What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-02-12 · 220 added, 326 removed, 453 unchanged (55% of the section changed)

3 unchanged sentences

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

December 31, Nine Months Ended

2023 2022 2023 2022

Operating Revenues:

8 unchanged sentences

Commercial jet engines and parts 18,533 23,279

Corporate and other 841 892

General and administrative 14,612 11,862

Depreciation and amortization 760 690

Inventory write-down 321 638 326 1,658

Asset impairment — — — 516

66,988 70,773

Operating (Loss) Income ( 577 ) 658

Non-operating (Expense) Income:

Non-operating Income (Expense):

Interest expense ( 1,946 ) ( 1,808 )

1 unchanged sentence

Other 703 643

( 348 ) ( 183 ) ( 2,704 ) ( 3,712 )

Loss before income taxes ( 1,956 ) ( 48 ) ( 2,893 ) ( 2,565 )

Income Taxes Expense (Benefit) 153 ( 156 ) 851 ( 536 )

Net (Loss) Income ( 2,109 ) 108 ( 3,744 ) ( 2,029 )

Income before income taxes 103 184

Income Tax Expense 71 211

Net Income (Loss) 32 ( 27 )

Net Income Attributable to Non-controlling Interests ( 367 ) ( 504 )

11 unchanged sentences

Three Months Ended

December 31, Nine Months Ended

(In Thousands) 2024 2023

Net (Loss) Income $ ( 2,109 ) $ 108 $ ( 3,744 ) $ ( 2,029 )

Foreign currency translation gain (loss) 216 775 ( 19 ) ( 360 )

Unrealized (loss) gain on interest rate swaps ( 38 ) ( 61 ) 2 1,371

Net Income (Loss) $ 32 $ ( 27 )

Foreign currency translation loss ( 50 ) ( 65 )

Redemption of non-controlling interest 146 —

Unrealized gain on interest rate swaps 1 24

Reclassification of interest rate swaps into earnings ( 203 ) ( 192 )

Total Other Comprehensive (Loss) Income ( 10 ) 732 ( 585 ) 1,063

Total Comprehensive (Loss) Income ( 2,119 ) 840 ( 4,329 ) ( 966 )

Total Other Comprehensive Loss ( 106 ) ( 233 )

Total Comprehensive Loss ( 74 ) ( 260 )

Comprehensive Income Attributable to Non-controlling Interests ( 367 ) ( 504 )

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

Comprehensive Loss Attributable to Air T, Inc.

Stockholders $ ( 441 ) $ ( 764 )

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CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts) December 31, 2023 March 31, 2023

(In thousands, except per share data) June 30, 2024 March 31, 2024

Current Assets:

Cash and cash equivalents $ 7,815 $ 7,100

Marketable securities 326 —

Restricted cash 890 743

2 unchanged sentences

22,833 22,911

Income tax receivable 354 536

Inventories, net 57,758 60,720

Employee retention credit receivable — 940

Other current assets 9,971 7,487

Prepaid expenses 2,353 2,351

Due from Contrail Asset Management, LLC (“CAM”) for expense reimbursements 3,164 3,093

Other current assets (includes $ 341 and $ 531 measured at fair value)

Total Current Assets 100,670 102,877

Assets on lease or held for lease, net of accumulated depreciation of $ 70 and $ 8

Property and equipment, net of accumulated depreciation of $ 8,071 and $ 7,705

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Goodwill 10,503 10,540

Other assets 3,556 4,004

Other assets (includes $ 1,670 and $ 1,909 measured at fair value)

Total Assets 175,486 177,167

5 unchanged sentences

Current portion of long-term debt 15,902 14,358

Current portion of long-term debt - related party (Note 11) 226 —

Short-term lease liability 2,027 1,761

1 unchanged sentence

Long-term debt 96,127 98,568

Long-term debt - related party (Note 11) 4,344 —

Deferred income tax liabilities, net 2,447 2,447

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Total Liabilities 162,914 158,371

Redeemable non-controlling interests 13,086 12,710

Redeemable non-controlling interest 7,404 12,976

Commitments and contingencies (Note 15)

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Retained earnings 7,935 8,192

Accumulated other comprehensive income 231 816

Accumulated other comprehensive loss ( 186 ) ( 80 )

Total Air T, Inc.

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands) Nine Months Ended

(In Thousands) Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Loss $ ( 3,744 ) $ ( 2,029 )

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

Net income (loss) $ 32 $ ( 27 )

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

Depreciation and amortization 760 690

Inventory write-down 326 1,658

Asset impairment — 516

Income from equity method of investments ( 1,923 ) ( 691 )

Inventory write-down 378 —

Other 264 479

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Other 177 ( 1,292 )

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

Net cash provided by operating activities 113 3,484

CASH FLOWS FROM INVESTING ACTIVITIES:

Investment in unconsolidated entities — ( 417 )

Distribution from unconsolidated entities 2,324 854

Capital expenditures related to property & equipment ( 339 ) ( 404 )

Capital expenditures related to assets on lease or held for lease — ( 29 )

Other 23 ( 54 )

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Payments on lines of credit ( 29,092 ) ( 36,820 )

Proceeds from term loan — 8,177

Payments on term loan ( 2,519 ) ( 1,261 )

Proceeds from issuance of Trust Preferred Securities ("TruPs") 7,285 —

Other ( 300 ) ( 181 )

Net cash (used in) provided by financing activities ( 25,151 ) 4,866

Net cash used in financing activities ( 1,291 ) ( 4,076 )

Effect of foreign currency exchange rates on cash and cash equivalents 32 ( 56 )

NET DECREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH ( 1,903 ) ( 1,858 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 862 ( 669 )

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 7,843 7,090

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD 8,705 6,421

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

Equipment in inventory transferred to assets on lease 112 —

Contingent earnout for Contrail Aviation Support, LLC ("Contrail") redeemed interest 1,104 —

Related-party note payable for Contrail redeemed interest $ 4,570 $ —

See notes to condensed consolidated financial statements.

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Net loss* — — — — — ( 335 ) — ( 5 ) ( 340 )

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

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

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

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

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

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

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

Repurchase of common stock — — 13 ( 301 ) — — — — ( 301 )

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

Stock option forfeiture (Note 15) — — — — ( 25 ) — — — ( 25 )

Stock compensation expense — — — — 42 — — — 42

Foreign currency translation loss — — — — — — ( 50 ) — ( 50 )

Adjustment to fair value of redeemable non-controlling interest — — — — — ( 188 ) — — ( 188 )

Unrealized gain on interest rate swaps, net of tax — — — — — — 957 — 957

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

Balance, September 30, 2022 3,026 757 175 ( 3,353 ) 571 24,802 68 1,094 23,939

Net loss* — — — — — ( 590 ) — ( 7 ) ( 597 )

Repurchase of common stock — — 29 ( 642 ) — — — — ( 642 )

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

Foreign currency translation gain — — — — — — 775 — 775

Adjustment to fair value of redeemable non-controlling interest — — — — — ( 1,059 ) — — ( 1,059 )

Unrealized loss on interest rate swaps, net of tax — — — — — — ( 61 ) — ( 61 )

Redemption of non-controlling interest — — — — 78 146 — 224

Unrealized gain on interest rate swaps — — — — — — 1 — 1

Reclassification of interest rate swaps into earnings — — — — — — ( 203 ) — ( 203 )

Balance, December 31, 2022 3,026 $ 757 204 $ ( 3,995 ) $ 650 $ 23,153 $ 800 $ 1,087 $ 22,452

Balance, June 30, 2024 3,030 $ 758 270 $ ( 5,260 ) $ 876 $ 7,935 $ ( 186 ) $ 1,045 $ 5,168

(In Thousands) Common Stock Treasury Stock Additional

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Foreign currency translation loss — — — — — — ( 65 ) — ( 65 )

Adjustment to fair value of redeemable non-controlling interest — — — — — 134 — — 134

Adjustment to fair value of redeemable non-controlling interests — — — — — 134 — — 134

Unrealized gain on interest rate swaps, net of tax — — — — — — 24 — 24

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

Net loss* — — — — — ( 1,609 ) — ( 19 ) ( 1,628 )

Exercise of stock options 3 1 — — 25 — — — 26

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

Foreign currency translation loss — — — — — — ( 170 ) — ( 170 )

Adjustment to fair value of redeemable non-controlling interest — — — — — 412 — — 412

Unrealized gain on interest rate swaps, net of tax — — — — — — 16 — 16

Reclassification of interest rate swaps into earnings — — — — — — ( 188 ) — ( 188 )

Balance, September 30, 2023 3,030 758 209 ( 4,098 ) 911 12,092 241 1,050 10,954

Net (loss) income* — — — — — ( 2,979 ) — 9 ( 2,970 )

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

Foreign currency translation gain — — — — — — 216 — 216

Adjustment to fair value of redeemable non-controlling interest — — — — — ( 99 ) — — ( 99 )

Unrealized loss on interest rate swaps, net of tax — — — — — — ( 38 ) — ( 38 )

Reclassification of interest rate swaps into earnings — — — — — — ( 188 ) — ( 188 )

Balance, December 31, 2023 3,030 $ 758 209 $ ( 4,098 ) $ 990 $ 9,014 $ 231 $ 1,059 $ 7,954

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

* Excludes amount attributable to redeemable non-controlling interests in Contrail and Shanwick B.V.

See notes to condensed consolidated financial statements.

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These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2024.

The results of operations for the period ended December 31, 2023 are not necessarily indicative of the operating results for the full year.

The results of operations for the period ended June 30, 2024 are not necessarily indicative of the operating results for the full year.

The accompanying financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

The Company’s financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

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

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

As described in Note 12 , the Company successfully raised $ 7.3 million of additional funds via sales of our trust preferred securities through the Company's at-the-market offering that commenced on October 18, 2023 and through various private placements.

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

The Company believes they have sufficient cash on hand and available liquidity, to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued.

Recently Adopted Accounting Pronouncements

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

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.

In December 2022, the FASB issued ASU 2022-06- Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848.

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

The Company completed the process of converting its material LIBOR-based contracts, hedging relationships, and other transactions to other reference rates as of September 30, 2023.

Recently Issued Accounting Pronouncements

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The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.

Worldwide Aviation Services, Inc.

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

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

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

WASI is included within the Overnight air cargo segment.

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

January 31, 2023

Cash consideration $ 1,628

Seller's Note 1,370

Total consideration $ 2,998

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

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

January 31, 2023

Accounts receivable $ 1,037

Inventory 517

Other current assets 97

Property, plant and equipment, net 403

Intangible -Trade Name 342

Intangible - Non-competition Agreement 19

Intangible - Customer Relationships 683

Other assets 20

Total assets $ 3,118

Accounts payable 61

Accrued expenses and deferred revenue 635

Total liabilities $ 696

Net assets acquired $ 2,422

Consideration paid 2,998

Cash acquired ( 500 )

Net assets acquired ( 2,422 )

Goodwill $ 76

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

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

Income Statement

Post-Acquisition

Revenue $ 929

Cost of Sales 676

Operating Expenses 425

Operating Loss ( 172 )

Non-operating expense ( 22 )

Net loss $ ( 194 )

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

Revenue Recognition

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

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

2023 2022 2023 2022

Three Months Ended June 30,

Product Sales

Air Cargo $ 10,050 $ 6,416 $ 28,428 $ 20,303

Overnight air cargo $ 9,699 $ 9,171

Ground equipment sales 7,128 11,575

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Support Services

Air Cargo 18,929 15,399 56,378 43,979

Overnight air cargo 20,658 18,550

Ground equipment sales 166 93

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Leasing Revenue

Overnight air cargo — —

Ground equipment sales 15 25

1 unchanged sentence

Corporate and other 464 387

Air Cargo 39 16 138 182

Overnight air cargo 26 7

Ground equipment sales 45 94

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

The following table presents outstanding contract liabilities as of April 1, 2023 and December 31, 2023 and the amount of contract liabilities as of April 1, 2023 that were recognized as revenue during the nine-month period ended December 31, 2023 (in thousands):

The following table presents outstanding contract liabilities as of April 1, 2024 and June 30, 2024 and the amount of contract liabilities as of April 1, 2024 that were recognized as revenue during the three months ended June 30, 2024 (in thousands):

Outstanding contract liabilities Outstanding contract liabilities as of April 1, 2024

Recognized as Revenue

As of December 31, 2023 $ 3,389

As of June 30, 2024 $ 4,143

As of April 1, 2024 $ 4,359

For the nine months ended December 31, 2023 $ 4,433

For the three months ended June 30, 2024 $ ( 1,981 )

Accrued Expenses and Other

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

(in thousands) June 30, 2024 March 31, 2024

Salaries, wages and related items $ 5,767 $ 5,296

1 unchanged sentence

Other deposits 1,082 1,403

Deferred Income 3,061 2,956

Other 3,357 3,521

Total $ 14,527 $ 15,511

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

During the three-month period ended June 30, 2024, the Company recorded $ 71.0 thousand in income tax expense at an effective tax rate ("ETR") of 68.9 %.

The Company has computed the provision for income taxes based on the estimated annual effective tax rate excluding loss jurisdictions with no tax benefit and the application of discrete items, if any, for interim reporting.

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2024 were the valuation allowance related to the Company's U.S.

consolidated group, Delphax Technologies, Inc.

(“DTI”) and Landing Gear Support Services PTE LTD (“LGSS”), Delphax Solutions, Inc.

(“DTI”), Landing Gear Support Services PTE LTD (“LGSS”), Delphax Solutions, Inc.

(“DSI”) and BCCM Advisors (Kenya) Limited (“BCCM Kenya”), and the foreign rate differentials for Air T’s operations located in the Netherlands and Puerto Rico.

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

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

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2022 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, DSI and DTI, and other capital losses, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), the foreign rate differentials between the federal and foreign tax rates for Air T's ownership of foreign operations in Puerto Rico, the Netherlands, and Singapore, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

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

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the nine-month period ended December 31, 2023, were the valuation allowance related to the Company’s U.S.

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

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

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

The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the nine-month period ended December 31, 2022 were the change in valuation allowance related to DSI and DTI and other capital losses, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the foreign rate differentials between the federal and foreign tax rates for Air T's ownership of foreign operations in Puerto Rico, the Netherlands, and Singapore, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

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

The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended June 30, 2023 were the change in valuation allowance related to the Company’s U.S.

consolidated group, DTI, LGSS, DSI, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, and the foreign rate differentials for Air T’s operations located in the Netherlands, Puerto Rico, and Singapore.

Net Earnings (Loss) Per Share

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For purposes of calculating diluted earnings (loss) per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive.

During the three months ended September 30, 2023, 3,750 options were exercised under the Air T's 2012 Stock Option Plan at $ 7.04 per share, which was disclosed within our condensed consolidated statement of equity.

As of September 30, 2023, all stock options under the Air T's 2012 Stock Option Plan have either been exercised or expired.

Further, no options under the Air T's 2020 Omnibus Stock and Incentive Plan were exercisable as of December 31, 2023.

The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures):

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

2023 2022 2023 2022

Net (loss) income $ ( 2,109 ) $ 108 $ ( 3,744 ) $ ( 2,029 )

Three Months Ended June 30,

Net income (loss) $ 32 $ ( 27 )

Net income attributable to non-controlling interests ( 367 ) ( 504 )

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Diluted $ ( 0.12 ) $ ( 0.19 )

Antidilutive shares excluded from computation of loss per share

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

Weighted Average Shares Outstanding:

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Intangible Assets and Goodwill

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

December 31, 2023

Intangible assets as of June 30, 2024 and March 31, 2024 consisted of the following (in thousands):

June 30, 2024

Gross Carrying Amount Accumulated Amortization Net Book Value

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Intangible assets, total $ 16,097 $ ( 5,119 ) $ 10,978

Based on the intangible assets recorded at December 31, 2023 and assuming no subsequent additions to, or impairment of the underlying assets, the remaining estimated annual amortization expense is expected to be as follows:

Based on the intangible assets recorded at June 30, 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:

(In thousands)

Year ending March 31, Amortization

2024 (excluding the nine months ended December 31, 2023) $ 310

2025 (excluding the three months ended June 30, 2024) $ 879

Thereafter 4,590

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

There was no impairment on goodwill during the nine months ended December 31, 2023.

The carrying amount of goodwill as of June 30, 2024 and March 31, 2024 was $ 10.5 million.

There was no impairment of goodwill during the three months ended June 30, 2024.

Investments in Securities and Derivative Instruments

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

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

During the three and nine months ended December 31, 2023, the Company recorded a loss of approximately $ 38.0 thousand and a gain of $ 2.0 thousand, net of tax, respectively.

During the three and nine months ended December 31, 2022, the Company recorded a loss of approximately $ 0.1 million and a gain of $ 1.4 million, net of tax, respectively, with prior year's gain inclusive of Contrail - Term Note G due to its effective hedge designation at the time.

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

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

The changes in the fair value of the instruments during the three months ended June 30, 2024 and 2023 were not material.

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

As of December 31, 2023 and March 31, 2023, the fair value of these interest-rate swap contracts was an asset of $ 1.8 million and $ 2.4 million, respectively, which is included within other assets in the condensed consolidated balance sheets.

As of June 30, 2024 and March 31, 2024, the fair value of these interest-rate swap contracts was an asset of $ 1.7 million and $ 1.9 million, respectively, which is included within other assets in the condensed consolidated balance sheets.

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

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

1 unchanged sentence

The fair market value of marketable equity securities is determined based on quoted market prices in active markets and are therefore, considered Level 1 fair value measurements.

During the three months ended December 31, 2023, the Company had a gross unrealized gain aggregating to $ 0.5 million and no gross unrealized loss.

During the nine months ended December 31, 2023, the Company had a gross unrealized gain aggregating to $ 1.4 million and a gross unrealized loss aggregating to $ 1.8 million.

During the three months ended December 31, 2022, the Company had a gross unrealized gain aggregating to $ 0.3 million and a gross unrealized loss aggregating to $ 0.5 million.

During the nine months ended December 31, 2022, the Company had a gross unrealized gain aggregating to $ 0.3 million and a gross unrealized loss aggregating to $ 0.8 million.

During the three months ended June 30, 2024, the Company had a gross unrealized gain in the fair value of marketable equity securities aggregating to $ 0.2 million and a gross unrealized loss aggregating to $ 0.3 million.

During the three months ended June 30, 2023, the Company had a gross unrealized gain in the fair value of marketable securities aggregating to $ 0.5 million and a gross unrealized loss aggregating to $ 0.7 million.

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

As of June 30, 2024 and March 31, 2024, the fair value of these marketable equity securities was an asset of $ 1.6 million and $ 1.9 million, respectively, which is included within restricted investments and other current assets in the condensed consolidated balance sheets.

Equity Method Investments

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On August 2, 2023, Insignia reincorporated in the state of Delaware as Lendway, Inc.

Subsequent to reincorporation, Lendway sold its legacy business on August 4, 2023 to pivot the business towards non-bank lending.

As of December 31, 2023, the Company owned 0.5 million Lendway shares, representing approximately 27.8 % of Lendway's outstanding shares.

During the three and nine months ended December 31, 2023, the Company's share of Lendway's net income for the three and nine months ended September 30, 2023 was $ 0.3 million and $ 0.8 million, respectively, principally driven by the gain recognized on the aforementioned sale of Lendway's legacy business on August 4, 2023.

The Company's net investment basis in Lendway is $ 2.4 million as of December 31, 2023.

Subsequent to reincorporation, Lendway sold its legacy business on August 4, 2023 and pivoted the business towards specialty agricultural finance.

On February 26, 2024, Lendway acquired Bloomia B.V.

("Bloomia"), marking its first investment in specialty agriculture and underscoring its strategy of targeting high-quality agricultural assets and enterprises.

As of June 30, 2024, the Company owned 0.5 million Lendway shares, representing approximately 27.9 % of Lendway's outstanding shares.

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

("CCI") is accounted for under the equity method of accounting.

Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment at cost, with a basis difference of $ 0.3 million.

The Company recorded income of $ 0.2 million and $ 1.5 million as its share of CCI's net income for the three and nine months ended December 31, 2023, along with a basis difference adjustment of $ 12.0 thousand and $ 37.0 thousand, respectively.

The Company's net investment basis in CCI is $ 4.2 million as of December 31, 2023.

Summarized unaudited financial information for the Company's equity method investees for the three and nine months ended September 30, 2023 and 2022 is as follows (in thousands):

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

Due to the differing fiscal year-ends, the Company has elected a three-month lag to record the CCI investment, with a basis difference decrease of $ 0.3 million.

The Company recorded a basis difference adjustment of $ 12.0 thousand for the three months ended June 30, 2024.

CCI and Lendway's combined summarized unaudited financial information for the three months ended March 31, 2024 and 2023 is as follows (in thousands):

March 31, 2024 March 31, 2023

Revenue $ 45,757 $ 51,157

Gross Profit 6,006 7,803

Operating (loss) income ( 124 ) 13,382 9,100 17,172

Operating income 1,206 5,261

Net income $ 1,102 $ 5,116

Net income attributable to Air T, Inc.

stockholders $ 499 $ 2,183 $ 2,295 $ 2,926

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

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

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

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

CAM was formed to serve two separate and distinct functions:

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

CAM has two classes of equity interests:

1) common interests and 2) investor interests.

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

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

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

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

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

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

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

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

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

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

The Company accounts for its investment in CAM using the hypothetical liquidation at book value ("HLBV") method without a reporting lag.

The HLBV method uses a balance sheet approach to capture changes in the Company's claim on CAM's net assets from a period-end hypothetical liquidation at book value.

This approach provides a more accurate reflection of the Company's investment in CAM, compared to recording its proportionate share of income or loss.

CAM's summarized unaudited financial information, including both common interests and investor interests, for the three months ended June 30, 2024 and 2023 is as follows (in thousands):

June 30, 2024 June 30, 2023

HLBV net assets $ 27,051 $ 25,434

Contributions — 457

Distributions $ 1,613 $ 428

Investment balances for the Company's equity method investees as of June 30, 2024 and March 31, 2024 is as follows (in thousands):

June 30, 2024 March 31, 2024

$ 2,049 $ 2,339

CCI 4,397 3,723

CAM 7,279 7,397

Other 2,305 3,194

Total $ 16,030 $ 16,653

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

stockholders for the Company's equity method investees, including basis difference adjustments, during the three months ended June 30, 2024 and 2023 is as follows (in thousands):

June 30, 2024 June 30, 2023

$ ( 290 ) $ 446

CAM 1,495 ( 495 )

Total $ 1,923 $ 691

Inventories consisted of the following (in thousands):

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Commercial jet engines and parts:

Whole engines available for sale or tear-down — 10,141

Parts 44,890 49,522

3 unchanged sentences

The Company has operating leases for the use of real estate, machinery, and office equipment.

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

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

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

6 unchanged sentences

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

The components of lease cost for the three and nine months ended December 31, 2023 and 2022 are as follows (in thousands):

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

2023 2022 2023 2022

The components of lease cost for the three months ended June 30, 2024 and 2023 are as follows (in thousands):

Three Months Ended June 30,

Operating lease cost $ 668 $ 683

2 unchanged sentences

Total lease cost $ 1,188 $ 953

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

December 31, 2023 March 31, 2023

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of June 30, 2024 and March 31, 2024 were as follows (in thousands):

June 30, 2024 March 31, 2024

Operating leases

2 unchanged sentences

Weighted-average remaining lease term

Operating leases 12 years 12 years, 10 months

Operating leases 11 years 12 years, 1 month

Weighted-average discount rate

Operating leases 5.31 % 5.09 %

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of December 31, 2023 are as follows (in thousands):

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of June 30, 2024 are as follows (in thousands):

Operating Leases

2024 (excluding the nine months ended December 31, 2023) $ 640

2025 (excluding the three months ended June 30, 2024) $ 2,044

Thereafter 7,669

1 unchanged sentence

Interest ( 4,796 )

Discount ( 890 )

Total lease liabilities $ 13,986

Financing Arrangements

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

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

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

All other material terms of the obligations remain the same.

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

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

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

All other material terms of the obligation remain the same.

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

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

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

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

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

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

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

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 September 5, 2023, Contrail entered into the Sixth Amendment to Supplement #2 to Master Loan Agreement and the Fifth Amended and Restated Promissory Note with ONB.

The principal purpose of the amended documents was to extend the maturity date of the revolving $ 25.0 million facility to November 24, 2025 or such earlier date on which the revolving note becomes due and payable pursuant to the supplement or the master loan agreement.

The material terms of the revolving facility remain the same, including the payment terms and interest rate except that the change in control event of default provision was revised to provide as follows:

"(h) Change in control of operations.

If the CEO Joe Kuhn, or a CEO acceptable to ONB, in its reasonable discretion, has its employment with Contrail terminated for any reason, or ceases to oversee the day-to-day operations of Contrail."

The revolving line of credit at Air T with MBT ("Revolver - MBT") has $ 6.5 million outstanding as of December 31, 2023 and matures on August 31, 2024.

Borrowings of the Company and its subsidiaries are summarized below at June 30, 2024 and March 31, 2024, respectively.

On May 30, 2024, Contrail, a majority-owned subsidiary of the Company, entered into a Membership Interest Redemption and Earnout Agreement (the “Redemption Agreement”) with OCAS, Inc., a corporation owned by the Chief Executive Officer of Contrail, Joe Kuhn (the “Seller”).

Pursuant to the Redemption Agreement, Contrail agreed to purchase and redeem from the Seller, 16 % of its 21 % interest in Contrail, effective as of April 1, 2024.

The purchase price for the redeemed interest is $ 4.6 million, plus an earnout amount.

The cash purchase price is payable pursuant to a secured, subordinated promissory note ("OCAS Loan"), payable beginning on May 1, 2024 and monthly thereafter for a 12-month period of interest payments only with the outstanding balance amortized and paid over the following 3 years.

Interest accrues on the principal amount at an annual rate equal to the 10-year Treasury bond yield plus 375 basis points, compounded monthly.

The rate adjusts on each anniversary date of the note.

The payment obligation under the note may be deferred if Contrail’s forecast indicates that any payment following the first 12-month period would cause a loan default or a loan default exists.

Initially, the payment obligation would revert back to interest only, unless a default exists, in which case no payment would be required.

If Contrail is unable to make a payment for 12 months, then interest shall cease to accrue.

The note is expressly subordinated to the payment in full of all indebtedness of Contrail on or prior to the date of the note or thereafter created.

The OCAS Loan is classified as related party debt on the Company's condensed consolidated balance sheet.

As a result, it is excluded from the tables of current financing arrangements and contractual financing obligations below.

The revolving line of credit at Air T with MBT ("Revolver - MBT") has $ 4.4 million outstanding as of June 30, 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 and its subsidiaries as of December 31, 2023:

(In Thousands) December 31,

The following table provides certain information about the current financing arrangements of the Company and its subsidiaries as of June 30, 2024:

(In Thousands) June 30,

2024 March 31,

2023 Maturity Date Interest Rate Unused commitments at December 31, 2023

2024 Maturity Date Interest Rate Unused commitments at June 30, 2024

Revolver - MBT $ 4,399 $ — 8/31/2024 SOFR + range of 2.25 % - 3.25 %

2 unchanged sentences

Term Note D - MBT 1,254 1,271 1/1/2028 1-month LIBOR + 2.00 %

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

Term Note F - MBT 733 783 1/31/2028 Greater of 6.00 % or Prime + 1.00 %

9 unchanged sentences

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

Term Note I 8,187 10,000 9/28/2025 1-month SOFR + 3.11 %

Total 23,710 28,394

Delphax Solutions Debt

Canadian Emergency Business Account Loan 30 30 12/31/2025 5.00 %

Wolfe Lake Debt

8 unchanged sentences

Total 739 849

AAM 24-1 Debt

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

Total 15,000 15,000

Total Debt 112,486 113,459

1 unchanged sentence

Total Debt, net $ 112,029 $ 112,926

At December 31, 2023, our contractual financing obligations, including payments due by period, are as follows (in thousands):

At June 30, 2024, our contractual financing obligations, including payments due by period, are as follows (in thousands):

Due by Amount

December 31, 2024 $ 17,367

December 31, 2025 26,335

December 31, 2026 3,075

December 31, 2027 7,219

December 31, 2028 1,755

June 30, 2025 $ 15,902

June 30, 2026 24,307

June 30, 2027 6,453

June 30, 2028 2,877

June 30, 2029 1,754

Thereafter 61,193

Unamortized Premiums and Debt Issuance Costs ( 457 )

On October 17, 2023, the Company and Air T Funding (the “Trust”) entered into an At-the-Market Offering Agreement (the “ATM Agreement”) with Ascendiant Capital Markets, LLC (the “sales agent” or “Ascendiant”), pursuant to which the Trust may sell and issue its TruPs having an aggregate offering price of up to $ 6.5 million from time to time through Ascendiant, as the Trust’s sales agent (the “ATM Offering”).

During the three months ended December 31, 2023, the Trust issued 15,000 TruPs and received $ 0.3 million in gross proceeds from the sale of TruPs through a S-3 Registration Statement filed by the Company.

The TruPs shares were offered and sold pursuant to the Company’s and the Trust’s shelf registration statement on Form S-3 (File Nos.

333-254110-01 and 333-254110) and a prospectus supplement relating to the ATM Offering filed with the Securities and Exchange Commission on October 18, 2023.

During the three months ended December 31, 2023, the Trust also issued 413,000 TruPs and received $ 7.0 million in gross proceeds from the sale of TruPs under various private placement offerings in reliance upon an exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Regulation D promulgated under the Securities Act.

The TruPs were issued solely to “accredited investors” as defined in Rule 501(a) of Regulation D.

The proceeds from the sale of the TruPs were used to purchase junior subordinated debentures which funds are available to the Company for general corporate purposes.

The amount outstanding on the Company's Debt - Trust Preferred Securities was $ 32.7 million as of December 31, 2023.

Shares Repurchased

On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 (retrospectively adjusted to 1,125,000 after the stock split on June 10, 2019) shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period.

During the three months ended June 30, 2024, the Company repurchased 13,348 shares at an aggregate cost of $ 0.3 million.

All of these repurchased shares were recorded as treasury shares as of June 30, 2024.

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

The IRA enacted a 15% corporate minimum tax rate, 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.

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

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

The excise tax incurred in connection with the Company's stock repurchases during the three months ended June 30, 2024 was no t material.

Geographical Information

Total tangible long-lived assets, which include property and equipment as well as assets on lease, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States, are summarized in the following table as of December 31, 2023 and March 31, 2023 (in thousands):

December 31, 2023 March 31, 2023

Total tangible long-lived assets, which include property and equipment as well as assets on lease, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of June 30, 2024 and March 31, 2024 (in thousands):

June 30, 2024 March 31, 2024

United States $ 20,808 $ 20,807

1 unchanged sentence

Total tangible long-lived assets, net $ 21,110 $ 21,113

The net book value of tangible long-lived assets located within each individual foreign country at December 31, 2023 and March 31, 2023 is listed below (in thousands):

December 31, 2023 March 31, 2023

The Netherlands $ 43 $ 42

The net book value of tangible long-lived assets located within each individual foreign country at June 30, 2024 and March 31, 2024 is listed below (in thousands):

June 30, 2024 March 31, 2024

Thailand $ 246 $ 252

Total tangible long-lived assets, net $ 302 $ 306

Total revenue, in and outside the United States, is summarized in the following table for the nine months ended December 31, 2023 and December 31, 2022 (in thousands):

December 31, 2023 December 31, 2022

Total revenue, in and outside the United States, is summarized in the following table for the three months ended June 30, 2024 and June 30, 2023 (in thousands):

June 30, 2024 June 30, 2023

United States $ 54,924 $ 61,722

6 unchanged sentences

(In Thousands) Three Months Ended

December 31, Nine Months Ended

2023 2022 2023 2022

Operating Revenues by Segment:

34 unchanged sentences

Total $ 760 $ 690

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

Nine Months Ended December 31, 2023

Operating loss $ ( 189 )

Depreciation and amortization (excluding leased engines depreciation) 2,088

Asset impairment, restructuring or impairment charges 326

Gain on sale of property and equipment ( 7 )

TruPs issuance expenses 277

Adjusted EBITDA $ 2,495

Nine Months Ended December 31, 2022

Operating income $ 1,147

The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA for the three months ended June 30, 2024 and 2023 (in thousands):

Three Months Ended June 30, 2024 Three Months Ended June 30, 2023

Operating (loss) income $ ( 577 ) $ 658

Depreciation and amortization (excluding leased engines depreciation) 760 690

3 unchanged sentences

Adjusted EBITDA $ 662 $ 1,387

1 Included in the asset impairment, restructuring or impairment charges for the quarter ended June 30, 2024 was a write-down of $ 0.4 million on the commercial jet engines and parts segment's inventory attributable to our evaluation of the carrying value of inventory as of June 30, 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.

Commitments and Contingencies

Contrail Put/Call Option

Put/Call Options and Earnout

Contrail entered into an Operating Agreement (the “Contrail Operating Agreement”) in connection with the acquisition of Contrail providing for the governance of and the terms of membership interests in Contrail and including put and call options with the Seller to require Contrail to purchase all of the Seller’s equity membership interests in Contrail commencing on the fifth anniversary of the acquisition, which occurred on July 18, 2021.

On May 30, 2024, Contrail entered into a Membership Interest Redemption and Earnout Agreement (the "Redemption Agreement") with the Seller.

Pursuant to the Redemption Agreement, Contrail agreed to purchase and redeem from the Seller, 16 % of its 21 % interest in Contrail, with the earnout period being retroactive to April 1, 2024.

The purchase price for the redeemed interest is $ 4.6 million in the form of a secured, subordinated promissory note, plus an earnout amount valued at $ 1.1 million.

Under the Redemption Agreement, the Seller is entitled to an annual earnout payment equal to 9.14 % of Contrail's adjusted EBITDA over $ 7.0 million in each fiscal year beginning on March 31, 2025 and continuing through March 31, 2029.

Pursuant to the Redemption Agreement, Contrail is required to calculate the earnout payments annually within 30 days following the completion of the annual audits of the Company and Contrail and payment of any amount due is required following satisfaction of a procedure to address any objections to the calculated amount.

The earnout pursuant to the Redemption Agreement is a Level 3 fair value measurement that is valued at $ 1.1 million as of June 30, 2024 with a decrease in value from the effective date of April 1, 2024 in the amount of $ 20.0 thousand included as part of other non-operating income in the condensed consolidated statements of income (loss).

In connection with the Redemption Agreement, the parties agreed to certain technical amendments to the First Amended and Restated Operating Agreement of Contrail and entered into a new Put and Call Agreement with respect to the remaining 5 % interest in Contrail held by the Seller.

Pursuant to the new Put and Call Agreement, commencing April 1, 2026 and at any time thereafter, either Contrail or the Seller has the option to elect by written notice to purchase or sell all of the remaining 5 % interest in Contrail held by the Seller.

The purchase price for the 5 % interest is equal to 5 % of the Contrail Equity Value, which is defined as an amount equal to nine times the average Adjusted EBITDA of Contrail's most recent three completed fiscal years at the time an option notice is delivered.

The purchase price for the 5 % interest is to be paid in equal quarterly installments over a three-year period, together with interest at the then current ten-year Treasury bond yield plus 2.5 % adjusted annually.

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

In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period.

The Contrail RNCI is a Level 3 fair value measurement that is valued at $ 7.6 million as of December 31, 2023.

The change in the redemption value compared to March 31, 2023 is a decrease of $ 0.4 million, which was driven by the decrease in fair value of $ 0.5 million and distributions to non-controlling interest of $ 0.2 million, partially offset by net income attributable to non-controlling interest of $ 0.3 million.

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

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

Contrail Asset Management, LLC and CJVII, LLC

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

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

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

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

CAM was formed to serve two separate and distinct functions:

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

CAM has two classes of equity interests:

1) common interests and 2) investor interests.

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

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

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

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

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

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

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

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

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

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

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

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

the Onshore and the Offshore Series.

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

As of December 31, 2023, for its Investment Function, the Company has contributed $ 1.0 million to CAM’s Onshore Series and $ 7.0 million to CAM’s Offshore Series.

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

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

As of December 31, 2023, the Company's net investment basis in CAM is $ 4.9 million.

In connection with the formation of CAM, MRC has a fixed price put option of $ 1.0 million to sell its common equity in CAM to the Company at each of the first three ( 3 ) anniversary dates.

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

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

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

Shanwick Put/Call Option

In 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 greater of fair value on the date of the agreement, adjusted for allocable income and loss, or the redemption value at the end of each reporting period.

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

4 unchanged sentences

The Call Option and the Put Option may be exercised at any time from the fifth anniversary of the shareholder agreement and then only at the end of each fiscal year of Air T ("Shanwick RNCI").

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

The Company has presented the Shanwick RNCI between the liabilities and equity sections of the accompanying condensed consolidated balance sheets.

In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the estimated redemption value at the end of each reporting period.

1 unchanged sentence

Changes in its estimated redemption value are recorded on our consolidated statements of operations within non-controlling interests.

The Shanwick RNCI's estimated redemption value is $ 5.5 million as of December 31, 2023, which was comprised of the following (in thousands):

Shanwick RNCI

The Shanwick RNCI and Contrail RNCI's estimated redemption values as of June 30, 2024 were comprised of the following (in thousands):

Shanwick RNCI Contrail RNCI Total

Beginning Balance as of April 1, 2024 $ 5,540 $ 7,436 $ 12,976

3 unchanged sentences

Redemption value adjustments 165 53 218

Ending Balance as of December 31, 2023 $ 5,520

Redemption of non-controlling interests — ( 5,899 ) ( 5,899 )

Ending Balance as of June 30, 2024 $ 5,740 $ 1,664 $ 7,404

Contrail Asset Management, LLC and CJVII, LLC

For CAM's Investment Function, as described in Note 8 , CAM's initial commitment to CJVII was approximately $ 51.0 million.

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

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

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

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

the Onshore and the Offshore Series.

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

As of June 30, 2024, for its Investment Function, the Company has contributed $ 10.6 million to CAM’s Offshore Series and $ 1.0 million to CAM’s Onshore Series.

The Company fulfilled its Investment Function initial commitment to CAM in fiscal year 2023.

In connection with the formation of CAM, MRC has a fixed price put option of $ 1.0 million to sell its common equity in CAM to the Company at each of the first three ( 3 ) anniversary dates.

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

2020 Omnibus Stock and Incentive Plan

1 unchanged sentence

The total number of shares authorized under the Plan is 420,000 .

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

As of December 31, 2023, options to purchase up to 261,000 shares are outstanding under the Plan.

Vesting of options is based on the grantee meeting specified service conditions.

Furthermore, the number of vested options that a grantee is able to exercise, if any, is based on the Company’s stock price as of the vesting dates specified in the respective option grant agreements.

For the three and nine months ended December 31, 2023, total compensation cost recognized under the Plan was $ 79.0 thousand and $ 0.2 million, respectively.

No options were exercisable as of December 31, 2023

Financial Guarantees

Our financial guarantees consist of debt obligations of certain CJVII Series.

Expiration dates vary through 2028, and guarantees will terminate on payment and/or cancellation of the underlying obligation.

A payment by us would be triggered by failure of the series to fulfill its obligation covered by the guarantee.

We are entitled to recover from amounts paid by us under the guarantee by other unrelated institutional investment partners ("CJVII Series investors"), up to their pro rata ownership of the CJVII Series.

The maximum potential payments for financial guarantees were $ 12.4 million and $ 13.6 million as of December 31, 2023 and March 31, 2023, respectively.

Financial guarantees and indemnifications are recorded at fair value at their inception.

Subsequent to initial recognition, the guarantee liability is adjusted at each reporting period to reflect the current estimate of expected payments resulting from possible default events over the remaining life of the guarantee.

The financial guarantees were made only for the convenience of other CJVII Series investors in the process of obtaining third-party debt to fund acquisitions of aircraft assets.

The guarantees did not provide any value to the debt and, as such, the Company did not record a liability related to these financial guarantees.

Through June 30, 2024, options to purchase up to 326,000 shares have been granted under the Plan.

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, 2024 and June 30, 2023, a total of 97,000 shares satisfied the service condition;

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

On April 30, 2024, 2,000 vested shares that did not meet the market condition and 8,000 unvested shares were forfeited due to employee termination.

For the three months ended June 30, 2024, total compensation cost recognized under the Plan was $ 42.0 thousand.

As of June 30, 2024, options to purchase up to 221,000 shares are outstanding under the Plan.

No options were exercisable as of June 30, 2024.

Nonfinancial Guarantees

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We regularly review our performance risk under these arrangements, and in the event it becomes probable that we will be required to perform under a guarantee or indemnity, the amount of probable payment will be recorded.

The maximum potential payments for nonfinancial guarantees were $ 4.5 million and $ 4.0 million at December 31, 2023 and March 31, 2023, respectively.

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

The maximum potential payments for nonfinancial guarantees were $ 5.1 million and $ 10.1 million at June 30, 2024 and March 31, 2024, respectively.

The reduction in the maximum potential payments required for nonfinancial guarantees this quarter, compared to March 31, 2024, stems from a strategic decision to sell the aircraft instead of maintaining it on lease, thereby mitigating future payment obligations for the underlying asset.

The carrying value of recorded liabilities related to nonfinancial guarantees was $ 0 at both June 30, 2024 and March 31, 2024.

Subsequent Events

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

What changed 10-Q

Item 1. Financial Statements