment, restructuring or impairment charges 326 Gain on sale of property and equipment ( 7 ) TruPs issuance expenses 277 Adjusted EBITDA $ 2,495 Nine Months Ended December 31, 2022 Total Operating income $ 1,147 Depreciation and amortization (excluding leased engines depreciation) 1,810 Asset impairment, restructuring or impairment charges 2,174 Gain on sale of property and equipment ( 2 ) TruPs issuance expenses 38 Adjusted EBITDA $ 5,167 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 $ 7.6 million as of December 31, 2023. The change in the redemption value compared to March 31, 2023 is a decrease of $ 0.4 million, which was driven by the decrease in fair value of $ 0.5 million and distributions to non-controlling interest of $ 0.2 million, partially offset by net income attributable to non-controlling interest of $ 0.3 million. 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 focuses 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 December 31, 2023, for its Investment Function, the Company has contributed $ 1.0 million to CAM’s Onshore Series and $ 7.0 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 December 31, 2023, the Company's net investment basis in CAM is $ 4.9 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 $ 5.5 million as of December 31, 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 ( 326 ) Net income attributable to non-controlling interests 326 Redemption value adjustments 782 Ending Balance as of December 31, 2023 $ 5,520 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 December 31, 2023, options to purchase up to 261,000 shares are outstanding under the Plan. Vesting of options is based on the grantee meeting specified service conditions. Furthermore, the number of vested options that a grantee is able to exercise, if any, is based on the Company’s stock price as of the vesting dates specified in the respective option grant agreements. For the three and nine months ended December 31, 2023, total compensation cost recognized under the Plan was $ 79.0 thousand and $ 0.2 million, respectively. No options were exercisable as of December 31, 2023 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 $ 12.4 million and $ 13.6 million as of December 31, 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 $ 4.5 million and $ 4.0 million at December 31, 2023 and March 31, 2023, respectively. The carrying value of recorded liabilities related to nonfinancial guarantees was $ 0 at both December 31, 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