What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-06-26 compared with 2023-06-27 · 272 added, 398 removed, 942 unchanged (42% of the section changed)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Air T, Inc.

To the stockholders and the Board of Directors of Air T, Inc.

Opinion on the Financial Statements

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments.

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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▪ The valuation methodologies used by the Company to determine whether they were consistent with generally accepted valuation practices, and reasonably weighted.

◦ The discount rates, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rates selected by management.

▪ The discount rate, including testing the underlying source information and the mathematical accuracy of the calculations, and developing a range of independent estimates and comparing those to the discount rate selected by management.

▪ Earnings multiples, including testing the underlying source information and mathematical accuracy of the calculations, and evaluating the appropriateness of the Company’s selection of companies in its industry comparable groups.

• We performed sensitivity analyses with regard to forecasted revenue and the discount rate to evaluate the changes in the fair value of the redeemable non-controlling interest in Contrail Aviation Support, LLC, that would result from changes in those significant assumptions.

• We evaluated whether the business and valuation assumptions used were consistent with evidence obtained in other areas of the audit.

• We evaluated whether the business and valuation assumptions used were consistent with evidence obtained in other areas of the audit, including a redemption agreement entered into by Contrail Aviation Support, LLC subsequent to year-end.

/s/ Deloitte & Touche LLP

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Commercial jet engines and parts 98,027 75,288

Corporate and Other 2,912 2,540

General and administrative 51,096 42,844

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285,570 251,730

Operating (Loss) Income ( 4,407 ) 8,755

Operating Income (Loss) 1,264 ( 4,407 )

Non-operating (Expense) Income:

Interest expense, net ( 6,916 ) ( 7,935 )

Gain on forgiveness of PPP — 8,331

Income from equity method investments 1,689 1,460

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( 5,219 ) ( 6,946 )

(Loss) Income before income taxes ( 11,353 ) 13,396

Loss before income taxes ( 3,955 ) ( 11,353 )

Income Tax Expense 729 432

Net (Loss) Income ( 11,785 ) 12,227

Net Loss ( 4,684 ) ( 11,785 )

Net Income Attributable to Non-controlling Interests ( 2,135 ) ( 510 )

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

Net Loss Attributable to Air T, Inc.

Stockholders $ ( 6,819 ) $ ( 12,295 )

(Loss) Income per share (Note 23)

Loss per share (Note 21)

Basic $ ( 2.42 ) $ ( 4.32 )

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(In thousands) 2024 2023

Net (Loss) Income $ ( 11,785 ) $ 12,227

Other Comprehensive Income:

Foreign currency translation income (loss) 4 ( 549 )

Net Loss $ ( 4,684 ) $ ( 11,785 )

Other Comprehensive (Loss) Income:

Foreign currency translation (loss) income ( 93 ) 4

Unrealized gain on interest rate swaps, net of tax of $ 0 and $ 332

Reclassification of interest rate swaps into earnings ( 823 ) 77

Total Other Comprehensive Income 1,079 421

Total Comprehensive (Loss) Income ( 10,706 ) 12,648

Total Other Comprehensive (Loss) Income ( 896 ) 1,079

Total Comprehensive Loss ( 5,580 ) ( 10,706 )

Comprehensive Income Attributable to Non-controlling Interests ( 2,135 ) ( 510 )

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

Comprehensive Loss Attributable to Air T, Inc.

Stockholders $ ( 7,715 ) $ ( 11,216 )

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Cash and cash equivalents $ 7,100 $ 5,806

Marketable securities — 859

Restricted cash 743 1,284

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22,911 27,218

Income tax receivable 536 3,230

Inventories, net 60,720 71,125

Employee retention credit receivable — 940

Prepaid expenses 2,351 2,501

Due from CAM for expense reimbursements 3,093 2,261

Other current assets 4,567 3,261

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Retained earnings 8,192 13,686

Accumulated other comprehensive income (loss) 816 ( 263 )

Accumulated other comprehensive (loss) income ( 80 ) 816

Total Air T, Inc.

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CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income $ ( 11,785 ) $ 12,227

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Net loss $ ( 4,684 ) $ ( 11,785 )

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

Depreciation and amortization 2,798 4,162

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

Income from equity method of investments ( 1,689 ) ( 1,460 )

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Total adjustments 18,264 17,383

Net cash provided by (used in) operating activities 16,909 ( 33,084 )

Net cash provided by operating activities 17,178 16,909

CASH FLOWS FROM INVESTING ACTIVITIES:

Sale of marketable securities — 815

Acquisition of businesses, net of cash acquired — ( 2,498 )

Investment in unconsolidated entities ( 4,633 ) ( 3,064 )

Acquisition of assets — ( 13,408 )

Distribution from unconsolidated entities 3,192 683

Capital expenditures related to property & equipment ( 1,076 ) ( 1,178 )

Capital expenditures related to assets on lease or held for lease — ( 28 )

Other 18 ( 111 )

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Other ( 1,492 ) ( 1,528 )

Net cash (used in) provided by financing activities ( 12,380 ) 59,254

Net cash used in financing activities ( 13,910 ) ( 12,380 )

Effect of foreign currency exchange rates on cash and cash equivalents ( 16 ) 361

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 1,278 ) ( 7,559 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 753 ( 1,278 )

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

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

Net income* — — — — — 10,928 — 115 11,043

Net loss* — — — — — ( 12,295 ) — ( 26 ) ( 12,321 )

Repurchase of common stock — — 52 ( 1,081 ) — — — — ( 1,081 )

Exercise of stock options 4 1 — — 20 — — — 21

Stock compensation expense — — — — 315 — — — 315

Foreign currency translation loss — — — — — — ( 549 ) — ( 549 )

Foreign currency translation income — — — — — — 4 — 4

Adjustment to fair value of redeemable non-controlling interest — — — — — ( 1,748 ) — — ( 1,748 )

Unrealized gain of interest rate swaps, net of tax — — — — — — 998 — 998

Put option issued to co-investor in CAM (Note 24) — — — — — ( 1,000 ) — — ( 1,000 )

Reversal of Put option issued to co-investor in CAM (Note 22) — — — — — 1,000 — — 1,000

Reclassification of interest rate swaps into earnings — — — — — — 77 — 77

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Adjustment to fair value of redeemable non-controlling interest — — — — — 1,325 — — 1,325

Unrealized gain on interest rate swaps, net of tax — — — — — — 998 — 998

Reversal of Put option issued to co-investor in CAM (Note 24) — — — — — 1,000 — — 1,000

Unrealized gain on interest rate swaps — — — — — — 20 — 20

Reclassification of interest rate swaps into earnings — — — — — — ( 823 ) — ( 823 )

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(the “Company,” “Air T,” “we” or “us” or “our”) is a holding company with a portfolio of operating businesses and financial assets.

Our goal is to prudently and strategically diversify Air T’s earnings power and compound the growth of free cash flow per share over time.

Our goal is to prudently and strategically diversify Air T’s earnings power, compounding its free-cash-flow per share over time.

We currently operate in four industry segments:

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• Corporate and other, which acts as the capital allocator and resource for other consolidated businesses.

Further, Corporate and other is also comprised of insignificant businesses that do not pertain to other reportable segments.

Further, Corporate and other also comprises insignificant businesses and business interests.

Each business segment has separate management teams and infrastructures that offer different products and services.

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Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries as well as its non-wholly owned subsidiaries, Contrail, Shanwick and Delphax.

All intercompany transactions and balances have been eliminated in consolidation.

All material intercompany transactions and balances have been eliminated in consolidation.

Certain reclassifications have been made to the prior period amounts to conform to the current presentation.

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

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

Many of our businesses may continue to generate reduced operating cash flows and could operate at a loss from time to time beyond fiscal 2023.

We expect that issues caused by the pandemic and other economic and business issue will continue to some extent.

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 March 31, 2023, however;

uncertainty over the ultimate direct and indirect impact COVID-19 will have on the global economy generally, and the Company’s business in particular, makes any estimates and assumptions as of March 31, 2023 inherently less certain than they would be absent the current and potential impacts of COVID-19.

The fluidity of this situation precludes any prediction as to the ultimate adverse impact of 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 March 31, 2024.

Segments - The Company has four reportable operating segments:

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The recoverability is measured by comparing the carrying amount of the investment to the estimated future undiscounted cash flows of the investment, which take into account current, and expectations for future, market conditions and the Company’s intent with respect to holding or disposing of the investment.

Changes in economic and operating conditions, including those occurring as a result of the impact of the COVID-19 pandemic, that occur subsequent to a current impairment analysis and the Company’s ultimate use of the investment could impact the assumptions and result in future impairment losses to the investments.

Changes in economic and operating conditions that occur subsequent to a current impairment analysis and the Company’s ultimate use of the investment could impact the assumptions and result in future impairment losses to the investments.

If the Company’s analysis indicates that the carrying value is not recoverable on an undiscounted cash flow basis, the Company will recognize an impairment loss for the amount by which the carrying value exceeds the fair value.

The fair value is determined through quoted prices in active markets or various valuation techniques, including internally developed discounted cash flow models or comparable market transactions.

The fair value is determined through quoted prices in active

markets or various valuation techniques, including internally developed discounted cash flow models or comparable market transactions.

Goodwill - The Company evaluates goodwill on an annual basis or anytime events or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value.

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Goodwill, net of impairment $ 10,540 $ 10,563

As of March 31, 2023, $ 4.2 million of the goodwill balance is attributable to the acquisition of Contrail and included within the Commercial Jet Engines and Parts segment.

$ 6.3 million of the goodwill balance is attributable to the acquisition of Shanwick in February 2022, and included within the Corporate and Other segment.

$ 0.1 million of the goodwill balance is attributable to the acquisition of WASI in January 2023, and included within the Overnight Air Cargo segment.

We performed our annual impairment assessment for goodwill of our reporting units at March 31, 2023.

In the fiscal year 2023, COVID-19 continued to have some impact on the macroeconomic conditions and the outlook of the airline industry.

Due to this, the Company performed a quantitative analysis using a combination of the income approach, utilizing a discounted cash flow analysis, and the market approach, utilizing the guideline public company method.

Our discounted cash flow analysis requires significant management judgment with respect to forecasts of revenue, operating margins, capital expenditures, and the selection and use of an appropriate discount rate.

The forecasts and assumptions are based on our annual and long-term business plans.

The market approach requires management to make significant assumptions related to market multiples of revenue and earnings derived from comparable publicly-traded companies with similar operating characteristics as our reporting units.

Based on the results of our annual quantitative assessment conducted as of March 31, 2023, the fair value of our reporting units exceeded their carrying values, and management concluded that no impairment charge was warranted.

As of March 31, 2024, $ 4.2 million of the goodwill balance is attributable to the acquisition of Contrail in July 2016.

$ 6.2 million of the goodwill balance is attributable to the acquisition of Shanwick in February 2022.

$ 0.1 million of the goodwill balance is attributable to the acquisition of WASI in January 2023.

The decrease from the prior fiscal year's balance of $ 10.6 million to the current fiscal year's balance of $ 10.5 million is attributable to foreign currency translation adjustments related to the goodwill balance at Shanwick.

Based on the results of our annual assessment of qualitative factors conducted as of March 31, 2024, management determined that it was more likely than not that the fair value of our reporting units exceeded its carrying value, including goodwill.

Intangible Assets – Amortizable intangible assets consist of acquired patents, tradenames, customer relationships, and other finite-lived identifiable intangibles.

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In total, 5.3 million Warrants were exercised and the remaining 3.1 million Warrants expired on August 30, 2021.

On May 14, 2021, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (the “sales agent” or “Ascendiant”), pursuant to which it may sell and issue its TruPs having an aggregate offering price of up to $ 8.0 million from time to time.

On April 24, 2024, the Company entered into an At the Market Offering Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (the “sales agent” or “Ascendiant”), pursuant to which it may sell and issue its TruPs having an aggregate offering price of up to $ 8.0 million from time to time.

The Company has no obligation to sell any TruPs, and may at any time suspend offers under the ATM Agreement or terminate the ATM Agreement.

These TruPs are mandatorily redeemable preferred security obligations of the Company.

In accordance with ASC 480, the Company presented mandatorily redeemable preferred securities that do not contain a conversion option as a liability on the balance sheet.

In accordance with ASC 480, the Company presented mandatorily redeemable preferred securities that do not contain a conversion option as a liability on the

balance sheet.

Further, as the redemption date and the redemption amount are both fixed, in accordance with ASC 825, we measured these TruPs at the present value of the amount to be paid at settlement, discounted by using the implicit rate at inception.

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Per the agreement, the price is to be agreed upon by the parties or, failing such agreement, to be determined pursuant to third-party appraisals in a process specified in the agreement.

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 % non-controlling interest owners of Shanwick, providing for the governance of and the terms of membership interests in Shanwick.

The shareholder agreement includes put and call options (“Shanwick Put/Call Option”) with regard to the 30 % 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 % interest at the call option price ("Call Option") 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 ("Put Option") to require Air T 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.

Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer.

As a result of this feature, the Company recorded the non-controlling interests as redeemable and classified them in temporary equity within its Consolidated Balance Sheets initially at their acquisition-date estimated redemption value or fair value.

Per the Operating Agreement, the Contrail's non-controlling interest is redeemable at fair value, which is determined using a combination of the income approach, utilizing a discounted cash flow analysis, and the market approach, utilizing the guideline public company method.

Per the Operating Agreement, Contrail's non-controlling interest is redeemable at fair value, which is determined using a combination of the income approach, utilizing a discounted cash flow analysis, and the market approach, utilizing the guideline public company method.

Contrail's discounted cash flow analysis requires significant management judgment with respect to forecasts of revenue, operating margins, capital expenditures, and the selection and use of an appropriate discount rate.

forecasts and assumptions are based on our annual and long-term business plans.

The forecasts and assumptions are based on our annual and long-term business plans.

Contrail’s market approach requires management to make significant assumptions related to market multiples of earnings derived from comparable publicly-traded companies with similar operating characteristics as Contrail.

The Contrail's non-controlling interest is adjusted each reporting period for income (or loss) attributable to the non-controlling interest as well as any applicable distributions made.

Contrail's non-controlling interest is adjusted each reporting period for income (or loss) attributable to the non-controlling interest as well as any applicable distributions made.

A measurement period adjustment, if any, is then made to adjust the non-controlling interest to the higher of the redemption value (fair value) or carrying value each reporting period.

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When calculating earnings per share attributable to the Company, the Company adjusts net income attributable to the Company for the measurement period adjustment to the extent the redemption value exceeds the fair value of the non-controlling interest on a cumulative basis.

As of March 31, 2023, the fair value of the Contrail's redeemable non-controlling interest is $ 8.0 million.

See Note 24 , Commitments and Contingencies.

The Shanwick's non-controlling interest is redeemable at established multiples of EBIT and, as such, is considered redeemable at other than fair value.

It is recorded on our consolidated balance sheets at estimated redemption value within redeemable non-controlling interests, and changes in its estimated redemption value are recorded on our consolidated statements of operations within non-controlling interests.

As of March 31, 2023, the estimated redemption value of Shanwick's redeemable non-controlling interest is $ 4.7 million.

As of March 31, 2024, the fair value of the Contrail's redeemable non-controlling interest was $ 7.4 million.

See Note 22 , Commitments and Contingencies.

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The Company, under the terms of its overnight air cargo dry-lease service contracts, passes through to its air cargo customer certain cost components of its operations without markup.

The cost of fuel, landing fees, outside maintenance, parts and certain other direct operating costs are included in operating expenses and billed to the customer, at cost, and included in overnight air cargo revenue on the accompanying statements of income (loss).

cargo revenue on the accompanying statements of income (loss).

These pass-through costs totaled $ 36.4 million and $ 29.2 million for the years ended March 31, 2024 and 2023, respectively.

Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848):

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Deferral of the Sunset Date of Topic 848.

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

The Company is currently in the process of converting our LIBOR-based contracts, hedging relationships, and other transactions to other reference rates.

We anticipate to be completed by September 30, 2023.

The amendments in this Update deferred 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 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.

Worldwide Aviation Services, Inc.

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("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 was funded with cash and the loans described in Note 14 of this report.

The acquisition was funded with cash and the loans described in Note 13 of this report.

WASI is included within the Overnight air cargo segment.

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As of March 31, 2023, the purchase price allocation is 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):

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

Income Statement

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

Wolfe Lake HQ, LLC

On December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the real estate located at 5000 36th Street West, St.

Louis Park, Minnesota pursuant to a real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company (an unaffiliated third-party) dated October 11, 2021.

The real estate purchased consists of a 2-story office building, asphalt-paved driveways and parking areas, and landscaping.

The building was constructed in 2004 with an estimated 54,742 total square feet of space.

The real estate purchased is where Air T's Minnesota executive office is currently located.

With this purchase, the Company assumed 11 leases from existing tenants occupying the building.

The total amount recorded for the real estate was $ 13.4 million, which included the purchase price of $ 13.2 million and total direct capitalized acquisition costs of $ 0.2 million.

The consideration paid for the real estate consisted of approximately $ 3.3 million in cash and a new secured loan from Bridgewater Bank ("Bridgewater") with an aggregate principal amount of $ 9.9 million and a fixed interest rate of 3.65 % which matures on December 2, 2031.

See Note 14 .

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

Building 8,439

Site Improvements 798

Tenant Improvements 269

In-place lease and other intangibles 1,108

GdW Beheer B.V.

On February 10, 2022, the Company acquired GdW, a Dutch holding company in the business of providing global aviation data and information.

The acquisition was completed through a wholly-owned subsidiary of the Company, Air T Acquisition 22.1, LLC ("Air T Acquisition 22.1"), a Minnesota limited liability company, through its Dutch subsidiary, Shanwick, and was funded with cash, investment by executive management of the underlying business, and the loans described in Note 14 .

As part of the transaction, the executive management of the underlying business purchased 30.0 % of Shanwick.

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

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

The increase is attributable to a measurement period adjustment of $ 0.3 million related to certain intangible assets acquired and related deferred tax liabilities assumed due to clarification of information utilized to determine fair value during the measurement period.

As of June 30, 2022, the measurement period was completed and all adjustments are reflected in the tables below.

Total consideration is summarized in the table below (in thousands):

February 10, 2022

Consideration paid $ 15,256

Cash acquired ( 2,452 )

Net assets acquired ( 6,520 )

Goodwill $ 6,284

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 February 10, 2022, with the excess of total consideration over 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 February 10, 2022 (in thousands):

February 10, 2022

Accounts Receivable $ 715

Other current assets 67

Property, plant and equipment, net 40

Intangible - Proprietary Database 2,576

Intangible - Customer Relationships 7,267

Total assets 10,665

Accounts payable 15

Accrued expenses and deferred revenue 1,670

Deferred income tax liabilities, net 2,460

Total liabilities 4,145

Net assets acquired $ 6,520

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

Income Statement

Post-Acquisition

Revenue $ 887

Cost of Sales 145

Operating Expenses 701

Operating Income 41

Non-operating income 19

Net income $ 60

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

MAJOR CUSTOMER

Approximately 36 % and 41 % of the Company’s consolidated revenues were derived from services performed for FedEx Corporation in fiscal 2023 and 2022, respectively.

Approximately 36 % of the Company’s consolidated revenues were derived from services performed for FedEx Corporation in fiscal 2024 and 2023.

Approximately 21 % and 16 % of the Company’s consolidated accounts receivable at March 31, 2024 and 2023, respectively, were due from FedEx Corporation.

Approximately 10 % and 9 % of the Company’s consolidated revenues were derived from services performed for American Airlines Corporation in fiscal 2024 and 2023, respectively.

Approximately 24 % and 26 % of the Company’s consolidated accounts receivable at March 31, 2024 and 2023, respectively, were due from American Airlines Corporation.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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Distribution to non-controlling member ( 245 )

Net loss attributable to non-controlling interests ( 954 )

Net income attributable to non-controlling interests 1,035

Fair value adjustment - Contrail (Note 22) ( 1,325 )

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an offer to purchase) and other factors such as current data from manufacturers as well as specific market sales.

An impairment charge is recorded when the carrying value of the asset exceeds its fair value.

An impairment charge is recorded in the fiscal quarter in which the carrying value of the asset exceeds its fair value.

The Company used Level 2 inputs to measure write-downs of engine assets on lease or held for lease.

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Total inventories, net of reserves $ 60,720 $ 71,125

A write-down of $ 7.3 million was recorded on the inventory of the commercial jet engines and parts segment during the fiscal year ended March 31, 2023, of which, $ 5.4 million was due to a management decision to monetize three engines by sale to a third party, in which the net carrying values exceeded the estimated proceeds.

The remainder of the write-down was attributable to our evaluation of the carrying value of inventory as of March 31, 2023, where we compared its cost to its net realizable value and considered factors such as physical condition, sales patterns and expected future demand to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory.

A write-down of $ 1.2 million was recorded on the inventory of the commercial jet engines and parts segment during the fiscal year ended March 31, 2024.

The write-down was attributable to our evaluation of the carrying value of inventory as of March 31, 2024, where we compared its cost to its net realizable value and considered factors such as physical condition, sales patterns and expected future demand to estimate the amount necessary to write down any slow moving, obsolete or damaged inventory.

LESSOR ARRANGEMENTS

Assets on lease

The Company leases equipment to third parties, primarily through Contrail which leases engines to aviation customers with lease terms between 1 and 3 years under operating lease agreements.

For the assets currently on lease, there are no options for the lessees to purchase the assets at the end of the leases.

The Company depreciates the engines on a straight-line basis over the assets' useful life from the acquisition date to a residual value.

Depreciation expense relating to engines on lease was $ 1.6 million and $ 0.3 million for the fiscal years ended March 31, 2023 and 2022, respectively.

Future minimum rental payments to be received do not include contingent rentals that may be received under certain leases because amounts are based on usage.

Contingent rent earned totaled approximately $ 0 and $ 0.1 million for the fiscal years ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, future minimum rental payments to be received under non-cancelable leases are as follows (in thousands):

Year ended March 31,

As of March 31, 2023, Contrail has received its return-to-condition compensation ("engine compensation") in the amount of $ 4.6 million on a previously leased engine that terminated in December 2022.

Office leases

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For the offices currently on lease, there are no options for the lessees to purchase the spaces at the end of the leases.

Our contractual obligations for offices currently on lease can include termination and renewal options.

We utilize the reasonably certain threshold criteria in determining which options our customers will exercise.

The Company depreciates the assets on a straight-line basis over the assets' useful life.

Depreciation expense relating to office leases was $ 0.3 million and $ 0.1 million for the fiscal years ended March 31, 2023 and 2022, respectively.

Depreciation expense relating to office leases was $ 0.3 million for the fiscal years ended March 31, 2024 and 2023, respectively.

We recognized rental and other revenues related to operating lease payments of $ 1.6 million and $ 1.4 million, respectively, of which variable lease payments were $ 0.7 million and $ 0.6 million during the fiscal years ended March 31, 2024 and 2023, respectively.

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Intangible assets, total $ 10,978 $ 12,103

In the fiscal year ended March 31, 2023, the Company impaired $ 0.3 million of previously capitalized costs related to a software project that was deemed no longer probable to be completed and placed in service.

The components of purchased intangible assets for WASI were as follows (in thousands):

March 31, 2023

Average Remaining Amortization Period Gross Carrying Amount Accumulated Amortization Net Amount

Customer relationships 8 years, 10 months $ 683 $ 13 670

Other 14 years, 4 months 361 4 357

10 years, 9 months $ 1,044 $ 17 $ 1,027

Based on the intangible assets recorded at March 31, 2024 and assuming no subsequent additions to or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:

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Thereafter 5,582

I NVESTMENTS IN SECURITIES AND DERIVATIVE INSTRUMENTS

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 Air T - Term Note D).

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As of March 31, 2024 and March 31, 2023, the fair value of the interest-rate swap contracts was an asset of $ 1.9 million and $ 2.4 million, respectively, which is included within other assets in the consolidated balance sheets.

During the years ended March 31, 2023 and 2022, the Company recorded a gain of approximately $ 1.0 million and $ 0.9 million, net of tax, respectively, in the consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.

During the years ended March 31, 2024 and 2023, the Company recorded a gain of approximately $ 20.0 thousand and $ 1.0 million, net of tax, respectively, in the consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.

We estimate that $ 0.8 million of net unrealized gains related to the interest rate swaps included in accumulated other comprehensive (loss) income will be reclassified into earnings within the next twelve months.

The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies.

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These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements.

During the fiscal year ended March 31, 2024, the Company recorded $ 0.2 million gain and $ 0.4 million loss related to these derivative instruments.

During the fiscal year ended March 31, 2023, the Company recorded no gain and $ 0.3 million loss related to these derivative instruments.

During the fiscal year ended March 31, 2022, the Company did no t record any gain or loss related to these derivative instruments.

The following table presents these derivative instruments at fair value in the condensed consolidated balance sheets as of March 31, 2023 and March 31, 2022 (in thousands):

(In thousands) March 31, 2023 March 31, 2022

Exchange-traded options & futures

Other current assets $ 179 $ —

Total assets 179 —

Exchange-traded options & futures

Accrued Expenses and other 2 —

Total liabilities $ 2 $ —

These gains and losses are included within Corporate and other's operating expenses in the consolidated statement of income (loss).

The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments-Equity Securities.

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During the fiscal year ended March 31, 2023, the Company had a gross unrealized gain aggregating to $ 0.5 million and a gross unrealized loss aggregating to $ 0.9 million.

These unrealized gains and losses are included in Other income (loss) on the consolidated statement of income (loss).

The market value of the Company’s equity securities and cash held by the broker are periodically used as collateral against any outstanding margin account borrowings.

As of March 31, 2023 and 2022, the Company had $ 0.1 million and $ 0 of outstanding borrowings under its margin account, respectively.

As of March 31, 2023 and 2022, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $ 0.2 million and $ 0 , respectively, which is reflected in other current assets on the consolidated balance sheets.

The interest rate on margin account borrowings was 6.33 % as of March 31, 2023.

These unrealized gains and losses are included within Other income (loss) in the consolidated statement of income (loss).

The calculation of net unrealized gains and losses recognized during the period related to equity securities still held at the end of the period is as follows (in thousands):

Year Ended March 31,

Net unrealized losses recognized during the period on equity securities $ ( 453 ) $ ( 389 )

Net gains recognized during the period on equity securities sold during the period 20 —

Net unrealized losses recognized during the reporting period on equity securities still held at the reporting date $ ( 473 ) $ ( 389 )

EQUITY METHOD INVESTMENTS

The Company’s investment in Insignia is accounted for under the equity method of accounting.

The Company’s investment in Lendway, formerly Insignia, is accounted for under the equity method of accounting.

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

As of March 31, 2023, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 27 % of the outstanding shares.

During the fiscal year ended March 31, 2021, due to loss attributions and impairments taken in prior fiscal years, the Company's net investment basis in Insignia was reduced to $ 0 .

On August 23, 2021, Insignia restated its 10-K for the fiscal year ended December 31, 2020 and its 10-Q for the quarter ended March 31, 2021.

The Company evaluated these restatements and determined that they would not result in any additional impact on the Company's condensed consolidated financial statements.

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

During the fiscal year ended March 31, 2023, the Company's share of Insignia's net income for twelve months ended December 31, 2022 was $ 3.1 million.

The Company applied $ 1.4 million to offset the cumulative value of unrecorded share of losses, resulting in net income recognition of $ 1.7 million.

As of March 31, 2023, the Company's net investment basis in Insignia is $ 1.7 million.

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 specialty agricultural finance.

As of March 31, 2024, the number of Lendway's shares owned by the Company was 0.5 million, representing approximately 28 % of the outstanding shares.

During the fiscal year ended March 31, 2024, the Company's share of Lendway's net income for the twelve months ended December 31, 2023 was $ 0.7 million.

As of March 31, 2024, the Company's net investment basis in Lendway is $ 2.3 million.

The Company's 20.1 % investment in CCI is accounted for under the equity method of accounting.

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The Company's net investment basis in CCI is $ 3.7 million as of March 31, 2024.

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

See Note 14 .

Summarized audited financial information for the Company's equity method investees for the twelve months ended December 31, 2023 and December 31, 2022 are as follows (in thousands):

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Gross Profit 18,329 20,668

Operating income (loss) 16,631 ( 9,627 )

Net income (loss) 14,256 ( 7,473 )

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

Operating income 6,643 16,631

Net income 7,849 14,256

Net income attributable to Air T, Inc.

stockholders $ 1,750 $ 2,473

EMPLOYEE RETENTION CREDIT

The ERC, as originally enacted on March 27, 2020 by the CARES Act, is a refundable tax credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021.

The Taxpayer Certainty and Disaster Tax Relief Act (the “Relief Act”), enacted on December 27, 2020, amended, and extended the ERC.

The Relief Act extended and enhanced the ERC for qualified wages paid after December 31, 2020 through June 30, 2021.

Under the Relief Act, eligible employers may claim a refundable tax credit against certain employment taxes equal to 70% of the qualified wages an eligible employer pays to employees after December 31, 2020 through June 30, 2021.

Under the American Rescue Plan Act of 2021 ("ARPA"), which was signed into law on March 11, 2021, the ERC was further extended through December 31, 2021.

The purpose of the ERC is to encourage employers to keep employees on the payroll, even if they are not working during the covered period because of the COVID-19 outbreak.

The Company qualified for federal government assistance through the ERC provisions for the period between January 1, 2021 and September 30, 2021.

As of March 31, 2022, we recognized the one-time refunds totaling $ 9.1 million which was included on the Consolidated Balance Sheets as an Employee Retention Credit receivable, as well as on the Consolidated Statements of Income (Loss) as an offset to the related employee expenses within general and administrative expenses in the fiscal year ended March 31, 2022.

During the fiscal year ended March 31, 2023, the Company received $ 8.2 million of the total refunds, leaving $ 0.9 million in the Employee Retention Credit receivable.

ACCRUED EXPENSES

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Other deposits 1,403 2,560

Deferred income

Other 3,521 1,713

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Total lease cost $ 4,288 $ 3,433

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of the fiscal years ended March 31, 2023 and 2022 were as follows (in thousands):

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of March 31, 2024 and 2023 were as follows (in thousands):

March 31, 2024 March 31, 2023

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Weighted-average remaining lease term

Operating leases 12 years, 10 months 13 years, 5 months

Operating leases 12 years, 1 month 12 years, 10 months

Weighted-average discount rate

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Borrowings of the Company and its subsidiaries are summarized below at March 31, 2024 and March 31, 2023, respectively.

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

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

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

The borrowing base calculation methodology remains unchanged.

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

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

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

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

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

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

The Overline Note and commitment matures on the earlier of March 31, 2023 or the date on which the Company receives all funds from the Company’s Employee Retention Credit ("ERC") application (estimated at approximately $ 9.1 million) plus the full receipt of the Company’s carryback tax refund for the year (estimated at approximately $ 2.6 million).

As of March 31, 2023, the Overline Note was paid in full and terminated.

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

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

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

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

The principal revisions made in the Amendment are:

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

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

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

On January 31, 2022 the Company funded the WASI acquisition through (i) a promissory note to Worldwide Aviation, LLC, (ii) cash, and (iii) an additional secured loan from MBT.

The promissory note to Worldwide Aviation, LLC in the amount of $ 1.5 million bears a fixed interest rate of 6.00 % and is payable via periodic payments up to the January 1, 2026 maturity date.

In connection with the acquisition, the Company and Jet Yard entered Amendment No.

2 to the Third Amended and Restated Credit Agreement (“Amendment No.

2”) with MBT.

Amendment No.

2 amends the Third Amended and Restated Credit Agreement dated as of August 31, 2021 as amended by that certain Amendment No.

1 to the Third Amended and Restated Credit Agreement dated June 9, 2022.

Amendment No.

2 provides for a new term loan (“Term Loan F”) in the amount of $ 1.0 million to help finance a portion of the consideration paid by the Company for WASI.

Pursuant to the amendment, the Company executed Term Note F in favor of MBT in the original principal amount of $ 1.0 million.

The note bears interest at a rate equal to the greater of six percent ( 6.00 %) or the prime rate plus one percent ( 1.00 %).

The note obligates the Company to make monthly payments of principal plus accrued interest commencing March 1, 2023.

The note may be prepaid, in whole or part, at any time without penalty and final payment of all amounts due under the note is due January 31, 2028.

On March 22, 2023, Contrail entered into the First Amendment to Second Amendment to Master Loan Agreement and Third Amendment to Master Loan Agreement ("the Amendment") with ONB.

The Amendment amends the Master Loan Agreement dated June 24, 2019 with principal revisions to:

(i) Section 3 of the Second Amendment was revised so that exclusion of certain gains and losses from the definition of “net income” applies through September 30, 2023, not March 31, 2023;

(ii) Section 5 of the Second Amendment relating to prepayment of Term Loan G was amended to eliminate the requirement that all asset sales during the period beginning with October 1, 2022 and ending on March 31, 2023 be applied as prepayments on Term Loan G;

instead, the Amendment provision now reflects the agreement that voluntary payments totaling $ 20.0 million would be made by the borrower on Term Loan G no later than September 30, 2023;

and, (iii) a revolving note resting period covenant was added to the Amendment whereby the outstanding principal balance on the revolving note would be paid to zero (0) for at least thirty (30) consecutive days during each annual period ending on the anniversary date of the revolving note, provided the borrower has not achieved a debt service coverage ratio of 1.10 :1.

As mentioned in Note 9 , during the quarter ended March 31, 2023, Contrail made a prepayment of $ 6.7 million on Term Loan G without penalty.

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 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 Credit Agreement with MBT and related promissory note.

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

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

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

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

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

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

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

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

On February 22, 2024 the Company, along with AAM 24-1, LLC, entered into a Note Purchase Agreement with Honeywell pursuant to which AAM 24-1 agreed to issue and sell 8.5 % senior secured notes in the aggregate principal amount of $ 15.0 million for an aggregate purchase price of $ 14.9 million.

The notes bear an annual interest rate of 8.5 % which is computed on the basis of a 30/360-day year and actual days elapsed and is payable semi-annually in arrears.

The maturity date of the notes is February 22, 2031.

A continuing first priority lien and security interest in and to all of the Company’s right, title and interest in all of the capital stock of AAM 24-1 was created in favor of Honeywell, as collateral for the repayment of the notes.

In addition, 160,000 newly-issued shares of TruPs held by AAM 24-1 are also separately pledged to Honeywell.

On March 28, 2024, Contrail entered into Supplement #10 to the Master Loan Agreement with Old National Bank dated June 24, 2019 and Term Loan I.

Term Loan I is a multiple advance term loan in the principal amount of $ 10.0 million and is secured by a first lien on three engines and other identified collateral recently purchased by Contrail.

The loan requires Contrail to disassemble the collateral and place it in Contrail's inventory.

The loan bears a monthly variable interest rate at the 30 Day Term SOFR + 3.11 %.

The loan requires 18 monthly payments of interest until the loan maturity date of September 20, 2025.

Principal reduction payments are due monthly in an amount equal to 100% of the amount of the gross sales proceeds collected that are derived from any of the engines or other specific collateral listed in the security agreement sold during the prior month.

In addition to the first lien noted above, the loan is also secured by the current $ 2.0 million limited guarantees of the Company and Joe Kuhn.

The loan may be prepaid without penalty and includes a quarterly rolling cash flow coverage ratio covenant, a tangible net worth covenant and monthly sales reporting.

The loan was fully drawn at closing and the funds were used to prepay the principal balance on Contrail’s existing Main Street Loan (Term Loan G) by $ 10.0 million.

The Revolver - MBT has no outstanding balance as of March 31, 2024 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's and its subsidiaries as of March 31, 2024 and 2023:

(In Thousands) March 31, 2023 March 31, 2022 Maturity Date Interest Rate Unused commitments

Revolver - MBT $ 8,742 $ 10,969 8/31/2023 2 Greater of 2.50 % or Prime - 1.00 %

Overline Note - MBT — — 3/31/2023 3 Greater of 2.50 % or Prime + 0.50 %

(In Thousands) March 31, 2024 March 31, 2023 Maturity Date Interest Rate Unused commitments as of March 31, 2024

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

Term Note A - MBT 6,955 7,762 8/31/2031 3.42 %

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Term Note F - MBT 783 983 1/31/2028 Greater of 6.00 % or Prime + 1.00 %

Promissory Note - CCI — — 12/30/2022 10.00 %

Debt - Trust Preferred Securities 34,214 25,598 6/7/2049 8.00 %

Total 45,679 47,963

Term Loan - Park State Bank ("PSB") 6,393 6,393 12/11/2025 3-month LIBOR + 3.00% 4

Term Loan - Park State Bank ("PSB") 5,434 6,393 12/11/2025 3-month SOFR + 3.26 %

Total 5,434 6,393

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Contrail Debt

Revolver - ONB 12,441 3,843 9/5/2023 1-month LIBOR + 3.45% 5

Term Loan G - ONB 38,180 44,918 11/24/2025 1-month LIBOR + 3.00% 6

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

Revolver - ONB 3,476 12,441 11/24/2025 1-month SOFR + 3.56 %

Term Loan G - ONB 14,918 38,180 11/24/2025 1-month SOFR + 3.11 %

Term Note I - ONB 10,000 — 9/28/2025 1-month SOFR + 3.11 %

Total 28,394 50,621

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Total 849 1,279

AAM 24-1 Debt

Promissory Notes - Honeywell 15,000 — 2/22/2031 8.50 %

Total 15,000 —

Total Debt 113,459 125,914

Unamortized Debt Issuance Costs ( 829 ) ( 1,124 )

Unamortized Premiums and Debt Issuance Costs ( 533 ) ( 829 )

Total Debt, net $ 112,926 $ 125,085

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The weighted average interest rate on short term borrowings outstanding as of March 31, 2023 was 7.77 %.

The Air T revolving credit facility and the Contrail revolving credit facility contain affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates.

The Company's Credit Agreement with MBT and the Contrail revolving credit facility contain affirmative and negative covenants, including covenants that restrict the ability of the Company and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates.

On June 24, 2024, we obtained a waiver letter from MBT that waives two outstanding events of default.

This Letter provides a one-time waiver for defaults resulting from our inability to meet the debt service coverage ratio as of March 31, 2024 and our failure to submit unaudited financial statements within 45 days following the quarter ending on that date.

Based on the Letter, we are no longer in default of the Company's Credit Agreement with MBT.

The Promissory Notes - Honeywell also contain affirmative and negative covenants, including covenants on the utilization of loan proceeds, TruPs dividends, distributions from AAM 24-1's investments and other reporting requirements.

The obligations of Contrail under the Contrail Credit Agreement with ONB are secured by a first-priority security interest in substantially all of the assets of Contrail.

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Thereafter 61,590

Unamortized Debt Issuance Costs ( 829 )

Unamortized Premiums and Debt Issuance Costs ( 533 )

The Company assumes various financial obligations and commitments in the normal course of its operations and financing activities.

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Total $ 6,916 $ 7,935

2 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, among other changes.

See Note 26 .

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

As of March 31, 2023, the Overline Note was paid in full and terminated.

4 On May 26, 2023, AirCo 1 executed an Amendment to Main Street Priority Loan Agreement with 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 %.

See Note 26 .

5 Effective May 26, 2023, Contrail amended the Promissory Note Revolving Note with ONB to replace the LIBOR based interest rate with a one-month SOFR based rate.

The applicable interest rate is now the one-month SOFR-based rate, as defined in the loan agreement, plus 3.56 %.

See Note 26 .

6 Effective May 26, 2023, Contrail amended the Promissory Note Term Note G with ONB to replace the one-month LIBOR based interest rate with a one-month SOFR-based rate.

See Note 26 .

RELATED PARTY MATTERS

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Kohler, a director of the Company, entered into an employment agreement with Blue Clay Capital Management, a wholly-owned subsidiary of the Company in the Corporate and other segment, to serve as its Chief Investment Officer in return for an annual salary of $ 51.5 thousand plus variable compensation based on the management and incentive fees to be paid to the subsidiary by certain of these investment funds and eligibility to participate in discretionary annual bonuses.

Nick Swenson, CEO of the Company, is also the majority shareholder of CCI.

Nick Swenson, CEO of the Company, along with his affiliates (other than the Company), successors and assignees, are the majority shareholders of CCI.

As of March 31, 2024, Mr.

Swenson owned 69.9 % of ownership interests in CCI.

Swenson and his affiliates (other than the Company), successors and assignees owned 70.1 % of ownership interests in CCI.

Under the VIE model, Mr.

Swenson is the primary beneficiary of CCI due to the high extent of his ownership relative to other shareholders of CCI, and the lack of shared power between Mr.

Swenson and his affiliates (other than the Company), successors and assignees are the primary beneficiaries of CCI due to the high extent of his ownership relative to other shareholders of CCI, and the lack of shared power between Mr.

Swenson and the Company ("the related party group") to direct the activities of CCI that most significantly impact CCI’s economic performance.

Air T Acquisition 22.1's term loan with Bridgewater is secured by a first lien on all of the assets of the Subsidiary, a pledge of $ 5.0 million, 8.0 % TruPs, and a personal guaranty of the Company’s Chairman, President and Chief Executive Officer Nicholas Swenson.

In November 2021, Air T engaged Thomas Funds Americas, LLC ("TFA") to perform certain investment consultation services for the Company.

Manit Rye, an employee of Air T, is the managing member of TFA.

As of March 31, 2023, the Company has paid approximately $ 0.1 million to TFA to compensate for services rendered.

Air T Acquisition 22.1's term loan with Bridgewater is secured by a first lien on all of the assets of the subsidiary, a pledge of $ 5.0 million, 8.0 % TruPs, and a personal guaranty of the Company’s Chairman, President and Chief Executive Officer Nick Swenson.

Air T engages Fox Lake Capital, LLC ("FLC") to perform certain consulting and brokerage services for the Company.

Dan Philp, an employee of Air T, is the CEO of FLC.

During the fiscal year ended March 31, 2024, the Company has paid approximately $ 0.5 million to FLC to compensate for services rendered.

EMPLOYEE AND NON-EMPLOYEE STOCK OPTIONS

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At March 31, 2024, there was no unrecognized compensation expense related to the Air T's 2012 stock options.

In Fiscal 2023, 3,750 options were exercised under the Air T's 2012 Stock Option Plan at $ 5.75 per share, which was disclosed within our condensed consolidated statement of equity.

7,500 unexpired options remain outstanding under this plan as of March 31, 2023.

Option activity during the fiscal years ended March 31, 2022 and 2023 is summarized below (in thousands, except for shares):

In Fiscal 2024, 3,750 options were exercised under the Air T's 2012 Stock Option Plan at $ 7.04 per share, which was disclosed within our consolidated statement of equity.

No unexpired options remain outstanding under this plan as of March 31, 2024 and the Plan terminated in 2022.

Options activity during the fiscal years ended March 31, 2023 and 2024 is summarized below (in thousands, except for shares):

Shares Weighted

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Forfeited ( 3,750 ) 7.04

Repurchased — —

Outstanding at March 31, 2024 — — 0.00 —

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Through March 31, 2024, options to purchase up to 326,000 shares have been granted 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.

As of the first vesting date on June 30, 2022, 32,600 shares did not meet the stock price condition and therefore, could not be exercised.

As of March 31, 2023, the remaining number of options that grantees are able to exercise is 293,400 .

The Company uses the Black-Scholes option pricing model to value stock options granted under the Air T's 2020 Omnibus Stock and Incentive Plan.

We determined that the fair value of the Plan at inception was $ 1.3 million.

The options vest annually over a period of ten years based on a specified service condition ("vested awards") and expire ten years after vesting.

However, the ability to exercise vested awards, occurring at the conclusion of each annual vesting period, is contingent upon the Company's stock price meeting predetermined milestones outlined in the options agreements (the "market condition").

If the market condition is not fulfilled at the annual vesting period on June 30 of every year, the vested awards may not be exercisable at any subsequent point.

On the preceding two vesting dates, June 30, 2023 and June 30, 2022, a total of 65,200 shares satisfied the service condition;

however, they did not meet the market condition to become exercisable.

Therefore, as of March 31, 2024, the remaining number of unvested options is 260,800 shares.

The Company used the Black-Scholes option pricing model to value stock options granted under the Air T's 2020 Omnibus Stock and Incentive Plan and determined the grant date's fair value was $ 1.3 million.

The key assumptions used in the Plan's Black-Scholes option pricing model are as follows:

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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):

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Product Sales

Air Cargo $ 29,493 $ 23,011

Overnight air cargo $ 39,302 $ 29,493

Ground equipment sales 36,127 47,100

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Support Services

Air Cargo 60,857 51,344

Overnight air cargo 76,107 60,857

Ground equipment sales 533 587

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Leasing Revenue

Air Cargo — —

Overnight air cargo — —

Ground equipment sales 49 154

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Corporate and other 1,624 1,582

Air Cargo 193 54

Overnight air cargo 137 193

Ground equipment sales 459 644

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All employees of the Company are immediately eligible to participate in the Plans.

The Company’s contribution to the Plans for the years ended March 31, 2023 and 2022 was approximately $ 0.7 million and $ 0.6 million, respectively, and was recorded in the consolidated statements of income (loss).

The Company’s contribution to the Plans for the fiscal years ended March 31, 2024 and 2023 was approximately $ 0.9 million and $ 0.7 million, respectively, and was recorded in the consolidated statements of income (loss).

The Company, in each of the past three years, has paid a discretionary profit sharing bonus in which all employees have participated.

Profit sharing expense in fiscal 2024 and 2023 was approximately $ 2.2 million and $ 2.4 million, respectively, and was recorded in general and administrative expenses in the consolidated statements of income (loss).

I NCOME TAXES

Income tax expense (benefit) attributable to (loss) income from continuing operations consists of (in thousands):

Loss from continuing operations before income taxes as shown in the Consolidated Statements of Income (Loss) consists of the following:

Year Ended March 31,

$ ( 3,468 ) $ ( 10,566 )

( 487 ) ( 787 )

$ ( 3,955 ) $ ( 11,353 )

Income tax expense (benefit) attributable to pretax loss from continuing operations consists of (in thousands):

Year Ended March 31,

Federal $ 23 $ 46

State ( 226 ) 150

Foreign 902 845

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Total $ 729 $ 432

Income tax expense attributable to income (loss) from continuing operations differed from the amounts computed by applying the U.S.

Federal income tax rate of 21.0 % to pretax income (loss) from continuing operations as follows (in thousands):

Income tax expense attributable to pretax loss from continuing operations differed from the amounts computed by applying the U.S.

Federal income tax rate of 21.0 % to pretax loss from continuing operations as follows (in thousands):

Year Ended March 31,

Expected Federal income tax expense (benefit) U.S.

Expected Federal income tax benefit U.S.

statutory rate $ ( 831 ) 21.0 % $ ( 2,384 ) 21.0 %

Foreign rate differential 399 - 10.1 % ( 25 ) 0.2 %

State income taxes, net of federal benefit ( 125 ) 3.2 % ( 558 ) 4.9 %

Permanent Items 28 - 0.2 % ( 165 ) - 1.2 %

Micro-captive insurance benefit ( 306 ) 7.7 % ( 274 ) 2.4 %

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Income attributable to minority interest - Contrail ( 217 ) 5.5 % 190 - 1.7 %

Write-off Delphax Tech SAS — 0.0 % 2,225 16.6 %

PPP Loan Forgiveness — 0.0 % ( 1,650 ) - 12.3 %

Other differences, net ( 100 ) 2.5 % 334 - 2.9 %

Income tax expense (benefit) $ 432 - 3.8 % $ 1,169 8.7 %

Income tax expense $ 729 - 18.5 % $ 432 - 3.8 %

The Company did not record any liabilities for uncertain tax positions for the fiscal years ended March 31, 2024 and March 31, 2023.

The Company (exclusive of Delphax which has a full valuation allowance) has federal gross operating losses of $ 1.7 million and state gross operating losses of $ 9.4 million at March 31, 2023.

The Tax Cuts and Jobs Act (the "Tax Act") provides for a territorial tax system, that includes the global intangible low-taxed income (“GILTI”) provision beginning in 2018.

The GILTI provisions require us to include in our U.S.

income tax return certain current year foreign subsidiary earnings net of foreign tax credits, subject to limitation.

We elected to account for the GILTI tax in the period in which it is incurred.

There was no GILTI inclusion for the fiscal years ended March 31, 2024 and March 31, 2023.

The Company (exclusive of Delphax which has a full valuation allowance) has federal gross operating losses of $ 8.4 million and state gross operating losses of $ 13.7 million, and foreign gross operating losses of $ 8.2 million at March 31, 2024.

These net operating losses will begin to expire in tax year 2031.

The Company has foreign tax credits of $ 0.7 million that will begin to expire in tax year 2029.

DSI and Delphax (collectively known as the “Delphax entities”) are not included in Air T’s consolidated tax return.

During the year ended March 31, 2023, DSI and Delphax accounted for $ 0.3 million and $ 0.0 million , respectively, of fiscal year 2023's valuation allowance effect.

During the year ended March 31, 2022, each entity, respectively, accounted for $ 0.2 million and $( 2.2 ) million of the fiscal year 2022's valuation allowance effect.

Deferred tax assets and liabilities were comprised of the following (in thousands):

Year Ended March 31,

Net operating loss & attribute carryforwards $ 9,414 $ 5,968

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Foreign tax credit 650 391

Accounts and notes receivable 182 235

Interest rate swaps 77 138

Investment in partnerships — 1,723

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Total deferred tax assets 16,314 14,468

Bargain purchase gain ( 191 ) ( 447 )

Property and equipment ( 1,735 ) ( 1,804 )

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Net deferred tax liabilities $ ( 2,447 ) $ ( 2,417 )

Delphax entities

Effective on November 24, 2015, Air T, Inc.

purchased interests in Delphax.

With an equity investment level by the Company of approximately 67 %, Delphax is required to continue filing a separate United States corporate tax return.

Furthermore, Delphax historically had foreign subsidiaries located in France, Canada and the United Kingdom;

all of which file(d) tax returns in those jurisdictions.

With few exceptions, Delphax, is no longer subject to examinations by income tax authorities for tax years before 2016.

Delphax maintains a September 30 fiscal year end and DSI maintains a March 31 fiscal year end.

The returns for the fiscal years ended September 30, 2022 and March 31, 2023 have not yet been filed.

The gross deferred tax balances related to the Delphax entities includes estimated foreign, U.S.

federal and U.S.

state loss carryforwards of $ 5.4 million, $ 8.4 million and $ 2.2 million, respectively.

The net operating losses expire in varying amounts beginning in the tax year 2027.

The provisions of ASC 740 require an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets will be recovered.

In accounting for the Delphax entities' tax attributes, the Company has established a full valuation allowance of $ 3.4 million at March 31, 2023, and $ 3.1 million at March 31, 2022.

The cumulative tax losses incurred by the Delphax entities in recent years was the primary basis for the Company’s determination that a full valuation allowance should be established against the Delphax entities’ net deferred tax assets.

The Company continues to assert that it will permanently reinvest any foreign earnings of DSI in a foreign country and will not repatriate those earnings back to the U.S.

As a result of its permanent reinvestment assertion, the Company has not recorded deferred taxes related to DSI under the indefinite exception.

The Company is not asserting indefinite reinvestment with regards to foreign earnings in the Netherlands.

The Company has not recorded deferred taxes associated with these undistributed earnings as the impact of any future distribution will not have a material tax impact.

The Company continues to assert that it will permanently reinvest all other foreign earnings, including basis differences of all the Company's foreign subsidiaries.

As a result of its permanent reinvestment assertion, the Company has not recorded deferred taxes related to its foreign subsidiaries under the indefinite exception.

The Company has not determined the deferred tax liability associated with these undistributed earnings and basis differences, as such determination is not practicable.

Valuation Allowance

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The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth.

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(in thousands, except per share data)

Quarter Second

Quarter Third

Quarter Fourth

Operating Revenues $ 50,862 $ 60,688 $ 61,396 $ 74,377

Operating (Loss) Income, net of tax ( 802 ) ( 1,336 ) 108 ( 9,755 )

(Income) Loss attributable to non-controlling interests ( 631 ) 104 ( 698 ) 715

Loss attributable to Air T, Inc.

Stockholders ( 1,433 ) ( 1,232 ) ( 590 ) ( 9,040 )

Basic Loss per share $ ( 0.50 ) $ ( 0.43 ) $ ( 0.21 ) $ ( 3.15 )

Diluted Loss per share $ ( 0.50 ) $ ( 0.43 ) $ ( 0.21 ) $ ( 3.15 )

Antidilutive shares excluded from computation of income (loss) per share 7 4 5 5

Operating Revenues 36,968 43,238 45,433 51,438

Operating Income (Loss), net of tax 327 8,003 ( 1,189 ) 5,086

Income attributable to non-controlling interests ( 38 ) ( 448 ) ( 73 ) ( 740 )

Income (Loss) attributable to Air T, Inc.

Stockholders 289 7,555 ( 1,262 ) 4,346

Basic Income (Loss) per share $ 0.10 $ 2.62 $ ( 0.44 ) $ 1.51

Diluted Income (Loss) per share $ 0.10 $ 2.60 $ ( 0.44 ) $ 1.51

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

The Organization for Economic Co-operation and Development ("OECD") has introduced a framework to implement a global minimum tax.

Several jurisdictions in which the Company operates have enacted laws effective January 1, 2024, consistent with the OECD's framework.

While details around the global minimum tax in each jurisdiction are uncertain, the Company does not anticipate being subject to the global minimum tax in the upcoming fiscal year.

Effective on November 24, 2015, Air T, Inc.

purchased interests in Delphax.

With an equity investment level by the Company of approximately 67 %, Delphax is required to continue filing a separate United States corporate tax return.

Delphax maintains a September 30 fiscal year end, and the returns for the fiscal years ended September 30, 2023 have not been filed.

The gross deferred tax balances related to Delphax includes federal and state loss carryforwards of $ 8.5 million and $ 1.7 million, respectively.

The net operating losses expire in varying amounts beginning in the tax year 2027.

The provisions of ASC 740 require an assessment of both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets will be recovered.

In accounting for Delphax's tax attributes, the Company has established a full valuation allowance of $ 1.8 million at March 31, 2024, and $ 1.9 million at March 31, 2023.

The cumulative tax losses incurred by Delphax in recent years was the primary basis for the Company’s determination that a full valuation allowance should be established against Delphax’s net deferred tax assets.

GEOGRAPHICAL INFORMATION

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Total tangible long-lived assets, net $ 21,113 $ 21,522

The Company’s tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent primarily engines on lease or held for lease at March 31, 2023.

The Company’s tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent primarily assets on lease at March 31, 2024.

The net book value located within each individual country at March 31, 2024 is listed below (in thousands):

Country March 31, 2024 March 31, 2023

Macau $ — $ 1,351

Thailand $ 252 $ —

Total tangible long-lived assets, net $ 306 $ 89

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Total 286,834 247,323

Operating (Loss) Income:

Operating Income (Loss):

Overnight Air Cargo 6,765 4,047

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Total $ 2,798 $ 4,162

The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA by reportable segment for the fiscal year ended March 31, 2023 and 2022 (in thousands):

Fiscal year 2023

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

Operating income (loss) from continuing operations $ 4,047 $ 3,141 $ ( 957 ) $ ( 10,638 ) $ ( 4,407 )

Depreciation and amortization (excluding leased engines depreciation) 115 164 745 1,501 2,525

Asset impairment, restructuring or impairment charges 342 — 7,319 7 179 7,840

Loss (Gain) on sale of property and equipment 1 9 ( 2 ) — 8

Securities expenses — — — 63 63

Adjusted EBITDA $ 4,505 $ 3,314 $ 7,105 $ ( 8,895 ) $ 6,029

Fiscal year 2022

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

The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA for the fiscal years ended March 31, 2024 and 2023 (in thousands):

Fiscal year 2024 Fiscal year 2023

Operating income (loss) from continuing operations

1,264 ( 4,407 )

Depreciation and amortization (excluding leased engines depreciation) 2,798 2,525

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Loss on sale of property and equipment 18 8

Securities expenses — — — 252 252

TruPs issuance expenses 347 63

Adjusted EBITDA $ 5,622 $ 6,029

7 Included in the asset impairment, restructuring or impairment charges for the fiscal year ended March 31, 2023 was a write-down of $ 7.3 million on the commercial jet engines and parts segment's inventory, of which, $ 5.4 million was due to a management decision to monetize three engines by sale to a third party, in which the net carrying values exceeded the estimated proceeds.

EARNINGS PER COMMON SHARE

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Year Ended March 31,

Net (loss) income from operations $ ( 11,785 ) $ 12,227

Net income from operations attributable to non-controlling interests ( 510 ) ( 1,299 )

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

Net Loss $ ( 4,684 ) $ ( 11,785 )

Net income attributable to non-controlling interests ( 2,135 ) ( 510 )

Net loss attributable to Air T, Inc.

Stockholders ( 6,819 ) ( 12,295 )

(Loss) income from operations per share:

Loss per share:

Basic $ ( 2.42 ) $ ( 4.32 )

Diluted $ ( 2.42 ) $ ( 4.32 )

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

Antidilutive shares excluded from computation of loss per share — 5

Weighted Average Shares Outstanding:

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The Contrail RNCI is a Level 3 fair value measurement that is valued at $ 7.4 million as of March 31, 2024.

The change in the redemption value compared to March 31, 2022 is an increase of $ 0.8 million.

The increase was driven by $ 1.8 million of the net change in fair value, offset by $ 1.0 million of net loss attributable to the non-controlling interest.

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

If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date.

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

The change in the redemption value compared to March 31, 2023 is a decrease of $ 0.5 million.

The decrease was driven by $ 1.3 million of the net change in fair value and $ 0.2 million of distributions, offset by $ 1.0 million of net income attributable to the non-controlling interest.

After March 31, 2024 and before the financial statements were issued, Contrail redeemed 16 % of the 21 % of the Seller's interest for consideration consisting of a promissory note and an earnout.

Immediately following the redemption transaction, the Put/Call Option in the Operating Agreement was amended so that the remaining 5 % interest in Contrail will be redeemable based on an amount other than fair value.

Refer to Note 2 5 , Subsequent Events, for additional details on the transaction.

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 CJVII, LLC (“CJVII”).

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

The 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").

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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 %.

The investor interests of CAM relate to the Company’s and MRC's 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.

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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.

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

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

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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.

The Company has presented this redeemable non-controlling interest in Shanwick between the liabilities and equity sections of the accompanying condensed consolidated balance sheets.

The Company has presented this redeemable non-controlling interest in Shanwick between the liabilities and equity sections of the accompanying 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.

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Ending Balance as of March 31, 2024 $ 5,540

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 guarantees 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 was $ 13.6 million as of March 31, 2023.

In February 2024, the Company was released of its obligations from these financial guarantees.

As a result, the maximum potential payments for financial guarantees was $ 0 as of March 31, 2024.

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.

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 may vary over time given changing circumstances related to the underlying asset.

The maximum potential payments for nonfinancial guarantees were $ 10.1 million and $ 4.0 million at March 31, 2024 and March 31, 2023, respectively.

The carrying value of recorded liabilities related to nonfinancial guarantees was $ 0 at both March 31, 2024 and March 31, 2023.

SHARES REPURCHASE

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

The IRA enacted a 15% corporate minimum tax rate (subject to certain thresholds being met) that will be applicable to the Company beginning in its Fiscal 2024, a 1% excise tax on share repurchases made after December 31, 2022, and created and extended certain tax-related energy incentives.

The IRA enacted a 15% corporate minimum tax rate (subject to certain thresholds being met) that was applicable to the Company beginning Fiscal 2024, a 1% excise tax on share repurchases made after December 31, 2022 (subject to certain thresholds being met), and created and extended certain tax-related energy incentives.

The Company does not currently expect that the tax-related provisions of the IRA will have a material impact on its consolidated financial statements.

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

The excise tax incurred in connection with the Company's stock repurchases during the fourth quarter of Fiscal 2023 was not material.

The excise tax incurred in connection with the Company's stock repurchases during Fiscal 2024 was no t material.

SUBSEQUENT EVENTS

Amendment of ONB loans

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 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 %.

Amendment of PSB Loan Agreement

On May 26, 2023, AirCo 1 executed an Amendment to Main Street Priority Loan Facility Term Loan Agreement with 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.

Amendment of MBT Revolving Credit Agreement

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