AIR T INC 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. FORWARD-LOOKING STATEMENTS This section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations" (“MD&A”) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results. The MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition during the period from the most recent fiscal year-end, March 31, 2025, to and including June 30, 2025 and (ii) results of operations during the current fiscal period(s) as compared to the corresponding period(s) of the preceding fiscal year. This Quarterly Report on Form 10-Q, including the MD&A, contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect our current views with respect to future events and financial performance. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “should,” "will," "continue" and similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Any and all forecasts and projections in this document are “forward looking statements” and are based on management’s current expectations or beliefs. From time to time, we may also provide oral and written forward-looking statements in other materials we release to the public, such as press releases, presentations to securities analysts or investors, or other communications by us. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. Accordingly, we wish to caution investors that any forward-looking statements made by or on behalf of us are subject to uncertainties and other factors that could cause actual results to differ materially from such statements, because of, among other things, potential risks and uncertainties, such as: • An inability to finance our operations through bank or other financing or through the sale or issuance of debt or equity securities; • Economic and industry conditions in the Company’s markets; • The risk that contracts with FedEx Corporation (“FedEx”) could be terminated or adversely modified; • The risk that the number of aircraft operated for FedEx will be reduced; • The risk that GGS customers will defer or reduce significant orders for deicing equipment; • The impact of any terrorist activities or armed conflict on United States soil or abroad; • Changes in U.S. and foreign trade regulations and tariffs; • The Company’s ability to manage its cost structure for operating expenses, or unanticipated capital requirements, and match them to shifting customer service requirements and production volume levels; • The Company's ability to meet debt service covenants and to refinance existing debt obligations; • The risk of injury or other damage arising from accidents involving the Company’s overnight air cargo operations, equipment or parts sold and/or services provided; • Market acceptance of the Company’s commercial and military equipment and services; • Competition from other providers of similar equipment and services; • Changes in government regulation and technology; • Changes in the value of marketable securities held as investments; • Mild winter weather conditions reducing the demand for deicing equipment; • Market acceptance and operational success of the Company’s aircraft asset management business and related aircraft capital joint venture; and • Despite our current indebtedness levels, we and our subsidiaries may still be able to incur substantially more debt, which could further exacerbate the risks associated with our substantial leverage. We also wish to caution investors that other factors might in the future prove to be important in affecting our results of operations. New factors emerge from time to time; it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or a combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Our MD&A should be read in conjunction with the Consolidated Financial Statements and related Notes included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended March 31, 2025 (including the information presented therein under Risk Factors), as well other publicly available information. Overview Air T, Inc. (the “Company,” “Air T,” “we” or “us”) 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 in its free cash flow per share over time. We currently operate in four core industry segments: 38 • Overnight air cargo, which operates in the air express delivery services industry; • Ground support equipment (formerly known as Ground equipment sales), which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers; • Commercial aircraft, engines and parts (formerly known as Commercial jet engines and parts), which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines and; • Digital solutions, which develops and provides digital aviation and other business services to customers within the aviation industry to generate recurring subscription revenues. The Company additionally has a central corporate function that acts as the capital allocator and resource for other consolidated businesses, referred to as Corporate and other. Further, Corporate and other also comprises insignificant businesses and business interests. Effective as of the fourth quarter of fiscal year 2025, we renamed our ground equipment sales segment to ground support equipment and renamed our commercial jet engines and parts segment to commercial aircraft, engines and parts to better align the descriptions of the segments with their activities. Additionally, we elected to separately disclose the digital solutions segment to better align our financial statement presentation with a key anticipated long-term growth area for the Company. Digital solutions was previously classified as part of insignificant business activities. As a result of this change, prior period segment information has been recast to conform to our current presentation in our financial statements and related notes. Each business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income and Adjusted EBITDA. Results of Operations First Quarter Fiscal 2026 Compared to First Quarter Fiscal 2025 Operating Revenue Consolidated segment revenue for the three-month period ended June 30, 2025 increased by $4.1 million (6.2%) compared to the same quarter in the prior fiscal year. Following is a table detailing revenue by segment, net of intercompany during the three months ended June 30, 2025 compared to the same quarter in the prior fiscal year (in thousands): Three Months Ended June 30, Change 2025 2024 Overnight Air Cargo $ 30,589 $ 30,383 $ 206 1 % Ground Support Equipment 15,070 7,354 7,716 105 % Commercial Aircraft, Engines and Parts 21,960 26,250 (4,290) (16) % Digital Solutions 2,096 1,678 418 25 % Segments total 69,715 65,665 4,050 6 % Revenues from the overnight air cargo segment for the three-month period ended June 30, 2025 was relatively flat compared to the first quarter of the prior fiscal year. The ground support equipment segment contributed approximately $15.1 million and $7.4 million to the Company’s revenues for the three-month period ended June 30, 2025 and 2024 respectively, representing a $7.7 million (104.9%) increase in the current quarter. The increase was primarily driven by the higher number of deicing trucks sold in the current year's quarter compared to the prior year's comparable quarter. At June 30, 2025, the ground support equipment segment’s order backlog was $7.2 million compared to $9.9 million at June 30, 2024. 39 The commercial aircraft, engines and parts segment contributed $22.0 million of revenues in the quarter ended June 30, 2025 compared to $26.3 million in the comparable prior year quarter, which is a decrease of $4.3 million (16.3%). The decrease was primarily driven by lower component sales in the current quarter, partially offset by an increase in lease income resulting from two assets being on lease this quarter, compared to none in the same fiscal quarter of the prior year. The digital solutions segment contributed $2.1 million of revenues in the quarter ended June 30, 2025 compared to $1.7 million in the prior year quarter, an increase of $0.4 million (25%). The increase is primarily due to increased software subscriptions driven by continued acquisition of new customers. Operating expenses Consolidated segment operating expenses for the three-month period ended June 30, 2025 increased by $2.4 million (4.6%) compared to the same quarter in the prior fiscal year. Following is a table detailing operating expenses by segment during the three months ended June 30, 2025 compared to the same quarter in the prior fiscal year (in thousands): Three Months Ended June 30, Change 2025 2024 Overnight Air Cargo: Operating expense $ 25,899 $ 25,709 $ 190 Percentage of segment net sales 85 % 85 % Ground Support Equipment: Operating expense 12,303 6,533 5,770 Percentage of segment net sales 82 % 89 % Commercial Aircraft, Engines and Parts: Operating expense 14,656 18,533 (3,877) Percentage of segment net sales 67 % 71 % Digital Solutions: Operating expense 836 556 280 Percentage of segment net sales 40 % 33 % Segments total 53,694 51,331 2,363 Operating expenses from the overnight air cargo segment for the three-month period ended June 30, 2025 was relatively flat compared to the first quarter of the prior fiscal year. The ground support equipment segment contributed approximately $12.3 million and $6.5 million to the Company's operating expenses for the three-month period ended June 30, 2025 and 2024, respectively, representing a $5.8 million (88.3%) increase in the current quarter. The increase was primarily attributable to increased costs incurred in connection with the higher sales noted in the segment revenue discussion above. The percentage increase in segment operating expenses was less than the percentage increase in segment revenue due to higher margins on the deicing trucks sold in the current quarter. The commercial aircraft, engines and parts segment contributed $14.7 million and $18.5 million to the Company's operating expenses for the three-month period ended June 30, 2025 and 2024, respectively, representing a $3.9 million (20.9%) decrease in the current quarter. Lower component sales, coupled with lower profit margin on parts sold in the current quarter resulted in the decrease in operating expenses and percentage of segment net sales. The digital solutions segment contributed $0.8 million of operating expenses in the quarter ended June 30, 2025 compared to $0.6 million in the prior year quarter, an increase of $0.3 million (50.4%). The increase was primarily due to an increase in headcount-related expenses to support the increased revenue from the continued acquisition of new customers. General and administrative 40 Three Months Ended June 30, Change 2025 2024 General and administrative $ 15,031 $ 14,612 $ 419 Percentage of total net sales 21 % 22 % General and administrative expenses for the three-month period ended June 30, 2025 were relatively flat compared to the first quarter of the prior fiscal year. Non-operating income (expense) Following is a table detailing non-operating income (expense) during the three months ended June 30, 2025 compared to the same quarter in the prior fiscal year (in thousands): Three Months Ended June 30, Change 2025 2024 Interest expense $ (2,314) $ (1,946) $ (368) (Loss) Income from equity method investments (19) 1,923 (1,942) Earnout remeasurement income 402 20 382 Other 678 683 (5) $ (1,253) $ 680 $ (1,933) The Company had net non-operating loss of $1.3 million during the quarter ended June 30, 2025, compared to net non-operating income of $0.7 million in the prior year quarter. The non-operating loss in the current year was driven by a $0.4 million increase in interest expense and a net loss of $0.3 million in the current year compared to a net income of $1.9 million in the prior year allocated to the Company from equity method investments, as detailed in Note 9 of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of this Report on Form 10-Q. Provision for Income Taxes During the three-month period ended June 30, 2025, the Company recorded $0.1 million in income tax benefit at an ETR of 16.9%. 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, 2025 were the valuation allowance related to the Company's U.S. consolidated group, DTI, DSI, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico, and the benefit from the FDII deduction. On July 4, 2025, the One Big Beautiful Bill Act was signed into law in the U.S., which includes a broad range of tax reform provisions affecting businesses. The Company is evaluating the full effects of the legislation on its estimated annual effective tax rate and cash tax position, but does not expect the legislation to have a material impact on its financial statements. Because the law was enacted after the end of the first fiscal quarter, its effects are not reflected in the operating results for the three months ended June 30, 2025. During the three-month period ended June 30, 2024, the Company recorded income tax expense of $0.1 million at an 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 change in valuation allowance related to the Company's U.S. consolidated group, DTI, LGSS, DSI, BCCM Kenya, and the foreign rate differentials for Air T's operations located in the Netherlands and Puerto Rico. Critical Accounting Policies and Estimates The Company’s significant accounting policies are fully described in Note 1 to the condensed consolidated financial statements and in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2025. The preparation of the Company’s condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company’s estimates and assumptions could change materially as conditions within and beyond our 41 control change. Accordingly, actual results could differ materially from estimates. There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended June 30, 2025. Seasonality The ground support equipment segment business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season. Other segments have typically not experienced material seasonal trends. Systems and Network Security Although we have employed significant resources to develop our security measures against breaches, our cybersecurity measures may not detect or prevent all attempts to compromise our systems, including hacking, viruses, malicious software, break-ins, phishing attacks, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by our systems. Breaches of our cybersecurity measures could result in unauthorized access to our systems, misappropriation of information or data, deletion or modification of client information or other interruption to our business operations. As techniques used to obtain unauthorized access to sabotage systems change frequently and may not be known until launched against us or our third-party service providers, we may be unable to anticipate, or implement adequate measures to protect against these attacks. If we are unable to avert these attacks and security breaches in the future, we could be subject to significant legal and financial liability, our reputation would be harmed and we could sustain substantial revenue loss from lost sales and customer dissatisfaction. We may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Cyber-attacks may target us or other participants, or the communication infrastructure on which we depend. Actual or anticipated attacks and risks may cause us to incur significantly higher costs, including costs to deploy additional personnel and network protection technologies, train employees, and engage third-party experts and consultants. Cybersecurity breaches would not only harm our reputation and business, but also could materially decrease our revenue and net income. Inflation Future economic developments such as inflation and increased interest rates as well as further business issues present uncertainty and risk with respect to our financial condition and results of operations. We expect that issues caused by economic and business issues will continue beyond the current fiscal year. 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 June 30, 2025. Liquidity and Capital Resources As of June 30, 2025, the Company held approximately $15.0 million in cash and cash equivalents and restricted cash, of which, $0.4 million related to cash reserved for insurance claims payments of Space Age Insurance Company's ("SAIC"), a wholly-owned subsidiary of the Company. The Company also held $0.8 million in restricted investments held as statutory reserve of SAIC. The Company has an aggregate of approximately $29.1 million in available funds under its lines of credit as of June 30, 2025. As of June 30, 2025, the Company’s working capital amounted to $43.9 million, a increase of $13.0 million compared to March 31, 2025 primarily driven by an increase in cash and cash equivalents of $8.5 million, a $1.4 million increase in inventory along with a $3.0 million decrease in short-term debt. As mentioned in Note 13 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, in connection with the acquisition of Royal on May 15, 2025, the Alerus Loan Parties under the Revolving Credit Agreement with Alerus entered into Amendment No. 4 to Credit Agreement and Consent and Term Loan C with Alerus in the amount of $1.1 million. The purpose of the Amendment and Term Note was to provide a term loan to finance the full purchase price of the acquisition, to add Royal as a part of the Alerus Loan Parties to the Alerus credit agreement, as amended and to memorialize Alerus’ consent to the Royal acquisition. The new term loan matures May 15, 2030 and bears interest at the greater of five (5%) percent or the CME one-month term SOFR rate plus 2.25%. Monthly payments on Term Note C commence June 15, 2025 and are equal to $12.5 thousand plus accrued interest. The term loan is secured by the terms of the Security Agreement dated as of August 29, 2024. As mentioned in Note 13 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, on May 30, 2025, the Company, along with AAM 24-1 (the "Issuer"), entered into new transaction documents with the Institutional Investors that replaced the Second NPA transaction documents. Pursuant to the Third NPA with the Institutional Investors, the Issuer agreed to issue and sell a Multiple Advance Senior Secured Note in an aggregate principal amount of up to $100.0 million (the “Multiple Advance Note”). For purposes of clarity and the avoidance of doubt, as of the closing date, the Institutional Investors advanced an additional $10.0 million to the Issuer and have collectively advanced under the Multiple Advance Note to the Issuer the aggregate amount of $40.0 million. Provided no default or event of default of the Issuer exists, and subject to satisfaction of all requirements for any closing as set forth in the Third Note Purchase Agreement, the Investors are obligated to advance to the Issuer an additional aggregate $60.0 million in $10.0 million increments, each on or within fifteen days of the following dates (in thousands): 42 September 30, 2025 $10.0 million January 30, 2026 $10.0 million May 30, 2026 $10.0 million September 30, 2026 $10.0 million January 30, 2027 $10.0 million May 30, 2027 $10.0 million The Multiple Advance Note bears annual interest at a 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, pursuant to the terms of the Multiple Advance Note. The maturity date of the Multiple Advance Note is May 31, 2035. The Multiple Advance Note contains standard and customary events of default including, but not limited to, failure to make payments when due under the Multiple Advance Note, failure to comply with certain covenants contained in the Multiple Advance Note, or bankruptcy or insolvency of, or certain monetary judgments against the Issuer or the Company. The prior notes were cancelled and replaced by the Multiple Advance Note. Funds advanced under the Multiple Advance Note may be reinvested for a period of six years from the date of closing. The Issuer may prepay all or a portion of the outstanding principal and accrued but unpaid interest at any time, provided that (i) if the Issuer prepays all or any portion of the Multiple Advance Note within one year from the Issue Date, the Issuer is required to pay the Investors a prepayment premium equal to two percent (2.0%) of the amount being prepaid, and (ii) if the Issuer prepays all or any portion of the Multiple Advance Note after the first anniversary of the Issue Date but on or prior to the second anniversary of the Issue Date, the Issuer is required to pay the Investors a prepayment premium equal to one percent (1.0%) of the amount being prepaid. If the Issuer elects to prepay a portion of the outstanding principal and accrued but unpaid interest, then in no event can such prepayment be for an amount less than $1.0 million. The various equity interests that were assigned by the Company to the Issuer on or about the closing date of the original financings continue to serve as collateral for the repayment of the Multiple Advance Note as does all of the issued and outstanding capital stock of the Issuer owned by the Company, and the 320,000 Trust Preferred Securities, held by the Issuer. The Company believes that it has 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. Cash Flows Following is a table of changes in cash flow for the three months ended June 30, 2025 and 2024 (in thousands): Three Months Ended June 30, 2025 2024 Net cash (used in) provided by operating activities $ (1,095) $ 113 Net cash (used in) provided by investing activities (2,724) 2,008 Net cash provided by (used in) financing activities 12,577 (1,291) Effect of foreign currency exchange rates on cash and cash equivalents (292) 32 Net Increase in Cash and Cash Equivalents and Restricted Cash $ 8,466 $ 862 Net cash used in operating activities was $1.1 million for the three-month period ended June 30, 2025 compared to net cash provided by operating activities of $0.1 million in the prior year three-month period, representing a decrease of $1.2 million. The decrease was primarily attributable to an unfavorable change in inventory of $3.8 million driven by higher sales within the commercial aircraft, engines and parts segment in the prior period. This is partially offset by a $1.6 million increase in net income after adjustments in the current year period compared to the prior year period, and $1.3 million higher customer deposits received in the current year period compared to prior year period. Net cash used in investing activities for the three-month period ended June 30, 2025 was $2.7 million compared to net cash provided by investing activities of $2.0 million in the prior year period. The cash used in investing activities was primarily driven by investments in unconsolidated entities of $2.0 million in the current year period that did not occur in the prior year period, acquisition Royal of $1.2 million in addition to $1.5 million lower distributions received from unconsolidated entities in the current year period compared to the prior year period. 43 Net cash provided by financing activities for the three-month period ended June 30, 2025 was $12.6 million compared to net cash used in financing activities of $1.3 million in the prior year period. The cash provided by financing activities in the current year three-month period was primarily driven by $16.1 million more proceeds on the Company's term loans and revolving lines of credit. These changes were partially offset by $3.1 million more payments made on the Company's revolving lines of credit. Non-GAAP Financial Measures The Company uses adjusted earnings before taxes, interest, and depreciation and amortization ("Adjusted EBITDA"), a non-GAAP financial measure as defined by the SEC, to evaluate the Company's financial performance. This performance measure is not defined by accounting principles generally accepted in the United States and should be considered in addition to, and not in lieu of, GAAP financial measures. Adjusted EBITDA is defined as earnings before taxes, interest, and depreciation and amortization, adjusted for specified items. The Company calculates Adjusted EBITDA by removing the impact of specific items and adding back the amounts of interest expense and depreciation and amortization to earnings before income taxes. When calculating Adjusted EBITDA, the Company does not add back depreciation expense for certain assets that are on lease, as the Company believes this expense matches with the corresponding revenue earned on these leased assets. Management believes that Adjusted EBITDA is a useful measure of the Company's performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability. We may periodically review and update our non-GAAP financial measures based on our determination of their relevance to our business which could result in the addition or elimination of select non-GAAP financial measures in the future. Adjusted EBITDA is not intended to replace or be an alternative to operating income (loss), the most directly comparable amounts reported under GAAP. The tables below provide a reconciliation of operating income (loss) to Adjusted EBITDA for the three months ended June 30, 2025 and 2024 (in thousands): Three months ended 6/30/2025 6/30/2024 Operating income (loss) $ 446 $ (577) Depreciation and amortization (excluding certain leased assets depreciation) 1 702 760 Asset impairment, restructuring or impairment charges 40 378 Gain on sale of property and equipment (1) — Securities issuance expenses 30 101 Share-based compensation 39 16 Severance expenses — 179 Deal-sourcing expenses 210 — Adjusted EBITDA $ 1,466 $ 857 (1) Leased assets depreciation expense excluded was $0.6 million and $0 during the three months ended June 30, 2025 and June 30, 2024, respectively. The table below provides Adjusted EBITDA by segment for the three months ended June 30, 2025 and 2024 (in thousands): 44 Three months ended 6/30/2025 6/30/2024 Overnight Air Cargo $ 1,613 $ 1,947 Ground Support Equipment 1,374 (511) Commercial Aircraft, Engines and Parts 754 1,665 Digital Solutions (86) (312) Segments total $ 3,655 2,789 Corporate and Other $ (2,189) (1,932) Adjusted EBITDA $ 1,466 $ 857 Issuer and guarantor subsidiary summarized information Air T Funding is a statutory business trust formed under Delaware law in September 2018. Air T Funding exists for the exclusive purposes of (i) issuing and selling its Alpha Income Trust Preferred Securities (also referred to as the 8.0% Cumulative Securities, Capital Securities or “Trust Preferred Securities”), par value $25.00 per share, (ii) using the proceeds from the sale of the Trust Preferred Securities to acquire Junior Subordinated Debentures issued by the Company, and (iii) engaging in only those other activities necessary, advisable or incidental thereto (such as registering the transfer of the Trust Preferred Securities). Accordingly, the Junior Subordinated Debentures are the sole assets of Air T Funding, and payments by the Company under the Junior Subordinated Debentures and a related expense agreement are the sole revenues of Air T Funding. Air T Funding’s business and affairs are conducted by a Property Trustee, a Delaware Trustee and two individual Administrative Trustees who are officers of Air T. Distributions on the Trust Preferred Securities are payable to record holders at the annual rate of 8% of the stated $25.00 liquidation amount, payable quarterly in arrears on the 15th day of February, May, August, and November in each year. The Trust Preferred Securities issued by the Trust are fully and unconditionally and jointly and severally guaranteed on a senior unsecured basis by Air T. Air T guarantees the payment of distributions by Air T Funding and payments on liquidation of or redemption of the Trust Preferred Securities (subordinate to the right to payment of senior and subordinated debt of Air T, as defined in Note 1 3 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report). If Air T Funding has insufficient funds to pay distributions on the Trust Preferred Securities (i.e., if Air T has failed to make required payments under the Junior Subordinated Debentures), a holder of the Trust Preferred Securities would have the right to institute a legal proceeding directly against Air T to enforce payment of such distributions. All of the Common Securities of Air T Funding are owned by Air T. The Common Securities rank pari passu, and payments will be made thereon pro rata, with the Trust Preferred Securities, except that upon the occurrence and during the continuance of an event of default under the Trust Agreement, as amended resulting from an event of default under the indenture, the rights of the Company as holder of the common securities to payment in respect of distributions and payments upon liquidation, redemption or otherwise would be subordinated to the rights of the holders of the Trust Preferred Securities. The Trust Preferred Securities are subject to mandatory redemption at any time on or after June 7, 2024. Upon the repayment or redemption at any time, in whole or in part, of any Junior Subordinated Debentures, the proceeds from such repayment or redemption would be applied to redeem a like amount of the Trust Preferred Securities, at the liquidation amount plus any accumulated and unpaid distributions. If less than all of the Junior Subordinated Debentures are to be repaid or redeemed on a redemption date, then the proceeds from such repayment or redemption would be allocated to the redemption of the Trust Preferred Securities pro rata. The Company also has an optional right to redeem the Junior Subordinated Debentures (i) on or after June 7, 2024, in whole at any time or in part from time to time at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof, or (ii) at any time, in whole (but not in part), upon the occurrence of a Tax Event, an Investment Company Event or a Capital Treatment Event (each as defined in the indenture) at a redemption price equal to the accrued and unpaid interest on the Junior Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. In the event a Tax Event, an Investment Company Event or Capital Treatment Event has occurred and is continuing and the Company does not elect to redeem the Junior Subordinated Debentures and thereby cause a mandatory redemption of the Trust Preferred Securities or to liquidate Air T Funding and cause the Junior Subordinated Debentures to be distributed to holders of the Trust Securities in liquidation of Air T Funding, such Trust Preferred Securities will remain outstanding and additional sums may be payable on the Junior Subordinated Debentures. So long as no Debenture event of default has occurred and is continuing, at any time on or after June 7, 2024, the Company has the right under the indenture to defer the payment of interest on the Junior Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each such period (each, an “Extension Period”), provided that no Extension Period may extend beyond the stated maturity of the Junior Subordinated Debentures on June 7, 2049. As a consequence of any such election, quarterly distributions on the Trust Preferred Securities will be deferred by Air T Funding during any such Extension Period. Distributions to which holders of Trust Preferred Securities are entitled will accumulate additional amounts thereon 45 at the rate per annum of 8% thereof, compounded quarterly from the relevant Distribution Date, to the extent permitted under applicable law. During any such Extension Period, the Company may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company’s capital stock (which includes common and preferred stock) or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Junior Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Junior Subordinated Debentures (other than (a) dividends or distributions in common stock of the Company, (b) any declaration of a dividend in connection with the implementation of a stockholders’ rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, (c) payments under the guarantee and (d) purchases of common stock for issuance under any of the Company’s benefit plans for its directors, officers or employees). Prior to the termination of any such Extension Period, the Company may further extend such Extension Period, provided that such extension does not cause such Extension Period to exceed 20 consecutive quarters or extend beyond the stated maturity. Upon the termination of any such Extension Period and the payment of all amounts then due, and subject to the foregoing limitations, the Company may elect to begin a new Extension Period. Subject to the foregoing, there is no limitation on the number of times that the Company may elect to begin an Extension Period. The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Junior Subordinated Debentures. Air T Funding has a term of 30 years, but may terminate earlier as provided in the Trust Agreement, as amended. The Trust Agreement was most recently amended on March 3, 2021 and on January 28, 2022 and currently allows for the issuance of up to $100.0 million of Trust Preferred Securities. As of June 30, 2025, there are $48.5 million in Trust Preferred Securities outstanding ($13.0 million held by the wholly-owned subsidiaries of the Company). The Trust is a “finance subsidiary” of Air T within the meaning of Rule 3‑10 of Regulation S‑X under the Securities Act of 1933, as amended, and as a result Air T Funding does not file periodic reports with the SEC under the Securities Exchange Act of 1934, as amended. Item 3. Quantitative and Qualitative Disclosures About Market Risk For quantitative and qualitative disclosures about market risk, see Item 7A “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended March 31, 2025. Our exposures to market risk have not changed materially since March 31, 2025.