Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2022
☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____to _____

Commission File Number 001-35476

Air T, Inc.

(Exact name of registrant as specified in its charter)

Delaware			52-1206400
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

5930 Balsom Ridge Road, Denver, North Carolina 28037

(Address of principal executive offices, including zip code)

(828) 464 – 8741

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class			Trading Symbol(s)			Name of each exchange on which registered
Common Stock			AIRT			NASDAQ Global Market
Alpha Income Preferred Securities (also referred to as 8% Cumulative Capital Securities) (“AIP”)			AIRTP			NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x                    No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x                    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐                    No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock			Common Shares, par value of $.25 per share
Outstanding Shares at October 31, 2022			2,843,276

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AIR T, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

						Page
			PART I
Item 1.			Financial Statements
			Condensed Consolidated Statements of Income (Loss) (Unaudited) For The Three and Six Months Ended September 30, 2022 and 2021			3
			Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) For The Three and Six Months Ended September 30, 2022 and 2021			4
			Condensed Consolidated Balance Sheets as of September 30, 2022 and March 31, 2022 (Unaudited)			5
			Condensed Consolidated Statements of Cash Flows (Unaudited) For The Six Months Ended September 30, 2022 and 2021			6
			Condensed Consolidated Statements of Equity (Unaudited) For The Six Months Ended September 30, 2022 and 2021			7
			Notes to Condensed Consolidated Financial Statements (Unaudited)			8
Item 2.			Management's Discussion and Analysis of Financial Condition and Results of Operations			26
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			33
Item 4.			Controls and Procedures			33
			PART II
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			34
Item 5.			Other Information			34
Item 6.			Exhibits			35
			Signatures			36
			Exhibit Index
			Certifications
			Interactive Data Files

2

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Item 1.    Financial Statements

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)

(in thousands, except (loss) income per share number)			Three Months Ended September 30,												Six Months Ended September 30,
			2022						2021						2022						2021
Operating Revenues:
Overnight air cargo			$	22,069					$	18,847					$	42,633					$	37,697
Ground equipment sales			18,019						9,189						23,834						17,371
Commercial jet engines and parts			18,986						14,916						41,841						24,510
Corporate and other			1,614						286						3,242						628
			60,688						43,238						111,550						80,206
Operating Expenses:
Overnight air cargo			19,451						16,553						37,522						33,297
Ground equipment sales			14,438						8,033						18,870						13,562
Commercial jet engines and parts			13,443						9,010						28,328						15,106
General and administrative			10,664						8,615						22,396						16,836
Depreciation and amortization			1,026						323						1,888						703
Inventory write-down			1,003						—						1,020						—
Asset impairment			485						—						516						—
(Gain) Loss on sale of property and equipment			(1)						—						(2)						3
			60,509						42,534						110,538						79,507
Operating Income			179						704						1,012						699
Non-operating (Expense) Income:
Interest expense			(1,996)						(1,167)						(3,818)						(2,105)
Income from equity method investments			266						14						798						97
Gain on forgiveness of Paycheck Protection Program (“PPP”) loan			—						8,331						—						8,331
Other			(357)						159						(509)						1,340
			(2,087)						7,337						(3,529)						7,663
(Loss) Income before income taxes			(1,908)						8,041						(2,517)						8,362
Income Taxes (Benefit) Expense			(572)						38						(380)						33
Net (Loss) Income			(1,336)						8,003						(2,137)						8,329
Net Loss (Income) Attributable to Non-controlling Interests			$	104					$	(448)					$	(528)					$	(486)
Net (Loss) Income Attributable to Air T, Inc. Stockholders			$	(1,232)					$	7,555					$	(2,665)					$	7,843
(Loss) Income per share (Note 6)
Basic			$	(0.43)					$	2.62					$	(0.93)					$	2.72
Diluted			$	(0.43)					$	2.60					$	(0.93)					$	2.71
Weighted Average Shares Outstanding:
Basic			2,865						2,882						2,866						2,882
Diluted			2,865						2,901						2,866						2,893

See notes to condensed consolidated financial statements.

3

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AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

			Three Months Ended September 30,												Six Months Ended September 30,
(In Thousands)			2022						2021						2022						2021
Net (Loss) Income			$	(1,336)					$	8,003					$	(2,137)					$	8,329
Foreign currency translation (loss) income			(606)						103						(1,135)						54
Unrealized gain on interest rate swaps			957						46						1,432						57
Reclassification of interest rate swaps into earnings			17						(2)						34						(3)
Total Other Comprehensive Income			368						147						331						108
Total Comprehensive (Loss) Income			(968)						8,150						(1,806)						8,437
Comprehensive Loss (Income) Attributable to Non-controlling Interests			104						(448)						(528)						(486)
Comprehensive (Loss) Income Attributable to Air T, Inc. Stockholders			$	(864)					$	7,702					$	(2,334)					$	7,951

See notes to condensed consolidated financial statements.

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AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share amounts)			September 30, 2022						March 31, 2022
ASSETS
Current Assets:
Cash and cash equivalents			$	7,071					$	5,616
Marketable securities			788						859
Restricted cash			2,394						2,752
Restricted investments			1,589						1,691
Accounts receivable, net of allowance for doubtful accounts of $1,328 and $1,368			22,571						19,684
Income tax receivable			3,893						3,230
Inventories, net			87,604						75,167
Employee retention credit receivable			7,689						9,138
Other current assets			12,932						10,106
Total Current Assets			146,531						128,243
Assets on lease or held for lease, net of accumulated depreciation of $1,041 and $780			14,574						14,509
Property and equipment, net of accumulated depreciation of $6,015 and $5,405			21,338						21,212
Intangible assets, net of accumulated amortization of $3,512 and $2,947			10,722						13,260
Right-of-use ("ROU") assets			6,755						7,354
Equity method investments			11,559						9,864
Goodwill			10,093						10,126
Other assets			4,360						3,031
Total Assets			225,932						207,599
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable			13,249						9,397
Income tax payable			252						194
Accrued expenses and other (Note 4)			13,626						13,391
Current portion of long-term debt			44,704						6,482
Short-term lease liability			1,341						1,443
Total Current Liabilities			73,172						30,907
Long-term debt			107,979						129,326
Deferred income tax liabilities, net			3,175						2,812
Long-term lease liability			6,206						6,734
Other non-current liabilities			1,208						1,342
Total Liabilities			191,740						171,121
Redeemable non-controlling interest			10,253						10,761
Commitments and contingencies (Note 16)
Equity:
Air T, Inc. Stockholders' Equity:
Preferred stock, $1.00 par value, 2,000,000 shares authorized			—						—
Common stock, $.25 par value; 4,000,000 shares authorized, 3,026,495 and 3,022,745 shares issued, 2,850,748 and 2,866,418 shares outstanding			757						756
Treasury stock, 175,747 shares at $19.07 and 156,327 shares at $19.20			(3,353)						(3,002)
Additional paid-in capital			571						393
Retained earnings			24,802						26,729
Accumulated other comprehensive income (loss)			68						(263)
Total Air T, Inc. Stockholders' Equity			22,845						24,613
Non-controlling Interests			1,094						1,104
Total Equity			23,939						25,717
Total Liabilities and Equity			$	225,932					$	207,599

See notes to condensed consolidated financial statements.

5

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AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In Thousands)			Six Months Ended September 30,
			2022						2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income			$	(2,137)					$	8,329
Adjustments to reconcile Net (Loss) Income to net cash provided by operating activities:
Depreciation and amortization			1,888						703
Gain on forgiveness of PPP loan			—						(8,331)
Inventory write-down			1,020						—
Asset impairment			516						—
Other			(190)						(1,169)
Change in operating assets and liabilities:
Accounts receivable			(2,848)						(10,637)
Inventories			(14,246)						(10,120)
Accounts payable			3,852						2,721
Accrued expenses			84						(3,782)
Other			(1,885)						(467)
Net cash used in operating activities			(13,946)						(22,753)
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated entities			(1,187)						(1,085)
Capital expenditures related to property & equipment			(763)						(842)
Capital expenditures related to assets on lease or held for lease			(28)						—
Other			202						(449)
Net cash used in investing activities			(1,776)						(2,376)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit			68,532						36,742
Payments on lines of credit			(55,322)						(31,892)
Proceeds from term loan			8,177						4,667
Payments on term loan			(4,112)						(2,012)
Proceeds received from issuance of Trust Preferred Securities ("TruPs")			—						7,810
Other			(518)						110
Net cash provided by financing activities			16,757						15,425
Effect of foreign currency exchange rates on cash and cash equivalents			62						51
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH			1,097						(9,653)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD			8,368						15,927
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD			$	9,465					$	6,274

See notes to condensed consolidated financial statements.

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AIR T, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(In Thousands)			Common Stock												Treasury Stock												Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Non-controlling Interests						Total Equity
			Shares						Amount						Shares						Amount
Balance, March 31, 2021			3,023						$	756					141						$	(2,617)					$	—					$	16,270					$	(684)					$	989					$	14,714
Net income*			—						—						—						—						—						289						—						153						442
Foreign currency translation loss			—						—						—						—						—						—						(49)						—						(49)
Adjustment to fair value of redeemable non-controlling interests			—						—						—						—						—						(238)						—						—						(238)
Unrealized gain on interest rate swaps, net of tax			—						—						—						—						—						—						11						—						11
Reclassification of interest rate swaps into earnings			—						—						—						—						—						—						(1)						—						(1)
Balance, June 30, 2021			3,023						$	756					141						$	(2,617)					$	—					$	16,321					$	(723)					$	1,142					$	14,879
Net income (loss)*			—						—						—						—						—						7,555						—						(12)						7,543
Stock compensation expense			—						—						—						—						236						—						—						—						236
Foreign currency translation gain			—						—						—						—						—						—						103						—						103
Adjustment to fair value of redeemable non-controlling interests			—						—						—						—						—						183						—						—						183
Unrealized gain on interest rate swaps, net of tax			—						—						—						—						—						—						46						—						46
Reclassification of interest rate swaps into earnings			—						—						—						—						—						—						(2)						—						(2)
Balance, September 30, 2021			3,023						$	756					141						$	(2,617)					$	236					$	24,059					$	(576)					$	1,130					$	22,988

(In Thousands)			Common Stock												Treasury Stock												Additional Paid-In Capital						Retained Earnings						Accumulated Other Comprehensive Income (Loss)						Non-controlling Interests						Total Equity
			Shares						Amount						Shares						Amount
Balance, March 31, 2022			3,023						$	756					156						$	(3,002)					$	393					$	26,729					$	(263)					$	1,104					$	25,717
Net loss*			—						—						—						—						—						(1,433)						—						(6)						(1,439)
Stock compensation expense			—						—						—						—						79						—						—						—						79
Foreign currency translation loss			—						—						—						—						—						—						(529)						—						(529)
Adjustment to fair value of redeemable non-controlling interest			—						—						—						—						—						926						—						—						926
Unrealized gain on interest rate swaps, net of tax			—						—						—						—						—						—						475						—						475
Reclassification of interest rate swaps into earnings			—						—						—						—						—						—						17						—						17
Balance, June 30, 2022			3,023						$	756					156						$	(3,002)					$	472					$	26,222					$	(300)					$	1,098					$	25,246
Net loss*			—						—						—						—						—						(1,232)						—						(4)						(1,236)
Repurchase of common stock			—						—						19						(351)						—						—						—						—						(351)
Exercise of stock options			3						1						—						—						20						—						—						—						21
Stock compensation expense			—						—						—						—						79						—						—						—						79
Foreign currency translation loss			—						—						—						—						—						—						(606)						—						(606)
Adjustment to fair value of redeemable non-controlling interest			—						—						—						—						—						(188)						—						—						(188)
Unrealized gain on interest rate swaps, net of tax			—						—						—						—						—						—						957						—						957
Reclassification of interest rate swaps into earnings			—						—						—						—						—						—						17						—						17
Balance, September 30, 2022			3,026						$	757					175						$	(3,353)					$	571					$	24,802					$	68					$	1,094					$	23,939

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

See notes to condensed consolidated financial statements.

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AIR T, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.    Financial Statement Presentation

The condensed consolidated financial statements of Air T, Inc. (“Air T”, the “Company”, “we”, “us” or “our”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the periods presented have been made.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2022. The results of operations for the period ended September 30, 2022 are not necessarily indicative of the operating results for the full year.

Impacts from Geopolitical, Macroeconomic, and COVID-19 Challenges

COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a number of disruptions, and we experienced and continue to experience to a lesser degree a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flow and may continue to operate at a loss from time to time during fiscal 2023. We expect that the impact of COVID-19 will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and our results of operations. The Company believes the estimates and assumptions underlying the Company’s condensed consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2022; however, uncertainty over the ultimate direct and indirect impact COVID-19 will have on the global economy generally, and the Company’s businesses in particular, makes any estimates and assumptions as of September 30, 2022 inherently less certain than they would be absent the current and potential impacts of COVID-19.

The war in Eastern Europe and related sanctions imposed on Russia and related actors have resulted in interest rate acceleration and inflation, including, but not limited to, a significant increase in the price of commodities. We expect that these factors will continue to negatively impact our businesses at least in the short-term. The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of these activities. We continue to evaluate the long-term impact that these may have on our business model, however there can be no assurance that the measures we have taken or will take will completely offset the negative impact.

Recently Adopted Accounting Pronouncements

In July 2021, the FASB updated the Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. The amendments in this Update address stakeholders’ concerns by amending the lease classification requirements for lessors to align them with practice under Topic 840. Lessors should classify and account for a lease with variable lease payments that do not depend on a reference index or a rate as an operating lease if both of the following criteria are met:

1.The lease would have been classified as a sales-type lease or a direct financing lease in accordance with the classification criteria in paragraphs 842-10-25-2 through 25-3.

2.The lessor would have otherwise recognized a day-one loss.

When a lease is classified as operating, the lessor does not recognize a net investment in the lease, does not derecognize the underlying asset, and, therefore, does not recognize a selling profit or loss. The leased asset continues to be subject to the measurement and impairment requirements under other applicable GAAP. The amendments in this Update are effective for fiscal years beginning after December 15, 2021, for all entities, and interim periods within those fiscal years for public business entities. The Company adopted this amendment on April 1, 2022. As of the date of the adoption, the amendment did not have a material impact on the Company's consolidated financial statements and disclosures.

Recently Issued 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. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of this ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this amendment on our contracts, hedging relationships, and other transactions affected by reference rate reform.

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2.    Acquisitions

Wolfe Lake HQ, LLC

On December 2, 2021, the Company, through its wholly-owned subsidiary Wolfe Lake HQ, LLC, completed the purchase of the real estate located at 5000 36th Street West, St. Louis Park, Minnesota pursuant to a real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company (an unaffiliated third-party) dated October 11, 2021. The real estate purchased consists of a 2-story office building, asphalt-paved driveways and parking areas, and landscaping. The building was constructed in 2004 with an estimated 54,742 total square feet of space. The real estate purchased is where Air T's Minnesota executive office is currently located. With this purchase, the Company assumed 11 leases from existing tenants occupying the building.

The total amount recorded for the real estate was $13.4 million, which included the purchase price of $13.2 million and total direct capitalized acquisition costs of $0.2 million. The consideration paid for the real estate consisted of approximately $3.3 million in cash and a new secured loan from Bridgewater Bank ("Bridgewater") with an aggregate principal amount of $9.9 million and a fixed interest rate of 3.65% which matures on December 2, 2031. See Note 12.

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

Land			$	2,794
Building			8,439
Site Improvements			798
Tenant Improvements			269
In-place lease and other intangibles			1,108
			$	13,408

GdW Beheer B.V.

On February 10, 2022, the Company acquired GdW, a Dutch holding company in the business of providing global aviation data and information. The acquisition was completed through a wholly-owned subsidiary of the Company, Air T Acquisition 22.1, LLC ("Air T Acquisition 22.1"), a Minnesota limited liability company, through its Dutch subsidiary, Shanwick, and was funded with cash, investment by executive management of the underlying business, and the loans described in Note 12. As part of the transaction, the executive management of the underlying business purchased 30% of Shanwick. Air T Acquisition 22.1 and its consolidated subsidiaries are included within the Corporate and other segment.

Subsequent to the acquisition date, the Company made certain measurement period adjustments to the preliminary purchase price allocation, which resulted in an increase to goodwill of $0.3 million. The increase is attributable to a measurement period adjustment of $0.3 million related to certain intangible assets acquired and related deferred tax liabilities assumed due to clarification of information utilized to determine fair value during the measurement period. As of June 30, 2022, the measurement period was completed and all adjustments are reflected in the tables below.

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

			February 10, 2022
Consideration paid			$	15,256
Less: Cash acquired			(2,452)
Less: Net assets acquired			(6,520)
Goodwill			$	6,284

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The transaction was accounted for as a business combination in accordance with ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their fair values as of February 10, 2022, with the excess of total consideration over fair value of net assets acquired recorded as goodwill. The following table outlines the consideration transferred and purchase price allocation at the respective fair values as of February 10, 2022 (in thousands):

			February 10, 2022
ASSETS
Accounts Receivable			$	715
Other current assets			67
Property, plant and equipment, net			40
Intangible - Proprietary Database			2,576
Intangible - Customer Relationships			7,267
Total assets			10,665
LIABILITIES
Accounts payable			15
Accrued expenses and deferred revenue			1,670
Deferred income tax liabilities, net			2,460
Total liabilities			4,145
Net assets acquired			$	6,520

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

			Income Statement Post-Acquisition
Revenue			$	887
Cost of Sales			145
Operating Expenses			701
Operating Income			41
Non-operating income			19
Net income			$	60

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

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3.    Revenue Recognition

Substantially all of the Company’s non-lease revenue is derived from contracts with an initial expected duration of one year or less. As a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.

The following is a description of the Company’s performance obligations:

Type of Revenue			Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
Product Sales			The Company generates revenue from sales of various distinct products such as parts, aircraft equipment, jet engines, airframes, and scrap metal to its customers. A performance obligation is created when the Company accepts an order from a customer to provide a specified product. Each product ordered by a customer represents a performance obligation. The Company recognizes revenue when obligations under the terms of the contract are satisfied; generally, this occurs at a point-in-time upon shipment or when control is transferred to the customer. Transaction prices are based on contracted terms, which are at fixed amounts based on standalone selling prices. While the majority of the Company's contracts do not have variable consideration, for the limited number of contracts that do, the Company records revenue based on the standalone selling price less an estimate of variable consideration (such as rebates, discounts or prompt payment discounts). The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue. The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service agreement or by the contract.
Support Services			The Company provides a variety of support services such as aircraft maintenance and short-term repair services to its customers. Additionally, the Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis. For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is appropriate as the Company is performing labor hours and installing parts to enhance an asset that the customer controls. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service. Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis.

In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are immaterial for disclosure under Topic 606.

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

			Three Months Ended September 30,												Six Months Ended September 30,
			2022						2021						2022						2021
Product Sales
Air Cargo			$	7,533					$	5,615					$	13,887					$	12,188
Ground equipment sales			17,639						8,928						23,216						16,926
Commercial jet engines and parts			15,720						13,157						36,030						20,449
Corporate and other			19						37						135						114
Support Services
Air Cargo			14,520						13,222						28,580						25,494
Ground equipment sales			159						69						300						134
Commercial jet engines and parts			2,555						1,554						4,529						3,656
Corporate and other			974						54						1,998						117
Leasing Revenue
Air Cargo			—						—						—						—
Ground equipment sales			29						39						73						78
Commercial jet engines and parts			669						177						1,210						343
Corporate and other			483						37						870						76
Other
Air Cargo			16						10						166						15
Ground equipment sales			192						153						245						233
Commercial jet engines and parts			42						28						72						62
Corporate and other			138						158						239						321
Total			$	60,688					$	43,238					$	111,550					$	80,206

See Note 14 for the Company's disaggregated revenues by geographic region and Note 15 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Contract Balances and Costs

Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2022 and September 30, 2022 and the amount of contract liabilities as of April 1, 2022 that were recognized as revenue during the six-month period ended September 30, 2022 (in thousands):

			Outstanding contract liabilities						Outstanding contract liabilities as of April 1, 2022 Recognized as Revenue
As of September 30, 2022			$	4,676
As of April 1, 2022			$	4,727
For the six months ended September 30, 2022									$	3,636

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4.     Accrued Expenses and Other

(in thousands)			September 30, 2022						March 31, 2022
Salaries, wages and related items			$	4,505					$	4,232
Profit sharing and bonus			879						1,365
Other Deposits			2,644						2,948
Other			5,598						4,846
Total			$	13,626					$	13,391

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5.    Income Taxes

During the three-month period ended September 30, 2022, the Company recorded global income tax benefit of $0.6 million at an effective tax rate of 30.0%. 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 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2022 were the change in valuation allowance related to the Company's subsidiaries in the corporate and other segment, Delphax Solutions, Inc. and Delphax Technologies, Inc. (collectively known as "Delphax"), other capital losses, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary ("SAIC") under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the three-month period ended September 30, 2021, the Company recorded $38.0 thousand in income tax expense at an ETR of 0.5%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2021 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, and the exclusion of taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.

During the six-month period ended September 30, 2022, the Company recorded global income tax benefit of $0.4 million at an effective tax rate of 15.1%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the six-month period ended September 30, 2022 were the change in valuation allowance related to Delphax, other capital losses, the estimated benefit for the exclusion of income for SAIC under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the six-month period ended September 30, 2021, the Company recorded $33.0 thousand in income tax expense at an effective rate of 0.4%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 2021 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.

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6.    Net Earnings (Loss) Per Share

Basic earnings (loss) per share has been calculated by dividing net income (loss) attributable to Air T, Inc. stockholders by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings (loss) per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive.

During the three months ended September 30, 2022, 3,750 options were exercised under the Air T's 2012 Stock Option Plan at $5.75 per share, which was disclosed within our condensed consolidated statement of equity. 7,500 unexpired options remain outstanding under this plan.

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

			Three Months Ended September 30,												Six Months Ended September 30,
			2022						2021						2022						2021
Net (loss) income			$	(1,336)					$	8,003					$	(2,137)					$	8,329
Net loss (income) attributable to non-controlling interests			104						(448)						(528)						(486)
Net (loss) income attributable to Air T, Inc. Stockholders			$	(1,232)					$	7,555					$	(2,665)					$	7,843
(Loss) Income per share:
Basic			$	(0.43)					$	2.62					$	(0.93)					$	2.72
Diluted			$	(0.43)					$	2.60					$	(0.93)					$	2.71
Antidilutive shares excluded from computation of (loss) income per share			4						—						4						—
Weighted Average Shares Outstanding:
Basic			2,865						2,882						2,866						2,882
Diluted			2,865						2,901						2,866						2,893

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7.    Intangible Assets and Goodwill

Intangible assets as of September 30, 2022 and March 31, 2022 consisted of the following (in thousands):

			September 30, 2022
			Gross Carrying Amount						Accumulated Amortization						Net Book Value
Purchased software			$	447					$	(406)					$	41
Internally developed software			3,418						(281)						3,137
In-place lease and other intangibles			1,094						(151)						943
Customer relationships			6,651						(555)						6,096
Patents			1,112						(1,103)						9
Other			1,408						(1,016)						392
			14,130						(3,512)						10,618
In-process software			104						—						104
Intangible assets, total			$	14,234					$	(3,512)					$	10,722

			March 31, 2022
			Gross Carrying Amount						Accumulated Amortization						Net Book Value
Purchased software			$	447					$	(386)					$	61
Internally developed software			4,112						(139)						3,973
In-place lease and other intangibles			1,108						(63)						1,045
Customer relationships			7,694						(339)						7,355
Patents			1,112						(1,101)						11
Other			1,391						(919)						472
			15,864						(2,947)						12,917
In-process software			343						—						343
Intangible assets, total			$	16,207					$	(2,947)					$	13,260

During the quarter ended September 30, 2022, the Company impaired $0.3 million of previously capitalized costs related to a software project that was deemed no longer probable to be completed and placed in service.

Based on the intangible assets recorded at September 30, 2022 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
2023 (excluding the six months ended September 30, 2022)			$	567
2024			1,027
2025			955
2026			887
2027			846
2028			799
Thereafter			5,537
			$	10,618

The carrying amount of goodwill as of September 30, 2022 and March 31, 2022 was $10.1 million. There was no impairment on goodwill during the quarter ended September 30, 2022.

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8.    Investments in Securities and Derivative Instruments

As part of the Company’s interest rate risk management strategy, the Company, from time to time, uses derivative instruments to minimize significant unanticipated earnings fluctuations that may arise from rising variable interest rate costs associated with existing borrowings (Air T Term Note A and Term Note D). To meet these objectives, the Company entered into interest rate swaps with notional amounts consistent with the outstanding debt to provide a fixed rate of 4.56% and 5.09%, respectively, on Term Notes A and D. The swaps mature in January 2028.

On August 31, 2021, Air T and Minnesota Bank & Trust ("MBT") refinanced Term Note A and fixed its interest rate at 3.42%. As a result of this refinancing, the Company determined that the interest rate swap on Term Note A was no longer an effective hedge. The Company will amortize the fair value of the interest-rate swap contract included in accumulated other comprehensive income (loss) associated with Term Note A at the time of de-designation into earnings over the remainder of its term. In addition, any changes in the fair value of Term Note A's swap after August 31, 2021 are recognized directly into earnings. The remaining swap contract associated with Term Note D is designated as an effective cash flow hedging instrument in accordance with ASC 815.

On January 7, 2022, Contrail completed an interest rate swap transaction with Old National Bank ("ONB") with respect to the $43.6 million loan made to Contrail in November 2020 pursuant to the Main Street Priority Loan Facility as established by the U.S. Federal Reserve ("Contrail - Term Note G"). The purpose of the floating-to-fixed interest rate swap transaction was to effectively fix the loan interest rate at 4.68%. As of February 24, 2022, this swap contract has been designated as a cash flow hedging instrument and qualified as an effective hedge in accordance with ASC 815. During the period between January 7, 2022 and February 24, 2022, the Company recorded a loss of approximately $0.1 million in the consolidated statement of income (loss) due to the changes in the fair value of the instrument prior to the designation and qualification of this instrument as an effective hedge. After it was deemed an effective hedge, the Company recorded changes in the fair value of the instrument in the consolidated statement of comprehensive income (loss).

For the swaps related to Air T Term Note D and Contrail - Term Note G, the effective portion of changes in the fair value on these instruments 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 interest rate swaps are considered Level 2 fair value measurements. As of September 30, 2022 and March 31, 2022, the fair value of these interest-rate swap contracts was an asset of $3.0 million and $0.9 million, respectively, which is included within other assets in the condensed consolidated balance sheets. During the three and six months ended September 30, 2022, the Company recorded a gain of approximately $1.0 million and $1.4 million, net of tax, respectively. During the three and six months ended September 30, 2021, the Company recorded a gain of approximately $46.0 thousand and $57.0 thousand, net of tax, respectively. These gains are included in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of these instruments.

The Company may, from time to time, employ trading strategies designed to profit from market anomalies and opportunities it identifies. Management uses derivative financial instruments to execute those strategies, which may include options, and futures contracts. These derivative instruments are priced using publicly quoted market prices and are considered Level 1 fair value measurements. During the three and six months ended September 30, 2022, related to these derivative instruments, the Company had a gross gain aggregating to $46.0 thousand and no gross loss. During the three and six months ended September 30, 2021, the Company did not record any gain or loss related to derivative instruments.

The following table presents these derivative instruments at fair value in the condensed consolidated balance sheets as of September 30, 2022 and March 31, 2022 (in thousands):

(In thousands)			September 30, 2022			March 31, 2022
Assets:
Exchange-traded options & futures
Other current assets			$	401		$	—
Total assets			401			—
Liabilities:
Exchange-traded options & futures
Accrued Expenses and other			119			—
Total liabilities			$	119		$	—

The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities. Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income. The fair market value of marketable equity securities is determined based on quoted market prices in active markets and are therefore, considered Level 1 fair value measurements. During the three months ended September 30, 2022, the Company had a gross unrealized gain aggregating to $43.0 thousand and a gross unrealized loss aggregating to $0.2 million. During the six months ended September 30, 2022, the Company had a gross unrealized gain aggregating to $86.0 thousand and a gross unrealized loss aggregating to $0.3 million. During the three months ended September 30, 2021, the Company had a gross unrealized gain aggregating to $0.4 million and a gross unrealized loss aggregating to $0.1 million. During the six months ended September 30, 2021, the Company had a gross unrealized gain aggregating to $0.8 million and a gross unrealized loss aggregating to $0.2 million. These unrealized gains and losses are included in other income (loss) on the condensed consolidated statement of income (loss).

The market value of the Company’s equity securities and cash held by the broker are periodically used as collateral against any outstanding margin account borrowings. As of September 30, 2022 and 2021, the Company had no outstanding borrowings under its margin account.

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9.    Equity Method Investments

The Company’s investment in Insignia Systems, Inc. - NASDAQ: ISIG (“Insignia”) is accounted for under the equity method of accounting. The Company has elected a three-month lag upon adoption of the equity method. As of September 30, 2022, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 27% of the outstanding shares. During the fiscal year ended March 31, 2021, due to loss attributions and impairments taken in prior fiscal years, the Company's net investment basis in Insignia was reduced to $0. As such, the Company did not record as of September 30, 2022 any additional share of Insignia's net loss for the three months ended June 30, 2022. On August 23, 2021, Insignia restated its 10-K for the fiscal year ended December 31, 2020 and its 10-Q for the quarter ended March 31, 2021. The Company evaluated these restatements and determined that they would not result in any additional impact on the Company's condensed consolidated financial statements.

The Company's 20.91% 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 $0.4 million and $0.7 million as its share of CCI's net income for the three and six months ended September 30, 2022, along with a basis difference adjustment of $12.0 thousand and $25.0 thousand, respectively. The Company's net investment basis in CCI is $3.4 million as of September 30, 2022. The Company also executed a $2.0 million promissory note payable to CCI on September 30, 2022. See Note 12.

Summarized unaudited financial information for the Company's equity method investees for the three and six months ended June 30, 2022 and 2021 is as follows (in thousands):

			Three Months Ended												Six Months Ended
			June 30, 2022						June 30, 2021						June 30, 2022						June 30, 2021
Revenue			$	38,388					$	27,715					$	73,989					$	57,988
Gross Profit			4,791						1,097						9,166						1,904
Operating income (loss)			1,809						(2,110)						3,790						(5,205)
Net income (loss)			1,055						(2,268)						2,805						(4,413)
Net income (loss) attributable to Air T, Inc. stockholders			$	435					$	(273)					$	743					$	(568)

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10.    Inventories

Inventories consisted of the following (in thousands):

			September 30, 2022						March 31, 2022
Overnight air cargo			$	27					$	28
Ground equipment manufacturing:
Raw materials			8,181						4,688
Work in process			3,631						2,437
Finished goods			6,885						9,264
Corporate and other:
Raw materials			675						705
Finished goods			727						728
Commercial jet engines and parts			71,467						60,439
Total inventories			91,593						78,289
Reserves			(3,989)						(3,122)
Total inventories, net of reserves			$	87,604					$	75,167

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11.     Leases

The Company has operating leases for the use of real estate, machinery, and office equipment. The majority of our leases have a lease term of 2 to 5 years; however, we have certain leases with longer terms of up to 30 years. Many of our leases include options to extend the lease for an additional period.

The lease term for all of the Company’s leases includes the non-cancellable period of the lease, plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor that is considered likely to be exercised.

Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments. Variable payments are typically operating costs associated with the underlying asset and are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Our leases do not contain residual value guarantees.

The Company has elected to combine lease and non-lease components as a single component and not to recognize leases on the balance sheet with an initial term of one year or less.

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

The components of lease cost for the three and six months ended September 30, 2022 and 2021 are as follows (in thousands):

			Three Months Ended September 30,												Six Months Ended September 30,
			2022						2021						2022						2021
Operating lease cost			$	498					$	420					$	989					$	867
Short-term lease cost			139						376						275						658
Variable lease cost			189						143						374						290
Total lease cost			$	826					$	939					$	1,638					$	1,815

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of September 30, 2022 and March 31, 2022 were as follows (in thousands):

			September 30, 2022						March 31, 2022
Operating leases
Operating lease ROU assets			$	6,755					$	7,354
Operating lease liabilities			$	7,547					$	8,177
Weighted-average remaining lease term
Operating leases									13 years, 8 months
Weighted-average discount rate
Operating leases									4.36		%

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of September 30, 2022 are as follows (in thousands):

			Operating Leases
2023 (excluding the six months ended September 30, 2022)			$	886
2024			1,434
2025			1,135
2026			870
2027			704
2028			273
Thereafter			5,028
Total undiscounted lease payments			10,330
Less: Interest			(2,333)
Less: Discount			(450)
Total lease liabilities			$	7,547

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12.    Financing Arrangements

Borrowings of the Company and its subsidiaries are summarized below at September 30, 2022 and March 31, 2022, respectively.

On June 9, 2022, the Company, Jet Yard and MBT entered into Amendment No. 1 to Third Amended and Restated Credit Agreement (“Amendment”) and a related Overline Note (“Overline Note”) in the original principal amount of $5.0 million. The Amendment and Note memorialize an increase to the amount that may be drawn by the Company on the MBT revolving credit agreement from $17.0 million to $22.0 million. As of September 30, 2022, the unused commitment on the Overline Note was $4.1 million and there was no unused commitment on the MBT Revolver. The total amount of borrowings under the facility as revised is now the Company’s calculated borrowing base or $22.0 million. The borrowing base calculation methodology remains unchanged.

The interest rate on borrowings under the facility that are less than $17.0 million remains at the greater of 2.50% or Prime minus 1.00%. The interest rate applicable to borrowings under the facility that exceed $17.0 million is the greater of 2.50% or Prime plus 0.50%. The commitment fee on unused borrowings below $17.0 million remains at 0.11%. The commitment fee on unused borrowings above $17.0 million is 0.20%. The Amendment also includes an additional covenant to the credit agreement, namely the requirement that the Company provide inventory appraisals for AirCo, AirCo Services and Worthington to MBT twice a year.

The Overline loan and commitment mature on the earlier of March 31, 2023 or the date on which the Company receives all funds from the Company’s Employee Retention Credit ("ERC") application (estimated at approximately $9.1 million) filed on or about January 24, 2022 plus the full receipt of the Company’s carryback tax refund for the year (estimated at approximately $2.6 million) filed on or about August 19, 2021. Both were applied for under different components of the CARES Act. As of September 30, 2022, the Company has received $1.4 million of the ERC and none of the carryback tax refunds. It is not possible to estimate when, or if, the remainder of these funds may be received.

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

On September 30, 2022, the Company executed a promissory note payable to CCI ("Promissory Note - CCI") for $2.0 million that bears interest at 10% per annum and matures on December 30, 2022. The note may be prepaid at any time without penalty. The note is subordinate and junior to any and all indebtedness of the Company to MBT.

The following table provides certain information about the current financing arrangements of the Company and its subsidiaries as of September 30, 2022:

(In Thousands)			September 30, 2022						March 31, 2022						Maturity Date						Interest Rate						Unused commitments at September 30, 2022
Air T Debt
Revolver - MBT			$	17,000					$	10,969					8/31/2023						Greater of 2.50% or Prime - 1.00%						$	—
Overline Note - MBT			879						—						3/31/20231						Greater of 2.50% or Prime + 0.50%						$	4,121
Term Note A - MBT			8,157						8,542						8/31/2031						3.42%
Term Note B - MBT			2,878						3,014						8/31/2031						3.42%
Term Note D - MBT			1,371						1,405						1/1/2028						1-month LIBOR + 2.00%
Promissory Note - CCI			2,000						—						12/30/2022						10.00%
Term Note E - MBT			1,997						2,316						6/25/2025						Greater of LIBOR + 1.50% or 2.50%
Debt - Trust Preferred Securities			25,590						25,567						6/7/2049						8.00%
Total			59,872						51,813
AirCo 1 Debt
Term Loan - Park State Bank			6,393						6,393						12/11/2025						3-month LIBOR + 3.00%
Total			6,393						6,393
Jet Yard Debt
Term Loan - MBT			1,894						1,943						8/31/2031						4.14%
Total			1,894						1,943
Contrail Debt
Revolver - Old National Bank ("ONB")			10,143						3,843						9/5/2023						1-month LIBOR + 3.45%						$	14,857
Term Loan G - ONB			44,918						44,918						11/24/2025						1-month LIBOR + 3.00%
Term Loan H - ONB			12,101						8,698						8/18/2023						Wall Street Journal (WSJ) Prime Rate + 0.75%
Total			67,162						57,459
Delphax Solutions Debt
Canadian Emergency Business Account Loan			29						32						12/31/2025						5.00%
Total			29						32
Wolfe Lake Debt
Term Loan - Bridgewater			9,714						9,837						12/2/2031						3.65%
Total			9,714						9,837
Air T Acquisition 22.1
Term Loan - Bridgewater			5,000						5,000						2/8/2027						4.00%
Term Loan A - ING			2,632						3,341						2/1/2027						3.50%
Term Loan B - ING			975						1,114						5/1/2027						4.00%
Total			8,607						9,455
Total Debt			153,671						136,932
Less: Unamortized Debt Issuance Costs			(988)						(1,124)
Total Debt, net			$	152,683					$	135,808

1 Earlier of 8/31/23 or the date on which Air T has received the payment from the federal income tax refunds in the amount of approximately $2.6 million and Employee Retention Tax Credits in an amount not less than $9.1 million. As of September 30, 2022, the Company has received $1.4 million of the ERC and none of the federal income tax refunds.

At September 30, 2022, our contractual financing obligations, including payments due by period, are as follows (in thousands):

Due by			Amount
September 30, 2023			$	44,704
September 30, 2024			10,130
September 30, 2025			12,183
September 30, 2026			39,085
September 30, 2027			5,982
Thereafter			41,587
			153,671
Less: Unamortized Debt Issuance Costs			(988)
			$	152,683

During the second quarter ended September 30, 2022 the Company did not sell any TruPs. The amount outstanding on the Company's Debt - Trust Preferred Securities is $25.6 million as of September 30, 2022.

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13.    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 September 30, 2022, the Company repurchased 19,420 shares at an aggregate cost of $0.4 million. All of these repurchased shares were recorded as treasury shares as of September 30, 2022.

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14.    Geographical Information

Total tangible long-lived assets, 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 September 30, 2022 and March 31, 2022 (in thousands):

			September 30, 2022						March 31, 2022
United States			$	21,319					$	34,067
Foreign			14,593						1,654
Total tangible long-lived assets, net			$	35,912					$	35,721

The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at September 30, 2022. The net book value located within each individual country at September 30, 2022 and March 31, 2022 is listed below (in thousands):

			September 30, 2022						March 31, 2022
Lithuania			13,292						—
Macau			1,232						1,351
Other			69						303
Total tangible long-lived assets, net			$	14,593					$	1,654

Total revenue, in and outside the United States, is summarized in the following table for the six months ended September 30, 2022 and September 30, 2021 (in thousands):

			September 30, 2022						September 30, 2021
United States			$	91,323					$	69,225
Foreign			20,227						10,981
Total revenue			$	111,550					$	80,206

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15.    Segment Information

The Company has four business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment and corporate and other. Segment data is summarized as follows (in thousands):

(In Thousands)			Three Months Ended September 30,												Six Months Ended September 30,
			2022						2021						2022						2021
Operating Revenues by Segment:
Overnight Air Cargo
Domestic			$	22,069					$	18,607					$	42,633					$	37,375
International			—						240						—						322
Total Overnight Air Cargo			22,069						18,847						42,633						37,697
Ground Equipment Sales:
Domestic			14,913						8,178						18,821						14,156
International			3,106						1,011						5,013						3,215
Total Ground Equipment Sales			18,019						9,189						23,834						17,371
Commercial Jet Engines and Parts:
Domestic			11,611						10,461						28,343						17,230
International			7,375						4,455						13,498						7,280
Total Commercial Jet Engines and Parts			18,986						14,916						41,841						24,510
Corporate and Other:
Domestic			778						210						1,526						464
International			836						76						1,716						164
Total Corporate and Other			1,614						286						3,242						628
Total			60,688						43,238						111,550						80,206
Operating Income (Loss):
Overnight Air Cargo			845						857						1,922						1,589
Ground Equipment Sales			1,887						43						2,029						1,465
Commercial Jet Engines and Parts			(204)						1,902						2,870						1,664
Corporate and Other			(2,349)						(2,098)						(5,809)						(4,019)
Total			179						704						1,012						699
Capital Expenditures:
Overnight Air Cargo			92						44						191						68
Ground Equipment Sales			6						4						16						17
Commercial Jet Engines and Parts			278						646						352						738
Corporate and Other			43						12						232						19
Total			419						706						791						842
Depreciation and Amortization:
Overnight Air Cargo			23						14						42						27
Ground Equipment Sales			46						32						95						64
Commercial Jet Engines and Parts			563						214						996						479
Corporate and Other			394						62						755						133
Total			$	1,026					$	322					$	1,888					$	703

The table below provides a reconciliation of operating income (loss) to Adjusted EBITDA by reportable segment for the six months ended September 30, 2022 and 2021 (in thousands):

			Six Months Ended September 30, 2022
			Overnight Air Cargo						Ground Equipment Sales						Commercial Jet Engines and Parts						Corporate and Other						Total
Operating income (loss)			$	1,922					$	2,029					$	2,870					$	(5,809)					$	1,012
Depreciation and amortization (excluding leased engines depreciation)			42						95						360						755						1,252
Asset impairment, restructuring or impairment charges			337						—						1,020						179						1,536
Gain on sale of property and equipment			(1)						—						(2)						1						(2)
Security expenses			—						—						—						34						34
Adjusted EBITDA			$	2,300					$	2,124					$	4,248					$	(4,840)					$	3,832

			Six Months Ended September 30, 2021
			Overnight Air Cargo						Ground Equipment Sales						Commercial Jet Engines and Parts						Corporate and Other						Total
Operating income (loss)			$	1,589					$	1,465					$	1,664					$	(4,019)					$	699
Depreciation and amortization (excluding leased engines depreciation)			27						64						360						133						584
Loss on sale of property and equipment			1						2						—						—						3
Security expenses			—						—						—						65						65
Adjusted EBITDA			$	1,617					$	1,531					$	2,024					$	(3,821)					$	1,351

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16.    Commitments and Contingencies

Redeemable Non-controlling Interests

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 of Contrail (“Contrail Put/Call Option”). The Contrail Put/Call Option permits the Seller or the Company to require Contrail to purchase all of the Seller’s equity membership interests in Contrail commencing on the fifth anniversary of the acquisition, which occurred on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail ("Contrail RNCI") between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Contrail RNCI is a Level 3 fair value measurement that is valued at $6.5 million as of September 30, 2022. The change in the redemption value compared to March 31, 2022 is a decrease of $0.7 million, which was driven by the decrease in fair value of $0.7 million and distributions to non-controlling interest of $0.2 million, partially offset by net income attributable to non-controlling interest of $0.2 million.

As of the date of this filing, neither the Seller nor the Company has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.

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. CJVII targets investments in current generation narrow-body aircraft and engines, building on Contrail’s origination and asset management expertise. The Company and Mill Road Capital (“MRC”) agreed to become common members in CAM. CAM serves two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners. CAM has an initial commitment to CJVII of approximately $53.0 million, which is comprised of an $8.0 million initial commitment from the Company and an approximately $45.0 million initial commitment from MRC. As of September 30, 2022, CAM's remaining capital commitments are approximately $0.8 million from the Company and $17.3 million from MRC. 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 3 anniversary dates. At the later of (a) five years after execution of the agreement and (b) distributions to MRC per the waterfall equal to their capital contributions, the Company 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 the Company pays in cash at closing or 112.5% of fair market value if the Company opts to pay in three equal annual installments after exercise. The Company recorded MRC's $1.0 million put option within "Other non-current liabilities" on our consolidated balance sheets.

In February 2022, in connection with the Company's acquisition of GdW, a consolidated subsidiary of Shanwick, the Company entered into a shareholder agreement with the 30% non-controlling interest owners of Shanwick, providing for the governance of and the terms of membership interests in Shanwick. The shareholder agreement includes the Shanwick Put/Call Option with regard to the 30% non-controlling interest. The non-controlling interest holders are the executive management of the underlying business. The Shanwick Put/Call Option grants the Company an option to purchase the 30% interest at the call option price that equals to the average EBIT over the 3 Financial Years prior to the exercise of the Call Option multiplied by 8. In addition, the Shanwick Put/Call Option also grants the non-controlling interest owners an option to require the Company to purchase from them their respective ownership interests at the Put Option price, that is equal to the average EBIT over the 3 Financial Years prior to the exercise of the Put Option multiplied by 7.5. The Call Option and the Put Option may be exercised at any time from the fifth anniversary of the shareholder agreement and then only at the end of each fiscal year of Air T ("Shanwick RNCI").

The Company has presented this redeemable non-controlling interest in Shanwick between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the estimated redemption value at the end of each reporting period. As the Shanwick RNCI will be redeemed at established multiples of EBIT, it is considered redeemable at other than fair value. Changes in its estimated redemption value are recorded on our consolidated statements of operations within non-controlling interests. The Shanwick RNCI's estimated redemption value is $3.8 million as of September 30, 2022, which was comprised of the following (in thousands):

						Shanwick RNCI
Beginning Balance as of April 1, 2022						$	3,583
Contribution from non-controlling members						—
Distribution to non-controlling members						(158)
Net income attributable to non-controlling interests						112
Redemption value adjustments						232
Ending Balance as of September 30, 2022						$	3,769

2020 Omnibus Stock and Incentive Plan

On December 29, 2020, the Company’s Board of Directors unanimously approved the Omnibus Stock and Incentive Plan (the "Plan"), which was subsequently approved by the Company's stockholders at the August 18, 2021 Annual Meeting of Stockholders. The total number of shares authorized under the Plan is 420,000. Among other instruments, the Plan permits the Company to grant stock option awards. As of September 30, 2022, options to purchase up to 293,400 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 six months ended September 30, 2022, total compensation cost recognized under the Plan was $79.0 thousand and $0.2 million, respectively.

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17.     Subsequent Events

On November 8, 2022, Contrail entered into the Second Amendment to Master Loan Agreement (the “Amendment”) with ONB. The Amendment amends the Master Loan Agreement dated as of June 24, 2019, as amended.

The principal revisions made in the Amendment are: (i) the tangible net worth covenant was revised to require that Contrail maintain a tangible net worth of at least $12.0 million at all times prior to March 31, 2024 and $15.0 million at all times on or following March 31, 2024; and, (ii) that all proceeds from certain asset sales during the period beginning on October 1, 2022 and ending on March 31, 2023 be applied as prepayments on Term Loan G. The effectiveness of the Amendment is conditioned on Contrail executing a Collateral Assignment of two Aircraft Engine Lease Agreements. The form of Collateral Assignment is attached as an exhibit to the Amendment.

The foregoing summary of the terms of the Amendment is qualified in its entirety by reference to the form of Second Amendment to Master Loan Agreement with Exhibit filed as Exhibit 10.2 herewith, which is incorporated herein by reference.

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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, 2022, to and including September 30, 2022 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.

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, 2022 (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 industry segments:

•Overnight air cargo, which operates in the air express delivery services industry;

•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, 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,

•Corporate and other, which acts as the capital allocator and resource for other consolidated businesses. Further, Corporate and other also comprises insignificant businesses and business interests that do not pertain to other reportable segments.

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

Impacts from Geopolitical, Macroeconomic, and COVID-19 Challenges

We continue to be exposed to macroeconomic pressures as a result of the lingering impacts of the COVID-19 pandemic, supply chain challenges, foreign currency fluctuations, and spikes in commodity prices as a result of geopolitical challenges, including the war in

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Eastern Europe. We continue to navigate through these challenges with a sharp focus on and goal of safeguarding our employees, helping our customers and managing impacts on our supply chain.

COVID-19 and its impact on the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition and results of operations. Each of our businesses implemented measures to attempt to limit the impact of COVID-19 but we still experienced a number of disruptions, and we experienced and continue to experience to a lesser degree a reduction in demand for commercial aircraft, jet engines and parts compared to historical periods. Many of our businesses may continue to generate reduced operating cash flow and may continue to operate at a loss from time to time during fiscal 2023. We expect that the impact of COVID-19 will continue to some extent. The fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and our results of operations. The Company believes the estimates and assumptions underlying the Company’s condensed consolidated financial statements are reasonable and supportable based on the information available as of September 30, 2022; however, uncertainty over the ultimate direct and indirect impact COVID-19 will have on the global economy generally, and the Company’s businesses in particular, makes any estimates and assumptions as of September 30, 2022 inherently less certain than they would be absent the current and potential impacts of COVID-19.

The war in Eastern Europe and related sanctions imposed on Russia and related actors have resulted in interest rate acceleration and inflation, including, but not limited to, a significant increase in the price of commodities. We expect that these factors will continue to negatively impact our businesses at least in the short-term. The ultimate impact on our overall financial condition and operating results will depend on the currently unknowable duration and severity of these activities. We continue to evaluate the long-term impact that these may have on our business model, however there can be no assurance that the measures we have taken or will take will completely offset the negative impact.

Second Quarter Fiscal 2023 Compared to Second Quarter Fiscal 2022

Consolidated revenue for the three-month period ended September 30, 2022 increased by $17.5 million (40%) compared to the same quarter in the prior fiscal year.

Following is a table detailing revenue by segment, net of intercompany during the three months ended September 30, 2022 compared to the same quarter in the prior fiscal year (in thousands):

			Three Months Ended September 30,												Change
			2022						2021
Overnight Air Cargo			$	22,069					$	18,847					$	3,222		17		%
Ground Equipment Sales			18,019						9,189						8,830			96		%
Commercial Jet Engines and Parts			18,986						14,916						4,070			27		%
Corporate and Other			1,614						286						1,328			464		%
			$	60,688					$	43,238					$	17,450		40		%

Revenues from the air cargo segment for the three-month period ended September 30, 2022 increased by $3.2 million (17%) compared to the second quarter of the prior fiscal year. The increase was principally attributable to higher administrative fees, maintenance labor and pass-through revenues from FedEx.

The ground equipment sales segment contributed approximately $18.0 million and $9.2 million to the Company’s revenues for the three-month periods ended September 30, 2022 and 2021 respectively, representing a $8.8 million (96%) increase in the current quarter. The increase was primarily driven by significantly higher commercial ultimate deicers sales this quarter compared to prior year comparable quarter. At September 30, 2022, the ground equipment sales segment’s order backlog was $21.1 million compared to $10.9 million at September 30, 2021.

The commercial jet engines and parts segment contributed $19.0 million of revenues in the quarter ended September 30, 2022 compared to $14.9 million in the comparable prior year quarter, which is an increase of $4.1 million (27%). The increase was primarily driven by higher component part sales across all companies within the segment in the current quarter compared to prior year comparable quarter.

Revenues from the corporate and other segment for the three-month period ended September 30, 2022 increased by $1.3 million (464%) compared to the second quarter of the prior fiscal year. The increase was primarily attributable to the acquisitions mentioned in Note 2 of the Notes to Condensed Consolidated Financial Statements of this report.

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Following is a table detailing operating income (loss) by segment during the three months ended September 30, 2022 compared to the same quarter in the prior fiscal year (in thousands):

			Three Months Ended September 30,												Change
			2022						2021
Overnight Air Cargo			$	845					$	857					$	(12)
Ground Equipment Sales			1,887						43						1,844
Commercial Jet Engines and Parts			(204)						1,902						(2,106)
Corporate and Other			(2,349)						(2,098)						(251)
			$	179					$	704					$	(525)

Consolidated operating income for the quarter ended September 30, 2022 was $0.2 million, compared to an operating income of $0.7 million in the comparable quarter of the prior year.

The air cargo segment's operating income for the three-month period ended September 30, 2022 was relatively flat compared to the same quarter in the prior fiscal year. The increase in revenue discussed above was offset by the impairment of previously capitalized costs on a software project that was deemed no longer probable to be completed and placed in service.

The ground equipment sales segment's operating income for the quarter ended September 30, 2022 increased by $1.8 million from the prior year comparable quarter to $1.9 million. This increase was primarily attributable to the increased sales noted in the segment revenue discussion above.

The commercial jet engines and parts segment generated an operating loss of $0.2 million in the current-year quarter compared to an operating income of $1.9 million in the prior-year quarter. The change was primarily attributable to the sale of an airframe with higher profit margin in the prior-year quarter that did not recur in the current-year quarter. In addition, this segment incurred an inventory write-down of $1.0 million in the current quarter compared to none in the prior-year comparable quarter.

The corporate and other segment's operating loss for the three-month period ended September 30, 2022 was relatively flat compared to the same quarter in the prior fiscal year.

Following is a table detailing non-operating income (expense) during the three months ended September 30, 2022 compared to the same quarter in the prior fiscal year (in thousands):

			Three Months Ended September 30,												Change
			2022						2021
Interest expense			(1,996)						(1,167)						$	(829)
Income from equity method investments			266						14						252
Gain on forgiveness of Paycheck Protection Program (“PPP”) loan			—						8,331						(8,331)
Other			(357)						159						(516)
			$	(2,087)					$	7,337					$	(9,424)

The Company had a net non-operating loss of $2.1 million during the quarter ended September 30, 2022, compared to net non-operating income of $7.3 million in the prior-year quarter. In the second quarter 2021, the Company recorded a $8.3 million gain recognized on the SBA's forgiveness of the Company's PPP loan. In the current-year quarter, the Company had higher interest expense due to having more outstanding TruPs shares and more indebtedness at Contrail compared to the prior-year quarter. In addition, the Company recorded a $0.2 million unrealized loss due to fair value adjustments on our marketable investments in the current year compared to the prior year's $0.3 million unrealized gain.

During the three-month period ended September 30, 2022, the Company recorded global income tax benefit of $0.6 million at an effective tax rate ("ETR") of 30.0%. 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 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2022 were the change in valuation allowance related to Delphax, other capital losses, the estimated benefit for the exclusion of income for SAIC under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the three-month period ended September 30, 2021, the Company recorded $38.0 thousand in income tax expense at an ETR of 0.5%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax

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rate for the three-month period ended September 30, 2021 were the change in valuation allowance related to Delphax and other capital losses, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, and the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.

First Six Months of Fiscal 2022 Compared to First Six Months of Fiscal 2021

Following is a table detailing revenue by segment (in thousands):

			Six Months Ended September 30,												Change
			2022						2021
Overnight Air Cargo			$	42,633					$	37,697					$	4,936		13		%
Ground Equipment Sales			23,834						17,371						6,463			37		%
Commercial Jet Engines and Parts			41,841						24,510						17,331			71		%
Corporate and Other			3,242						628						2,614			416		%
			$	111,550					$	80,206					$	31,344		39		%

Revenues from the air cargo segment for the six months ended September 30, 2022 increased by $4.9 million (13%) compared to the six months ended September 30, 2021. The increase was principally attributable to increased administrative fees as well as higher pass-through revenue from FedEx as a result of increased business activity.

The ground equipment sales segment contributed approximately $23.8 million and $17.4 million to the Company’s revenues for the six-month periods ended September 30, 2022 and 2021 respectively, representing a $6.5 million (37%) increase in the current six-month period. The increase was primarily driven by significantly higher commercial ultimate deicers sales in the current year.

The commercial jet engines and parts segment contributed $41.8 million of revenues in the six months ended September 30, 2022 compared to $24.5 million in the comparable prior year six months. The increase was primarily driven by higher component part sales across all companies within the segment and engine sales at AirCo 1 that did not occur in the prior fiscal year.

Revenues from the corporate and other segment in the six months ended September 30, 2022 increased by $2.6 million (416%) compared to the six months ended September 30, 2021. The increase was primarily attributable to the acquisitions mentioned in Note 2 of the Notes to Condensed Consolidated Financial Statements of this report.

Following is a table detailing operating income (loss) by segment during the six months ended September 30, 2022 compared to the same six months in the prior fiscal year (in thousands):

			Six Months Ended September 30,												Change
			2022						2021
Overnight Air Cargo			$	1,922					$	1,589					$	333
Ground Equipment Sales			$	2,029					$	1,465					564
Commercial Jet Engines and Parts			$	2,870					$	1,664					1,206
Corporate and Other			(5,809)						(4,019)						(1,790)
			$	1,012					$	699					$	313

Consolidated operating income for the six months ended September 30, 2022 was $1.0 million compared to an operating income of $0.7 million for the comparable six months of the prior year.

Operating income for the air cargo segment for the six months ended September 30, 2022 increased by $0.3 million versus the prior year comparable period primarily due to the revenue increase noted above.

The ground equipment sales segment operating income increased by $0.6 million to $2.0 million in the six-month period ended September 30, 2022 versus the prior year comparable period. This increase was primarily attributable to the revenue increase noted above.

The commercial jet engines and parts segment generated an operating income of $2.9 million in the current-year six month period compared to an operating income of $1.7 million in the prior-year six-month period. The change was primarily attributable to the increased component sales as well as engine sales at AirCo 1 as explained in the segment revenue discussion above.

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The corporate and other segment's operating loss increased by $1.8 million to $5.8 million from the prior-year loss of $4.0 million primarily driven by higher benefits cost for the six months ended September 30, 2022.

Following is a table detailing non-operating income (loss) during the six months ended September 30, 2022 compared to the same six months in the prior fiscal year (in thousands):

			Six Months Ended September 30,												Change
			2022						2021
Interest expense			(3,818)						(2,105)						$	(1,713)
Income from equity method investments			798						97						701
Gain on forgiveness of Paycheck Protection Program (“PPP”) loan			—						8,331						(8,331)
Other			(509)						1,340						(1,849)
			(3,529)						7,663						$	(11,192)

The Company had a net non-operating loss of $3.5 million for the six months ended September 30, 2022 compared to a net non-operating income of $7.7 million in the prior-year six-month period. The decrease was primarily attributable to the $8.3 million gain recognized on the SBA's forgiveness of the Company's PPP loan and a $0.5 million gain on the liquidation of Delphax France, a subsidiary of Delphax Technologies, Inc. in the prior year. In the current year, the Company incurred $1.7 million higher interest expense due to having more outstanding TruPs shares and more indebtedness at Contrail. In addition, the Company recorded a $0.2 million unrealized loss due to fair value adjustments on our marketable investments in the current year compared to prior year's $0.6 million unrealized gain. The decrease was partially offset by $0.7 million higher net income from equity method investments in the current year compared to the prior year.

During the six-month period ended September 30, 2022, the Company recorded global income tax benefit of $0.4 million at an effective tax rate of 15.1%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the six-month period ended September 30, 2022 were the change in valuation allowance related to Delphax and other capital losses, the estimated benefit for the exclusion of income for SAIC under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail.

During the six-month period ended September 30, 2021, the Company recorded $33.0 thousand in income tax benefit which resulted in an effective tax rate of 0.4%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 2021 were the changes in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for SAIC under Section 831(b), the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail, the exclusion from taxable income of the PPP loan forgiveness income, as directed by the CARES Act enacted in 2020, and any accrued interest forgiven as a part of that Act.

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, 2022. 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 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 September 30, 2022.

Seasonality

The ground equipment sales segment business has historically been seasonal, with the revenues and operating income typically being lower in the first and fourth fiscal quarters as commercial deicers are typically delivered prior to the winter season. Other segments have typically not experienced material seasonal trends.

Supply Chain and Inflation

The Company continues to monitor a wide range of health, safety, and regulatory matters related to the COVID-19 pandemic including its impact on our business operations. In particular, supply chain disruptions have impacted product availability and costs across all markets including the aviation industry in which our company operates. Additionally, the United States is experiencing workforce shortages and increasing inflation which has created a competitive wage environment. Thus far, the direct impact of these

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items on our businesses has not been material. However, ongoing or future disruptions to consumer demand, our supply chain, product pricing inflation, our ability to attract and retain employees, or our ability to procure products and fulfill orders, could negatively impact the Company’s operations and financial results in a material manner. We continue to look for proactive ways to mitigate potential impacts of supply chain disruptions at our businesses.

Liquidity and Capital Resources

As of September 30, 2022, the Company held approximately $9.5 million in cash and cash equivalents and restricted cash, $2.0 million of which related to restricted cash collateralized held for three opportunity zone investments made by the Company - Air T OZ 1, LLC, Air T OZ 2, LLC, and Air T OZ 3, LLC (the "Opportunity Zone Funds"), each a Minnesota limited liability company and a subsidiary of the Company. The Company also held $1.6 million in restricted investments held as statutory reserve of SAIC. The Company has approximately $0.8 million of marketable securities and an aggregate of approximately $19.0 million in available funds under its lines of credit as of September 30, 2022.

As of September 30, 2022, the Company’s working capital amounted to $73.4 million, a decrease of $24.0 million compared to March 31, 2022 primarily driven by the increase in current portion of long-term debt as the revolving lines of credit at Air T with MBT and Contrail with ONB become due within a year.

As mentioned in Note 12 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, on June 9, 2022, the Company, Jet Yard and MBT entered into Amendment No. 1 to Third Amended and Restated Credit Agreement (“Amendment”) and a related Overline Note (“Overline Note”) in the original principal amount of $5.0 million. The Amendment and Note memorialize an increase to the amount that may be drawn by the Company on the MBT revolving credit agreement from $17.0 million to $22.0 million. As of September 30, 2022, the unused commitment of the Overline Note was $4.1 million and no unused commitment on the MBT Revolver. The total amount of borrowings under the facility as revised is now the Company’s calculated borrowing base or $22.0 million. The borrowing base calculation methodology remains unchanged.

As mentioned in Note 9 and Note 12 of Notes to Condensed Consolidated Financial Statements of this report, on September 30, 2022, the Company executed a promissory note payable to CCI for $2.0 million that bears interest at 10% per annum and matures on December 30, 2022. The note may be prepaid at any time without penalty. The note is subordinate and junior to any and all indebtedness of the Company to MBT.

As mentioned in Note 15 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q, in 2016, Contrail entered into an Operating Agreement with the Seller providing for the put and call options with regard to the 21% non-controlling interest retained by the Seller. The Seller is the founder of Contrail and its current Chief Executive Officer. The Put/Call Option permits the Seller or the Company to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation commencing on July 18, 2021. As of the date of this filing, neither the Seller nor the Company has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.

As mentioned in Note 15 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, on May 5, 2021, the Company formed an aircraft asset management business called CAM and an aircraft capital joint venture called CJVII. The venture focuses on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII targets investments in current generation narrow-body aircraft and engines, building on Contrail Aviation’s origination and asset management expertise. CAM serves two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII, and 2) to directly invest into CJVII alongside other institutional investment partners. CAM has an initial commitment to CJVII of approximately $53.0 million, which is comprised of an $8.0 million initial commitment from the Company and an approximately $45.0 million initial commitment from MRC. As of September 30, 2022, CAM's remaining capital commitments are approximately $0.8 million from the Company and $17.3 million from MRC. CJVII was initially capitalized with up to $408.0 million of equity from the Company and three institutional investor partners, consisting of $108.0 million in initial commitments and $300.0 million in upsize capacity, contingent on underwriting and transaction appeal. As of the date of this filing, $104.4 million of capital has been deployed to CJVII. The timing of the remaining capital commitment is not yet known at this time.

The revolving lines of credit at Air T with MBT and Contrail with ONB have a due date or expire within the next twelve months. We are currently seeking to refinance these obligations prior to their respective maturity dates; however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance these obligations, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.

The Company believes it is probable that the cash on hand and current financings, net cash provided by operations from its remaining operating segments, together with amounts available under our current revolving lines of credit, as amended, will be sufficient 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.

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Cash Flows

Following is a table of changes in cash flow for the six months ended September 30, 2022 and 2021 (in thousands):

			Six Months Ended September 30,
			2022						2021
Net Cash Used in Operating Activities			(13,946)						(22,753)
Net Cash Used in Investing Activities			(1,776)						(2,376)
Net Cash Provided by Financing Activities			16,757						15,425
Effect of foreign currency exchange rates on cash and cash equivalents			62						51
Net Increase (Decrease) in Cash and Cash Equivalents and Restricted Cash			1,097						(9,653)

Net cash used in operating activities was $13.9 million for the six-month period ended September 30, 2022 compared to net cash used in operating activities of $22.8 million in the prior year six-month period, resulting in an overall decrease of $8.9 million period over period. The change in net cash used in operating activities was primarily driven by a net increase in cash provided by receivables of $7.7 million due to increased sales in the current period and lower payables and accrued expenses of $5.0 million, mostly attributable to timing of payroll, bonus, and health insurance payments. Those changes are partially offset by a $4.0 million net increase in cash used to purchase inventories at Contrail and AirCo.

Net cash used in investing activities for the six-month period ended September 30, 2022 was $1.8 million compared to net cash used in investing activities of $2.4 million in the prior-year period. The decrease in cash usage in investing activities was primarily driven by higher distributions received from equity method investments and less cash spent on purchases of intangible assets in the current year compared to the prior year.

Net cash provided by financing activities for the six-month period ended September 30, 2022 was $16.8 million compared to net cash provided by financing activities of $15.4 million in the prior-year period. The increase was primarily driven by higher net cash proceeds from the Company's term loans and revolving lines of credit, partially offset by issuance of TruPs in the prior quarter that did not recur in the current quarter.

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 aircraft engines that are on lease, as the Company believes this expense matches with the corresponding revenue earned on engine leases. Depreciation expense for leased engines totaled $0.4 million and $18.0 thousand for the three months ended September 30, 2022 and 2021, respectively.

Management believes that Adjusted EBITDA is a useful measure of the Company's performance because it provides investors additional information about the Company's operations allowing better evaluation of underlying business performance and better period-to-period comparability. Adjusted EBITDA is not intended to replace or be an alternative to operating income (loss), the most directly comparable amounts reported under GAAP.

The tables below provide a reconciliation of operating income (loss) to Adjusted EBITDA for the three and six months ended September 30, 2022 and 2021 (in thousands):

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			Three months ended												Six months ended
			9/30/2022						9/30/2021						9/30/2022						9/30/2021
Operating income			$	179					$	704					$	1,012					$	699
Depreciation and amortization (excluding leased engines depreciation)			645						304						1,252						584
Asset impairment, restructuring or impairment charges			1,488						—						1,536						—
(Gain) Loss on disposition of assets			(1)						—						(2)						3
Security expenses			19						60						34						65
Adjusted EBITDA			$	2,330					$	1,068					$	3,832					$	1,351

Included in the asset impairment, restructuring or impairment charges for the three months ended September 30, 2022 was a write-down of $1.0 million on the commercial jet engines and parts segment's inventory. Also included in that number is an impairment charge of $0.3 million related to previously capitalized costs on a software project that was deemed no longer probable to be completed and placed in service.

The table below provides Adjusted EBITDA by segment for the three and six months ended September 30, 2022 and 2021 (in thousands):

			Three months ended												Six months ended
			9/30/2022						9/30/2021						9/30/2022						9/30/2021
Overnight Air Cargo			$	1,204					$	871					$	2,300					$	1,617
Ground Equipment Sales			1,933						74						2,124						1,531
Commercial Jet Engines and Parts			979						2,098						4,248						2,024
Corporate and Other			(1,786)						(1,975)						(4,840)						(3,821)
Adjusted EBITDA			$	2,330					$	1,068					$	3,832					$	1,351

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to various risks, including interest rate risk. As interest rates have increased, are projected to increase and can be volatile, the Company has designated a risk management policy which permits the use of derivative instruments to provide protection against rising interest rates on variable rate debt. See Note 8 of Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Report on Form 10-Q for further discussion on the Company’s use of such derivative instruments.

Item 4.    Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures. The Certifying Officers have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of September 30, 2022. Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the Certifying Officers have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions, regardless of how remote.

There has not been any change in the Company’s internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II -- OTHER INFORMATION

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

(a)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 in June 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.

Purchases during the quarter ended September 30, 2022 are described below:

Dates of Shares Purchased						Total Number of Shares Purchased						Average Price Paid per Share						Total Number of Shares Purchased as Part of Public Announced Plans or Programs						Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - July 31, 2022						—						$	—					188,745						923,507
August 1 - August 31, 2022						2,261						$	17.18					191,006						921,246
September 1 - September 30, 2022						17,159						$	18.17					208,165						904,087
						19,420

Item 5.    Other information

(a) Other Information

Item 1.01 Entry into a Material Definitive Agreement

On November 8, 2022, Contrail entered into the Second Amendment to Master Loan Agreement with ONB. The Amendment amends the Master Loan Agreement dated as of June 24, 2019, as amended.

The principal revisions made in the Amendment are: (i) the tangible net worth covenant was revised to require that Contrail maintain a tangible net worth of at least $12.0 million at all times prior to March 31, 2024 and $15.0 million at all times on or following March 31, 2024; and, (ii) that all proceeds from certain asset sales during the period beginning on October 1, 2022 and ending on March 31, 2023 be applied as prepayments on Term Loan G. The effectiveness of the Amendment is conditioned on Contrail executing a Collateral Assignment of two Aircraft Engine Lease Agreements. The form of Collateral Assignment is attached as an exhibit to the Amendment.

The foregoing summary of the terms of the Amendment is qualified in its entirety by reference to the form of Second Amendment to Master Loan Agreement with Exhibit filed as Exhibit 10.2 herewith, which is incorporated herein by reference.

Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

To the extent required by Item 2.03 of Form 8-K, the information contained in Item 1.01 is incorporated by reference into this Item 2.03.

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Item 6.    Exhibits

(a) Exhibits

No.			Description
10.1			Form Promissory Note dated September 30, 2022, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 4, 2022 (Commission file No. 001-35476).
10.2			Second Amendment to Master Loan Agreement, dated November 10,2022 between Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC and Old National Bank.
31.1			Section 302 Certification of Chief Executive Officer and President
31.2			Section 302 Certification of Chief Financial Officer
32.1			Section 1350 Certifications
101			The following financial information from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Stockholders Equity, and (v) the Notes to the Condensed Consolidated Financial Statements.

* Portions of this exhibit have been omitted for confidential treatment.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

			AIR T, INC.
Date: November 10, 2022
			/s/ Nick Swenson
			Nick Swenson, Chief Executive Officer and Director
			/s/ Brian Ochocki
			Brian Ochocki, Chief Financial Officer

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