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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 December 31, 2021
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 January 31, 2022 2,876,953





AIR T, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
Page
PART I
4
5
Condensed Consolidated Balance Sheets (Unaudited) as of December 31, 2021 and March 31, 2021
6
7
8
9
24
31
31
31
Item 5.
32
33
34
Exhibit Index
Certifications
Interactive Data Files

3



Item 1.    Financial Statements
AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in thousands, except income (loss) per share number) Three Months Ended
December 31,
Nine Months Ended
December 31,
2021 2020 2021 2020
Operating Revenues:
Overnight air cargo $ 18,248  $ 16,322  $ 55,946  $ 49,789 
Ground equipment sales 15,232  20,769 32,603  48,656
Commercial jet engines and parts 11,392  18,078 35,902  28,886
Corporate and other 561 650 1,189  1,063
45,433  55,819 125,640  128,394
Operating Expenses:
Overnight air cargo 16,209  14,505  49,506  43,906 
Ground equipment sales 11,988  14,966  25,550  36,923 
Commercial jet engines and parts 7,601  16,086  22,707  22,861 
General and administrative 9,168  8,303  26,004  24,940 
Depreciation and amortization 442  886  1,146  2,644 
Loss on sale of property and equipment — 
45,408  54,751  124,916  131,275 
Operating Income (Loss) from continuing operations 25  1,068  724  (2,881)
Non-operating Income (Expense):
Interest expense (1,236) (1,172) (3,341) (3,413)
Income (Loss) from equity method investments 99  510  197  (546)
Gain on forgiveness of Paycheck Protection Program (“PPP”) loan —  —  8,331  — 
Other-than-temporary impairment loss on investments (348) —  (348) — 
Other (11) 1,039  1,329  2,125 
(1,496) 377  6,168  (1,834)
(Loss) Income from continuing operations before income taxes (1,471) 1,445  6,892  (4,715)
Income Taxes Benefit (282) (318) (249) (2,165)
Net (Loss) Income from continuing operations (1,189) 1,763  7,141  (2,550)
Gain on sale of discontinued operations, net of tax —  —  — 
Net (Loss) Income (1,189) 1,763  7,141  (2,546)
Net (Income) Loss Attributable to Non-controlling Interests $ (73) $ 335  $ (559) $ 884 
Net (Loss) Income Attributable to Air T, Inc. Stockholders $ (1,262) $ 2,098  $ 6,582  $ (1,662)
(Loss) Income from continuing operations per share (Note 6)
Basic $ (0.44) $ 0.73  $ 2.28  $ (0.58)
Diluted $ (0.44) $ 0.73  $ 2.28  $ (0.58)
Income from discontinued operations per share (Note 6)
Basic $ —  $ —  $ —  $ — 
Diluted $ —  $ —  $ —  $ — 
(Loss) Income per share (Note 6)
Basic $ (0.44) $ 0.73  $ 2.28  $ (0.58)
Diluted $ (0.44) $ 0.73  $ 2.28  $ (0.58)
Weighted Average Shares Outstanding:
Basic 2,882  2,882  2,882  2,882 
Diluted 2,882  2,887  2,893  2,882 
See notes to condensed consolidated financial statements.
4



AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)

Three Months Ended
December 31,
Nine Months Ended
December 31,
(In Thousands) 2021 2020 2021 2020
Net (Loss) Income $ (1,189) $ 1,763  $ 7,141  $ (2,546)
Foreign currency translation gain (loss) 19  (22) 73  (157)
Unrealized (loss) gain on interest rate swaps (20) 71  37  100 
Reclassification of interest rate swaps into earnings 22  (1) 19  (17)
Total Other Comprehensive Income (Loss) 21  48  129  (74)
Total Comprehensive (Loss) Income (1,168) 1,811  7,270  (2,620)
Comprehensive (Income) Loss Attributable to Non-controlling Interests (73) 335  (559) 884 
Comprehensive (Loss) Income Attributable to Air T, Inc. Stockholders $ (1,241) $ 2,146  $ 6,711  $ (1,736)
See notes to condensed consolidated financial statements.
5



AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts) December 31, 2021 March 31, 2021
ASSETS
Current Assets:
Cash and cash equivalents $ 2,576  $ 10,996 
Marketable securities 2,630  1,407 
Restricted cash 3,263  4,931 
Restricted investments 714  1,507 
Accounts receivable, net of allowance for doubtful accounts of $1,513 and $1,177
10,548  6,505 
Income tax receivable 4,735  4,389 
Inventories, net 76,446  71,971 
Other current assets 5,884  4,068 
Total Current Assets 106,796  105,774 
Assets on lease or held for lease, net of accumulated depreciation of $728 and $436
5,896  2,131 
Property and equipment, net of accumulated depreciation of $5,111 and $4,510
21,328  8,519 
Right-of-use ("ROU") assets 7,099  7,757 
Equity method investments 8,785  4,475 
Goodwill 4,227  4,227 
Other assets 9,665  7,867 
Total Assets $ 163,796  $ 140,750 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 7,952  8,344 
Income tax payable —  39 
Accrued expenses and other (Note 4) 8,959  12,787 
Current portion of long-term debt 2,962  5,639 
Short-term lease liability 1,337  1,370 
Total Current Liabilities 21,210  28,179 
Long-term debt 105,436  81,857 
Deferred income tax liabilities, net 607  595 
Long-term lease liability 6,555  7,075 
Other non-current liabilities 808  1,732 
Total Liabilities $ 134,616  $ 119,438 
Redeemable non-controlling interest 7,885  6,598 
Commitments and contingencies (Note 14)
Equity:
Air T, Inc. Stockholders' Equity:
Preferred stock, $1.00 par value, 50,000 shares authorized
— 
Common stock, $.25 par value; 4,000,000 shares authorized, 3,022,745 shares issued, 2,881,853 shares outstanding
756  756 
Treasury stock, 140,892 shares at $18.58
(2,617) (2,617)
Additional paid-in capital 315  — 
Retained earnings 22,283  16,270 
Accumulated other comprehensive loss (555) (684)
Total Air T, Inc. Stockholders' Equity $ 20,182  $ 13,725 
Non-controlling Interests 1,113  989 
Total Equity 21,295  14,714 
Total Liabilities and Equity $ 163,796  $ 140,750 
See notes to condensed consolidated financial statements.
6



AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(In Thousands) Nine Months Ended
December 31,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) 7,141  (2,546)
Gain on sale of discontinued operations, net of income tax —  (4)
Net Income (Loss) from continuing operations 7,141  (2,550)
Adjustments to reconcile Net Income (Loss) to net cash provided by operating activities:
Depreciation and amortization 1,146  2,644 
Gain on forgiveness of PPP loan (8,331) — 
Other (225) 668 
Change in operating assets and liabilities:
Accounts receivable (4,378) (6,784)
Inventories (8,593) 6,118 
Accounts payable (379) (2,913)
Accrued expenses (3,247) (1,056)
Other (2,824) (2,788)
Net cash used in operating activities - continued operations (19,690) (6,661)
Net cash provided by operating activities - discontinued operations — 
Net cash used in operating activities (19,690) (6,657)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities —  (659)
Sale of marketable securities 2,445 
Proceeds from sale of assets on lease —  1,900 
Investment in unconsolidated entities (4,461) — 
Acquisition of assets (13,408) — 
Capital expenditures related to property & equipment (1,205) (3,415)
Capital expenditures related to assets on lease or held for lease —  (124)
Other (478) (455)
Net cash used in investing activities (19,546) (308)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit 59,247  47,886 
Payments on lines of credit (54,063) (54,738)
Proceeds from term loan 16,080  59,277 
Payments on term loan (2,909) (18,176)
Proceeds from PPP loan —  8,215 
Proceeds received from issuance of Trust Preferred Securities ("TruPs") 10,671 
Other 53  (2,082)
Net cash provided by financing activities 29,079  40,383 
Effect of foreign currency exchange rates on cash and cash equivalents 69  (164)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH (10,088) 33,254 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD 15,927  15,571 
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD 5,839  48,825 
See notes to condensed consolidated financial statements.
7



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, 2020 3,023  $ 756  141  $ (2,617) $ 2,636  $ 23,768  $ (537) $ 1,005  $ 25,011 
Net loss* —  —  —  —  —  (841) —  (5) (846)
Unrealized loss on interest rate swaps, net of tax —  —  —  —  —  —  (26) —  (26)
Foreign currency translation loss —  —  —  —  —  —  (67) —  (67)
Adjustment to fair value of redeemable non-controlling interests —  —  —  —  429  —  —  —  429 
Balance, June 30, 2020 3,023  $ 756  $ 141  $ (2,617) $ 3,065  $ 22,927  $ (630) $ 1,000  $ 24,501 
Net loss* —  —  —  —  —  (2,920) —  (8) (2,928)
Unrealized gain on interest rate swaps, net of tax —  —  —  —  —  —  55  —  55 
Foreign currency translation loss —  —  —  —  —  —  (68) —  (68)
Adjustment to fair value of redeemable non-controlling interests —  —  —  —  (890) —  —  —  (890)
Balance, September 30, 2020 3,023  $ 756  $ 141  $ (2,617) $ 2,175  $ 20,007  $ (643) $ 992  $ 20,670 
Net income (loss)* —  —  —  —  —  2,098  —  (1) 2,097 
Unrealized gain on interest rate swaps, net of tax —  —  —  —  —  —  71  —  71 
Foreign currency translation loss —  —  —  —  —  —  (22) —  (22)
Adjustment to fair value of redeemable non-controlling interests —  —  —  —  (888) —  —  —  (888)
Balance, December 31, 2020 3,023  $ 756  $ 141  $ (2,617) $ 1,287  $ 22,105  $ (594) $ 991  $ 21,928 


(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 interest —  —  —  —  —  (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 interest —  —  —  —  —  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 
Net loss* —  —  —  —  —  (1,262) —  (17) (1,279)
Stock compensation expense —  —  —  —  79  —  —  —  79 
Foreign currency translation gain —  —  —  —  —  —  19  —  19 
Adjustment to fair value of redeemable non-controlling interest —  —  —  —  —  (514) —  —  (514)
Unrealized loss on interest rate swaps, net of tax —  —  —  —  —  —  (20) —  (20)
Reclassification of interest rate swaps into earnings —  —  —  —  —  —  22  —  22 
Balance, December 31, 2021 3,023  $ 756  $ 141  $ (2,617) $ 315  $ 22,283  $ (555) $ 1,113  21,295 

*Excludes amount attributable to redeemable non-controlling interest in Contrail.
See notes to condensed consolidated financial statements.
8



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, 2021. The results of operations for the period ended December 31, 2021 are not necessarily indicative of the operating results for the full year.

Discontinued Operations

On September 30, 2019, the Company completed the sale of Global Aviation Services, LLC ("GAS"). The results of operations of GAS are reported as discontinued operations in the condensed consolidated statements of operations for the nine months ended December 31, 2020. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.

Formation of new entities
On May 5, 2021, the Company formed a new aircraft asset management business called Contrail Asset Management, LLC (“CAM”), and a new aircraft capital joint venture called Contrail JV II LLC (“CJVII”). The Company and Mill Road Capital (“MRC”) have agreed to become common members in CAM. CAM will serve two separate and distinct functions: 1) to direct the sourcing, acquisition and management of aircraft assets owned by CJVII (“Asset Management Function”), and 2) to directly invest into CJVII alongside other institutional investment partners (“Investment Function”). For the Asset Management Function, CAM will receive origination fees, management fees, consignment fees (where applicable) and a carried interest. For its Investment Function, 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. Any investment returns will be shared pro-rata between the Company and MRC.

COVID-19 Pandemic
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 substantial number of disruptions, and we experienced and continue to experience 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 the remainder of fiscal 2022 and beyond. 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 our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.
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.

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


9



2.    Acquisitions

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 the real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company 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 the Air T's 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 11.

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 
Above market leases
Below market leases (139)
Intangible origination costs 512 
Absorption period costs 732 
$ 13,408 
10



3.    Revenue Recognition
Substantially all of the Company’s non-lease revenue is derived from contracts with an initial expected duration of one year or less. As a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.
The following is a description of the Company’s performance obligations:
Type of Revenue Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
Product Sales The Company generates revenue from sales of various distinct products such as parts, aircraft equipment, jet engines, airframes, and scrap metal to its customers. A performance obligation is created when the Company accepts an order from a customer to provide a specified product. Each product ordered by a customer represents a performance obligation.

The Company recognizes revenue when obligations under the terms of the contract are satisfied; generally, this occurs at a point-in-time upon shipment or when control is transferred to the customer. Transaction prices are based on contracted terms, which are at fixed amounts based on standalone selling prices. While the majority of the Company's contracts do not have variable consideration, for the limited number of contracts that do, the Company records revenue based on the standalone selling price less an estimate of variable consideration (such as rebates, discounts or prompt payment discounts). The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue.

The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service agreement or by the contract.
Support Services The Company provides a variety of support services such as aircraft maintenance and short-term repair services to its customers. Additionally, the Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis.

For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is appropriate as the Company is performing labor hours and installing parts to enhance an asset that the customer controls. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service.

Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis.
In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are immaterial for disclosure under Topic 606.
The following table summarizes disaggregated revenues by type (in thousands):
Three Months Ended December 31, Nine Months Ended December 31,
2021 2020 2021 2020
Product Sales
Air Cargo $ 5,493  $ 4,970  $ 17,680  $ 15,013 
Ground equipment sales 14,674  20,365  31,600  47,935 
Commercial jet engines and parts 9,379  16,471  29,827  23,450 
Corporate and other 85  73  199  106 
Support Services
Air Cargo 12,734  11,342  38,228  34,751 
Ground equipment sales 173  109  306  193 
Commercial jet engines and parts 1,686  1,191  5,342  3,771 
Corporate and other 72  47  189  72 
Leasing Revenue
Air Cargo —  —  —  — 
Ground equipment sales 141  39  219  110 
Commercial jet engines and parts 298  373  642  1,537 
Corporate and other 145  36  221  178 
Other
Air Cargo 21  10  38  25 
Ground equipment sales 244  256  478  418 
Commercial jet engines and parts 29  43  91  128 
Corporate and other 259  494  580  707 
Total $ 45,433  $ 55,819  $ 125,640  $ 128,394 
See Note 12 for the Company's disaggregated revenues by geographic region and Note 13 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, 2021 and December 31, 2021 and the amount of contract liabilities as of April 1, 2021 that were recognized as revenue during the nine-month period ended December 31, 2021 (in thousands):

Outstanding contract liabilities Outstanding contract liabilities as of April 1, 2021
Recognized as Revenue
As of December 31, 2021 $ 1,585 
As of April 1, 2021 $ 1,358 
For the nine months ended December 31, 2021 $ 1,180 

11



4.     Accrued Expenses and Other

(in thousands) December 31, 2021 March 31, 2021
Salaries, wages and related items $ 4,356  $ 5,427 
Profit sharing and bonus 387  2,706 
Other Deposits 1,352  1,251 
Other 2,864  3,403 
Total $ 8,959  $ 12,787 

12



5.    Income Taxes

During the three-month period ended December 31, 2021, the Company recorded $0.3 million in income tax benefit at an effective tax rate ("ETR") of 19.2%. 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 December 31, 2021 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"), 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 the Company's 79%-owned subsidiary ("Contrail").

During the three-month period ended December 31, 2020, the Company recorded $0.3 million in income tax benefit at an ETR of (22.0)%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, 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 nine-month period ended December 31, 2021, the Company recorded $0.2 million in income tax benefit at an effective rate of (3.6)%. 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 nine-month period ended December 31, 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.

During the nine-month period ended December 31, 2020, the Company recorded $2.2 million in income tax benefit which resulted in an effective tax rate of 45.9%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the nine-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, 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.

13



6.    Net Earnings (Loss) Per Share
Basic earnings 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. The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures):
Three Months Ended December 31, Nine Months Ended December 31,
2021 2020 2021 2020
Net (loss) income from continuing operations $ (1,189) $ 1,763  $ 7,141  $ (2,550)
Net (income) loss from continuing operations attributable to non-controlling interests (73) 335  (559) 884 
Net (loss) income from continuing operations attributable to Air T, Inc. Stockholders (1,262) 2,098  6,582  (1,666)
(Loss) Income from continuing operations per share:
Basic $ (0.44) $ 0.73  $ 2.28  $ (0.58)
Diluted $ (0.44) $ 0.73  $ 2.28  $ (0.58)
Antidilutive shares excluded from computation of loss per share from continuing operations 11  —  — 
Gain on sale of discontinued operations, net of tax —  —  — 
Income from discontinued operation attributable to Air T, Inc. stockholders —  —  — 
Income from discontinued operations per share:
Basic $ —  $ —  $ —  $ — 
Diluted $ —  $ —  $ —  $ — 
(Loss) Income per share:
Basic $ (0.44) $ 0.73  $ 2.28  $ (0.58)
Diluted $ (0.44) $ 0.73  $ 2.28  $ (0.58)
Antidilutive shares excluded from computation of loss per share 11  —  — 
Weighted Average Shares Outstanding:
Basic 2,882  2,882  2,882  2,882 
Diluted 2,882  2,887  2,893  2,882 




14



7.    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.
As mentioned in Note 11, on August 31, 2021, Air T and 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 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. The effective portion of changes in the fair value on this instrument is recorded in other comprehensive income and is reclassified into the condensed consolidated statement of income (loss) as interest expense in the same period in which the underlying hedged transaction affects earnings. This interest rate swap is considered a Level 2 fair value measurement. As of December 31, 2021 and March 31, 2021, the fair value of this interest-rate swap contract was a liability of $0.4 million and $0.6 million, respectively, which is included within other non-current liabilities in the condensed consolidated balance sheets. During the three and nine months ended December 31, 2021, the Company recorded a loss of approximately $20.0 thousand and a gain of $37.0 thousand, net of tax, respectively, in the condensed consolidated statement of comprehensive income (loss) for changes in the fair value of this instrument.

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 nine months ended December 31, 2021, the Company did not record any gain or loss related to these derivative instruments. During the three months ended December 31, 2020, the Company had a gross gain aggregating to $0.1 million and gross loss aggregating to $1.6 thousand related to these derivative instruments. During the nine months ended December 31, 2020, the Company had a gross gain aggregating to $0.8 million and a gross loss aggregating to $23.7 thousand related to these derivative instruments.

The Company also invests in exchange-traded marketable securities and accounts for that activity in accordance with ASC 321, Investments- Equity Securities. Marketable equity securities are carried at fair value, with changes in fair market value included in the determination of net income. The fair market value of marketable equity securities is determined based on quoted market prices in active markets and are therefore, considered Level 1 fair value measurements. During the three months ended December 31, 2021, the Company had a gross unrealized gain aggregating to $1.7 million and a gross unrealized loss aggregating to $1.9 million. During the nine months ended December 31, 2021, the Company had a gross unrealized gain aggregating to $2.5 million and a gross unrealized loss aggregating to $2.1 million. During the three months ended December 31, 2020, the Company had a gross unrealized gain aggregating to $0.8 million and a gross unrealized loss aggregating to $0.3 million. During the nine months ended December 31, 2020, the Company had a gross unrealized gain aggregating to $1.6 million and a gross unrealized loss aggregating to $1.1 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 December 31, 2021 and 2020, the Company had outstanding borrowings of $0 and $0.7 million under its margin account, respectively, which is reflected in accrued expenses and other on the condensed consolidated balance sheets. As of December 31, 2021 and 2020, the Company had cash margin balances related to exchange-traded equity securities and securities sold short of $0 and $1.3 million, respectively, which is reflected in other current assets on the condensed consolidated balance sheets.
15



8.    Equity Method Investments
The Company’s investment in Insignia Systems, Inc. (“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 December 31, 2021, the number of Insignia's shares owned by the Company was 0.5 million, representing approximately 28% 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 any additional share of Insignia's net loss as of December 31, 2021. 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 18.98% 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 a loss of $0.1 million and $0.6 million as its share of CCI's net loss for the three and nine months ended December 31, 2021, along with a basis difference adjustment of $13.0 thousand and $38.0 thousand, respectively. Additionally, due to the adverse financial results as reported in CCI's financial statements for the quarters ended June 30, 2021 and September 30, 2021, in addition to consideration of industry reports and other qualitative factors, the Company determined that it has suffered from an other-than-temporary impairment in its investment in CCI. As such, the Company recorded an impairment charge of $0.3 million during the quarter ended December 31, 2021. After the impairment, the Company's net investment basis in CCI is $2.8 million as of December 31, 2021.
Summarized unaudited financial information for the Company's equity method investees for the three and nine months ended September 30, 2021 and 2020 is as follows (in thousands):
Three Months Ended Nine Months Ended
September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Revenue $ 29,408  $ 27,327  $ 87,396  $ 61,402 
Gross Profit 1,256  3,231  3,160  5,196 
Operating loss (1,339) 891  (6,544) (3,496)
Net loss (1,434) 2,242  (5,847) (2,075)
Net loss attributable to Air T, Inc. stockholders $ (110) $ 355  $ (678) $ (705)

16



9.    Inventories
Inventories consisted of the following (in thousands):
December 31,
2021
March 31,
2021
Overnight air cargo $ 30  $ — 
Ground equipment manufacturing:
Raw materials 4,509  4,695 
Work in process 2,120  5,820 
Finished goods 8,714  1,691 
Corporate and other:
Raw materials 650  462 
Finished goods 728  889 
Commercial jet engines and parts 61,583  60,516 
Total inventories $ 78,334  $ 74,073 
Reserves (1,888) (2,102)
Total inventories, net of reserves $ 76,446  $ 71,971 


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10.     Leases
The Company has operating leases for the use of real estate, machinery, and office equipment. The majority of our leases have a lease term of 2 to 5 years; however, we have certain leases with longer terms of up to 30 years. Many of our leases include options to extend the lease for an additional period.
The lease term for all of the Company’s leases includes the non-cancellable period of the lease, plus any additional periods covered by either a Company option to extend the lease that the Company is reasonably certain to exercise, or an option to extend the lease controlled by the lessor that is considered likely to be exercised.
Payments due under the lease contracts include fixed payments plus, for some of our leases, variable payments. Variable payments are typically operating costs associated with the underlying asset and are recognized when the event, activity, or circumstance in the lease agreement on which those payments are assessed occurs. Our leases do not contain residual value guarantees.
The Company has elected to combine lease and non-lease components as a single component and not to recognize leases on the balance sheet with an initial term of one year or less.
The interest rate implicit in lease contracts is typically not readily determinable, and as such the Company utilizes the incremental borrowing rate to calculate lease liabilities, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The components of lease cost for the three and nine months ended December 31, 2021 and 2020 are as follows (in thousands):
Three Months Ended December 31, Nine Months Ended December 31,
2021 2020 2021 2020
Operating lease cost $ 499  $ 547  $ 1,366  $ 1,599 
Short-term lease cost 325  50  983  251 
Variable lease cost 174  241  464  532 
Total lease cost $ 998  $ 838  $ 2,813  $ 2,382 
Amounts reported in the consolidated balance sheets for leases where we are the lessee as of December 31, 2021 and March 31, 2021 were as follows (in thousands):
December 31, 2021 March 31, 2021
Operating leases
Operating lease ROU assets 7,099  7,757 
Operating lease liabilities 7,892  8,445 
Weighted-average remaining lease term
Operating leases 13 years, 10 months 13 years, 9 months
Weighted-average discount rate
Operating leases 4.33  % 4.37  %
Maturities of lease liabilities under non-cancellable leases where we are the lessee as of December 31, 2021 are as follows (in thousands):
Operating Leases
2022 (excluding the nine months ended December 31, 2021) $ 440 
2023 1,733 
2024 1,372 
2025 1,116 
2026 870 
2027 704 
Thereafter 5,300 
Total undiscounted lease payments $ 11,535 
Less: Interest (3,144)
Less: Discount (499)
Total lease liabilities $ 7,892 



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11.    Financing Arrangements
As mentioned in Note 2, 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 the real estate purchase agreement with WLPC East, LLC, a Minnesota limited liability company dated October 11, 2021. The purchase price was $13.2 million, which was paid for with approximately $3.3 million in cash and a new secured loan from Bridgewater with an aggregate principal amount of $9.9 million and a fixed interest rate of 3.65% which matures on December 2, 2031 ("Wolfe Lake Debt"). The promissory note provides for monthly payments of principal and interest commencing January 1, 2022 and continuing to the maturity date in the amount of $50.9 thousand.

On April 13, 2020, the Company entered into a loan with Minnesota Bank & Trust ("MBT") with a principal amount of $8.2 million pursuant to the Payroll Protection Program ("PPP Loan"), backed by the Small Business Administration ("SBA"), under the CARES Act. As of December 31, 2021, the Company's PPP Loan was fully forgiven by the SBA. As such, the Company accounted for its then outstanding principal and accrued interest as a gain on extinguishment in accordance with ASC 470.

The following table provides certain information about the current financing arrangements of the Company's and its subsidiaries as of December 31, 2021:
(In Thousands) December 31,
2021
March 31,
2021
Maturity Date Interest Rate Unused commitments
Air T Debt
  Revolver - MBT $ 3,680  $ —  August 31, 2023
Greater of 2.5% or Prime - 1%
$ 13,320 
  Term Note A - MBT 8,734  6,750  August 31, 2031 3.42%
  Term Note B - MBT 3,081  3,375  August 31, 2031 3.42%
  Term Note D - MBT 1,422  1,472  January 1, 2028
1-month LIBOR + 2%
Term Note E - MBT 2,856  4,706  June 25, 2025
Greater of LIBOR + 1.5% or 2.5%
Debt - Trust Preferred Securities 24,960  14,289  June 7, 2049 8.00%
PPP Loan —  8,215  December 24, 20221 1.00%
Total 44,733  38,807 
AirCo 1 Debt
Term Loan - PSB 6,393  6,200  December 11, 2025
3-month LIBOR + 3.00%
Total 6,393  6,200 
Jet Yard Debt
Term Loan - MBT 1,968  —  August 31, 2031 4.14%
Total 1,968  — 
Contrail Debt
Revolver - Old National Bank ("ONB") 1,503  —  September 5, 2023
1-month LIBOR + 3.45%
23,497 
Term Loan G - ONB 44,918  43,598  November 24, 2025
1-month LIBOR + 3.00%
Total 46,421  43,598 
Delphax Solutions Debt
Canadian Emergency Business Account Loan 32  32  December 31, 2025 5.00%
Total 32  32 
Wolfe Lake Debt
Term Loan - Bridgewater 9,900  —  December 2, 2031 3.65%
Total 9,900  — 
Total Debt 109,447  88,637 
Less: Unamortized Debt Issuance Costs (1,049) (1,141)
Total Debt, net $ 108,398  $ 87,496 

At December 31, 2021, our contractual financing obligations, including payments due by period, are as follows (in thousands):
Due by Amount
December 31, 2022 $ 2,963 
December 31, 2023 12,688 
December 31, 2024 9,058 
December 31, 2025 40,817 
December 31, 2026 1,672 
Thereafter 42,249 
109,447 
Less: Unamortized Debt Issuance Costs (1,049)
$ 108,398 

On June 10, 2019, the Company completed a transaction with all holders of the Company’s Common Stock to receive a special, pro-rata distribution of three securities as enumerated below:

A dividend of one additional share for every two shares already held (a 50% stock dividend, or the equivalent of a 3-for-2 stock split).
The Company issued and distributed to existing common stockholders an aggregate of 1.6 million TruPs shares (aggregate $4.0 million stated value) and an aggregate of 8.4 million warrants ("Warrants") (representing warrants to purchase $21.0 million in stated value of TruPs).

On January 14, 2020, Air T effected a one-for-ten reverse split of its TruPs. As a result of the reverse split, the stated value of the TruPs will be $25.00 per share. Further, each Warrant conferred upon its holder the right to purchase one-tenth of a share of TruPs for $2.40, representing a 4% discount to the new stated value of $2.50 for one-tenth of a share. As of December 31, 2021, 5.3 million Warrants have been exercised. The remaining 3.1 million Warrants were not exercised and expired on August 30, 2021.

During the first three quarters of fiscal 2022, the Company received $7.9 million in gross proceeds from the sale of TruPs through a S-3 Registration Statement filed by the Company. The TruPs were sold and issued under the S-3 “shelf” Registration Statement base prospectus filed with the Securities and Exchange Commission on March 10, 2021 and declared effective by the SEC on March 19, 2021, and under an At the Market Offering Agreement and a First Amendment to the At the Market Offering Agreement filed with the SEC on May 14, 2021 and November 19, 2021, respectively, and prospectus supplements filed with the SEC on May 14, 2021 and November 19, 2021, respectively.

The amount outstanding on the Company's Debt - Trust Preferred Securities is $25.0 million as of December 31, 2021.
1 The PPP loan was fully forgiven by the SBA in September 2021.
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12.    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 December 31, 2021 and March 31, 2021 (in thousands):
December 31, 2021 March 31, 2021
United States $ 25,683  $ 8,632 
Foreign 1,541  2,018 
Total tangible long-lived assets, net $ 27,224  $ 10,650 

The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at December 31, 2021. The net book value located within each individual country at December 31, 2021 and March 31, 2021 is listed below (in thousands):
December 31, 2021 March 31, 2021
Macau $ 1,430  $ 1,896 
Other 111  122 
Total tangible long-lived assets, net $ 1,541  $ 2,018 

Total revenue, in and outside the United States, is summarized in the following table for the nine months ended December 31, 2021 and December 31, 2020 (in thousands):
December 31, 2021 December 31, 2020
United States $ 109,261  $ 113,563 
Foreign 16,379  14,831 
Total revenue $ 125,640  $ 128,394 

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13.    Segment Information
The Company has four business segments: overnight air cargo, ground equipment sales, commercial jet engine and parts segment and corporate and other. We have presented prior periods based on the current presentation. Segment data is summarized as follows (in thousands):
(In Thousands) Three Months Ended
December 31,
Nine Months Ended
December 31,
2021 2020 2021 2020
Operating Revenues by Segment:
Overnight Air Cargo
Domestic $ 18,248  $ 16,322  $ 55,694  $ 49,789 
International —  —  252 — 
Total Overnight Air Cargo 18,248  16,322  55,946  49,789 
Ground Equipment Sales:
Domestic 12,835  13,680  26,991  40,486 
International 2,397  7,089  5,612  8,170 
Total Ground Equipment Sales 15,232  20,769  32,603  48,656 
Commercial Jet Engines and Parts:
Domestic 8,426  15,851  25,656  22,476 
International 2,966  2,227  10,246  6,410 
Total Commercial Jet Engines and Parts 11,392  18,078  35,902  28,886 
Corporate and Other:
Domestic 456  548  920  811 
International 105  102  269  252 
Total Corporate and Other 561  650  1,189  1,063 
Total $ 45,433  $ 55,819  $ 125,640  $ 128,394 
Operating Income (Loss):
Overnight Air Cargo 475  490  2,063  1,617 
Ground Equipment Sales 1,463  4,229  2,929  7,369 
Commercial Jet Engines and Parts 336  (1,598) 2,000  (4,776)
Corporate and Other (2,249) (2,053) (6,268) (7,091)
Total $ 25  $ 1,068  $ 724  $ (2,881)
Capital Expenditures:
Overnight Air Cargo 15  85  82  228 
Ground Equipment Sales 97  114  115 
Commercial Jet Engines and Parts 239  1,656  977  3,166 
Corporate and Other 12  32  30 
Total $ 363  $ 1,747  $ 1,205  $ 3,539 
Depreciation and Amortization:
Overnight Air Cargo 14  17  41  52 
Ground Equipment Sales 81  38  145  152 
Commercial Jet Engines and Parts 234  754  714  2,114 
Corporate and Other 113  77  246  326 
Total $ 442  $ 886  $ 1,146  $ 2,644 

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14.    Commitments and Contingencies
Redeemable Non-controlling Interest
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 to require Contrail to purchase all of the Seller’s equity membership interests in Contrail commencing on the fifth anniversary of the acquisition, which was on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail ("Contrail RNCI") between the liabilities and equity sections of the accompanying condensed consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Contrail RNCI is a Level 3 fair value measurement that is valued at $7.9 million as of December 31, 2021. The change in the redemption value compared to March 31, 2021 is an increase of $1.3 million. The increase was driven by $0.3 million of contributions made from the non-controlling interest and $0.6 million of the net change in fair value, in addition to $0.4 million of net income attributable to the non-controlling interest during the nine months ended December 31, 2021.
As of the date of this filing, neither the Seller nor Air T has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.
On May 5, 2021, the Company formed a new aircraft asset management business called CAM, and a new aircraft capital joint venture called CJVII. The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII will target investments in current generation narrow-body aircraft and engines, building on Contrail’s origination and asset management expertise. CAM will serve 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 December 31, 2021, CAM's remaining capital commitments are approximately $4.2 million from the Company and $28.9 million from MRC.

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. Through December 31, 2021, options to purchase up to 326,000 shares have been granted under the Plan. Vesting of options is based on the grantee meeting specified service conditions. Furthermore, the number of vested options that a grantee is able to exercise, if any, is based on the Company’s stock price as of the vesting dates specified in the respective option grant agreements. As of December 31, 2021, total compensation cost recognized under the Plan was $0.3 million.
22




15.     Subsequent Events
Contrail's Interest Rate Swap
On January 7, 2022, Contrail completed an interest rate swap transaction with 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. The purpose of the floating-to-fixed interest rate swap transaction was to effectively fix the loan interest rate at 4.68%. Notwithstanding the terms of the interest rate swap transaction, Contrail is ultimately obligated for all amounts due and payable under the financing.
Employee Retention Credit
On January 24, 2022, the Company filed an application with the Internal Revenue Service for an Employee Retention Credit in an amount approximating $9.1 million. The Employee Retention Credit, originally included in the CARES Act in 2020 and subsequently modified by Congress, is a refundable tax credit against certain employment taxes equal to 50-70% of the qualified wages an eligible employer pays to its employees. The Company’s application was made with respect to wages paid between the period January 1, 2001 and September 30, 2021. There is no assurance that the Company will qualify for this credit or when, or in what amount, the application will be approved.

GdW Beheer B.V. acquisition

On February 8, 2022, Air T Acquisition 22.1, LLC, a wholly-owned subsidiary of the Company, entered into a new secured loan with Bridgewater Bank, a Minnesota banking corporation. The loan is in the principal amount of $5.0 million and bears a fixed interest rate of 4.00%. The loan provides for monthly payments of accrued interest and annual principal payments of $0.5 million each for years 2023 through 2027, and matures on February 8, 2027 at which time the entire unpaid balance will be due and payable in full. In addition, the loan agreement contains affirmative and negative covenants. The loan is secured by a first lien on all of the assets of Air T Acquisition 22.1, LLC, a pledge of $5.0 million 8.0% Cumulative Capital Security Certificates (also referred to as the TruPs) which were contributed to the Air T Acquisition 22.1, LLC by the Company upon its formation, and a personal guaranty of the Company’s Chairman, President and Chief Executive Officer, Nicholas Swenson. The proceeds from the loan, as well as additional cash of $2.7 million were used to acquire a 70% interest in GdW Beheer B.V., a Dutch holding company involved in the global aviation data and information business, on February 10, 2022.


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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, 2021, to and including December 31, 2021 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, 2021 (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 of insignificant businesses 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

Outlook

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 substantial number of disruptions, and
24



we experienced and continue to experience 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 the remainder of fiscal 2022 and beyond. 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 our businesses in particular, and, as a result, present material uncertainty and risk with respect to us and our results of operations.

Third Quarter Fiscal 2022 Compared to Third Quarter Fiscal 2021
Consolidated revenue for the three-month period ended December 31, 2021 decreased by $10.4 million (19%) 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 December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands):
Three Months Ended
December 31,
Change
2021 2020
Overnight Air Cargo $ 18,248  $ 16,322  $ 1,926  12  %
Ground Equipment Sales 15,232  20,769  (5,537) (27) %
Commercial Jet Engines and Parts 11,392  18,078  (6,686) (37) %
Corporate and Other 561  650  (89) (14) %
$ 45,433  $ 55,819  $ (10,386) (19) %
Revenues from the air cargo segment for the three-month period ended December 31, 2021 increased by $1.9 million (12%) compared to the third quarter of the prior fiscal year. The increase was principally attributable to higher administrative fees and maintenance labor revenue from FedEx.

The ground equipment sales segment contributed approximately $15.2 million and $20.8 million to the Company’s revenues for the three-month periods ended December 31, 2021 and 2020 respectively, representing a $5.5 million (27%) decrease in the current quarter. The decrease was primarily driven by lower sales volume of deicing trucks this quarter due to the ongoing effects of COVID-19 compared to prior year comparable quarter. At December 31, 2021, the ground equipment sales segment’s order backlog was $3.7 million compared to $17.3 million at December 31, 2020. Finished Goods inventory increased to $8.7 million as of December 31, 2021 from $1.8 million as of December 31, 2020, as we added additional trucks ready for sale to capitalize on opportunistic sales that may arise as customers continue to recover from the impacts of the pandemic.
The commercial jet engines and parts segment contributed $11.4 million of revenues in the quarter ended December 31, 2021 compared to $18.1 million in the comparable prior year quarter, which is a decrease of $6.7 million (37%). The decrease was primarily driven by the fact that Contrail had 3 asset sales with no profit margin in the prior-year quarter that did not recur in the current-year quarter.

Following is a table detailing operating income (loss) by segment during the three months ended December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands):

Three Months Ended
December 31,
Change
2021 2020
Overnight Air Cargo $ 475  $ 490  $ (15)
Ground Equipment Sales 1,463  4,229  (2,766)
Commercial Jet Engines and Parts 336  (1,598) 1,934 
Corporate and Other (2,249) (2,053) (196)
$ 25  $ 1,068  $ (1,043)
Consolidated operating income for the quarter ended December 31, 2021 was $25.0 thousand, compared to operating income of $1.1 million in the comparable quarter of the prior year.
The air cargo segment's operating income for the three-month period ended December 31, 2021 was relatively flat compared to the third quarter of the prior fiscal year.
25



The ground equipment sales segment's operating income for the quarter ended December 31, 2021 decreased by $2.8 million from the prior year comparable quarter to $1.5 million. This decrease was primarily attributable to the decreased sales noted in the segment revenue discussion above.
The commercial jet engines and parts segment generated operating income of $0.3 million in the current-year quarter compared to an operating loss of $1.6 million in the prior-year quarter. The change was primarily attributable to the increased component sales at the companies within this segment.
The corporate and other segment's operating loss was relatively flat this quarter compared to prior year's comparable quarter.
Following is a table detailing non-operating income (expense) during the three months ended December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands):
Three Months Ended
December 31,
Change
2021 2020
Interest expense (1,236) (1,172) (64)
Income (Loss) from equity method investments 99  510  (411)
Other-than-temporary impairment loss on investments (348) —  (348)
Other (11) 1,039  (1,050)
(1,496) 377  (1,873)
The Company had a net non-operating loss of $1.5 million during the quarter ended December 31, 2021, compared to net non-operating income of $0.4 million in the prior-year quarter. In the third quarter 2020, the Company recorded $0.5 million of net income from our equity investments whereas in the current quarter, we recorded $0.1 million of net income pick-up. In addition, during the current-year quarter, the Company also recorded an impairment loss of $0.3 million on the equity investment of CCI. Also in the current-year quarter, the Company recorded $1.0 million of investment loss driven by decreases in the fair value of our investments, which was reflected in the change in the Other non-operating income (expense).
During the three-month period ended December 31, 2021, the Company recorded $0.3 million in income tax benefit at an effective tax rate ("ETR") of 19.2%. 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 December 31, 2021 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"), 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 the Company's 79%-owned subsidiary ("Contrail").

During the three-month period ended December 31, 2020, the Company recorded $0.3 million in income tax benefit at an ETR of (22.0)%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, 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.

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

Following is a table detailing revenue by segment (in thousands):
Nine Months Ended
December 31,
Change
2021 2020
Overnight Air Cargo $ 55,946  $ 49,789  $ 6,157  12  %
Ground Equipment Sales 32,603  48,656  (16,053) (33) %
Commercial Jet Engines and Parts 35,902  28,886  7,016  24  %
Corporate and Other 1,189  1,063  126  12  %
$ 125,640  $ 128,394  $ (2,754) (2) %
Revenues from the air cargo segment for the nine months ended December 31, 2021 increased by $6.2 million (12%) compared to the nine months ended December 31, 2020. The increase was principally attributable to higher pass-through revenue and maintenance
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labor revenue from FedEx as a result of increased business activity versus the prior year quarter as well as higher maintenance revenue from customers outside of FedEx.

The ground equipment sales segment contributed approximately $32.6 million and $48.7 million to the Company’s revenues for the nine-month periods ended December 31, 2021 and 2020 respectively, representing a $16.1 million (33)% decrease in the current nine-month period. The decrease was primarily driven by a lower sales volume of deicing trucks due to the ongoing effects of COVID-19 in the current year compared to prior year as well as higher numbers of trucks sold to the U.S. Air Force in the prior nine-month period.
The commercial jet engines and parts segment contributed $35.9 million of revenues in the nine months ended December 31, 2021 compared to $28.9 million in the comparable prior year nine months. The increase is primarily attributable to the fact that all the companies within this segment had higher component sales as the aviation industry started to see more activity in the current year as COVID-19 related restrictions continued to loosen.

Following is a table detailing operating income (loss) by segment during the nine months ended December 31, 2021 compared to the same nine months in the prior fiscal year (in thousands):
Nine Months Ended
December 31,
Change
2021 2020
Overnight Air Cargo $ 2,063  $ 1,617  $ 446 
Ground Equipment Sales 2,929  7,369  (4,440)
Commercial Jet Engines and Parts 2,000  (4,776) 6,776 
Corporate and Other (6,268) (7,091) 823 
$ 724  $ (2,881) $ 3,605 
Consolidated operating income for the nine months ended December 31, 2021 was $0.7 million compared to an operating loss of $2.9 million for the comparable nine months of the prior year.
Operating income for the air cargo segment for the nine months ended December 31, 2021 increased by $0.4 million versus the prior year comparable period primarily due to the revenue increase noted above.
The ground equipment sales segment's operating income decreased by $4.4 million to $2.9 million in the nine-month period ended December 31, 2021 versus the prior year comparable period. This decrease was primarily attributable to the revenue decrease noted above, in addition to higher costs of materials required to build trucks.
The commercial jet engines and parts segment generated an operating income of $2.0 million in the current-year nine month period compared to an operating loss of $4.8 million in the prior-year nine-month period. The change was primarily attributable to the increased component sales as the aviation industry started to see more activity as explained in the segment revenue discussion above.
The corporate and other segment's operating loss was $6.3 million for the nine months ended December 31, 2021 versus the prior year comparable period's operating loss of $7.1 million. This is primarily attributable to the segment having lower health insurance claims during the nine months ended December 31, 2021 compared to December 31, 2020.
Following is a table detailing non-operating income (expense) during the nine months ended December 31, 2021 compared to the same quarter in the prior fiscal year (in thousands):
Nine Months Ended
December 31,
Change
2021 2020
Interest expense $ (3,341) $ (3,413) $ 72 
Income (Loss) from equity method investments 197  (546) 743 
Gain on forgiveness of Paycheck Protection Program (“PPP”) loan 8,331  —  8,331 
Other-than-temporary impairment loss on investments (348) —  (348)
Other 1,329  2,125  (796)
$ 6,168  $ (1,834) $ 8,002 
The Company had a net non-operating income of $6.2 million for the nine months ended December 31, 2021 compared to a net non-operating loss of $1.8 million in the prior-year nine-month period. The increase was primarily attributable to the $8.3 million gain
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recognized on the SBA's forgiveness of the Company's PPP loan. In addition, during the nine months ended December 31, 2021, the Company recorded an impairment loss of $0.3 million on the equity investment of CCI. Further, in the prior year, the Company recorded $0.5 million of net loss from our equity investments whereas in the current year, we recorded $0.2 million of net income from these investments.
During the nine-month period ended December 31, 2021, the Company recorded $0.2 million in income tax benefit at an effective rate of (3.6)%. 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 nine-month period ended December 31, 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.

During the nine-month period ended December 31, 2020, the Company recorded $2.2 million in income tax benefit which resulted in an effective tax rate of 45.9%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the nine-month period ended December 31, 2020 were the tax rate differential for carryback tax losses at a rate higher than the statutory tax rate, the change in valuation allowance related to Delphax, 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.

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, 2021. 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 December 31, 2021.
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 continuing COVID-19 pandemic including its impact on our business operations. In particular, ongoing 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 an acute workforce shortage and increasing inflation which has created a hyper-competitive wage environment. Thus far, the direct impact of these items on our businesses have been immaterial. 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 December 31, 2021, the Company held approximately $5.8 million in cash and cash equivalents and restricted cash, $2.9 million of which related to restricted cash collateralized for 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 $0.7 million in restricted investments held as statutory reserve of SAIC. The Company has approximately $2.6 million of marketable securities and an aggregate of $36.8 million in available funds under its lines of credit as of December 31, 2021.
As of December 31, 2021, the Company’s working capital amounted to $85.6 million, an increase of $8.0 million compared to March 31, 2021. 

As mentioned in Note 2 and Note 11 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, 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 the real estate purchase agreement with WLPC
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East, LLC, a Minnesota limited liability company 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 circa 2004 with an estimated 54,742 total square feet of space. The real estate purchased is where the Air T's executive office is currently located. With this purchase, the Company assumed 11 leases from existing tenants occupying the building. The purchase price was $13.2 million, which was paid for with approximately $3.3 million in cash and a new secured loan from Bridgewater with an aggregate principal amount of $9.9 million and a fixed interest rate of 3.65% which matures on December 2, 2031.

On April 13, 2020, the Company entered into a loan with MBT with a principal amount of $8.2 million pursuant to the Payroll Protection Program, backed by the SBA, under the CARES Act. As of December 31, 2021, the Company's PPP Loan was fully forgiven by the SBA. As such, the Company accounted for its then outstanding principal and accrued interest as a gain on extinguishment in accordance with ASC 470.

As mentioned in Note 11 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, during the first three quarters of fiscal 2022, the Company received $7.9 million in gross proceeds from the sale of TruPs through a S-3 Registration Statement filed by the Company. The TruPs were sold and issued under the S-3 “shelf” Registration Statement base prospectus filed with the Securities and Exchange Commission on March 10, 2021 and declared effective by the SEC on March 19, 2021, and under an At the Market Offering Agreement and a First Amendment to the At the Market Offering Agreement filed with the SEC on May 14, 2021 and November 19, 2021, respectively, and prospectus supplements filed with the SEC on May 14, 2021 and November 19, 2021, respectively.

The Shelf Registration Statement registers a number of securities that may be issued by the Company in a maximum aggregate amount of up to $15 million. The Registration Statement is subject to the offering limits set forth in General Instruction I.B.6 of Form S-3 because the Company’s public float is less than $75 million. For so long as the Company's public float is less than $75 million, the aggregate market value of securities sold by the Company under the Shelf Registration Statement pursuant to Instruction I.B.6 to Form S-3 during any 12 consecutive months may not exceed one-third of the Company’s public float. For purposes of this limitation, the aggregate market value of our outstanding common stock held by non-affiliates, or public float, was $26.8 million, based on 1.1 million shares of our outstanding common stock held by non-affiliates and a price of $25.15 per share, which was the price as of December 31, 2021, a date within 60 days of the date that our common stock was last sold on The Nasdaq Global Market on February 11, 2022, calculated in accordance with General Instruction I.B.6 of Form S-3. After giving effect to the $8.9 million offering limit imposed by General Instruction I.B.6 of Form S-3, we may offer and sell from time to time up to the full amount of the $1.0 million remaining under the current Prospectus Supplement.

As mentioned in Note 14 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, 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 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 Air T has indicated an intent to exercise the put and call options. If either side were to exercise the option, the Company anticipates that the price would approximate the fair value of the Contrail RNCI, as determined on the transaction date. The Company currently expects that it would fund any required payment from cash provided by operations.

As mentioned in Note 14 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report, on May 5, 2021, the Company formed a new aircraft asset management business called CAM and a new aircraft capital joint venture called CJVII. The new venture will focus on acquiring commercial aircraft and jet engines for leasing, trading and disassembly. CJVII will target investments in current generation narrow-body aircraft and engines, building on Contrail Aviation’s origination and asset management expertise. CAM will serve 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 million, which is comprised of an $8 million initial commitment from the Company and an approximately $45 million initial commitment from MRC. As of December 31, 2021, CAM's remaining capital commitments are approximately $4.2 million from the Company and $28.9 million from MRC. CJVII will initially be 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, $34.3 million of capital has been deployed to CJVII. The timing of the remaining capital commitment is not yet known at this time.

The Company believes it is probable that the cash on hand (including amounts forgiven under the PPP loan and other 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.

Cash Flows
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Following is a table of changes in cash flow from continuing operations for the nine months ended December 31, 2021 and 2020 (in thousands):
Nine Months Ended December 31,
2021 2020
Net Cash Used in Operating Activities (19,690) (6,661)
Net Cash Used in Investing Activities (19,546) (308)
Net Cash Provided by Financing Activities 29,079  40,383 
Effect of foreign currency exchange rates on cash and cash equivalents 69  (164)
Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash (10,088) 33,250 
Net cash used in operating activities was $19.7 million for the nine-month period ended December 31, 2021 compared to net cash used in operating activities of $6.7 million in the prior year nine-month period. The change in net cash used in operating activities was primarily driven by a net increase in cash used to purchase inventories at Contrail. The Company had a net increase in inventories of $8.6 million in the current period and a net decrease of $6.1 million in the prior period. In addition to regular inventory movements resulting from component sales and purchases, Contrail purchased 1 engine in the current period and sold 2 engines in the prior period, which is driving the aforementioned change in inventories.
Net cash used in investing activities for the nine-month period ended December 31, 2021 was $19.5 million compared to net cash used in investing activities of $0.3 million in the prior-year period. Cash was used in the current-year period primarily to acquire the real estate located at 5000 36th Street West, St. Louis Park, Minnesota, as referenced in Note 2 of Notes to condensed Consolidated Financial Statements included under Part I, Item 1 of this report and to invest in CAM, the Company's new aircraft asset management business.
Net cash provided by financing activities for the nine-month period ended December 31, 2021 was $29.1 million compared to net cash provided by financing activities of $40.4 million in the prior-year period. The decrease was primarily driven by lower net cash proceeds from the Company's term loans, partially offset by higher issuance of TruPs in the current-year.

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 $70.4 thousand and $1.7 million for the three months ended December 31, 2021 and 2020, 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) from continuing operations to Adjusted EBITDA and Adjusted EBITDA by segment for the three and nine months ended December 31, 2021 and 2020 (in thousands):

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Three months ended Nine months ended
12/31/2021 12/31/2020 12/31/2021 12/31/2020
Operating income (loss) from continuing operations $ 25  $ 1,068  $ 724  $ (2,881)
Depreciation and amortization (excluding leased engines depreciation) 372  259  956  917 
Asset impairment, restructuring or impairment charges —  —  —  664 
Loss on disposition of assets — 
Security issuance expenses 150  —  215 — 
Adjusted EBITDA $ 547  $ 1,332  $ 1,898  $ (1,299)


Three months ended Nine months ended
12/31/2021 12/31/2020 12/31/2021 12/31/2020
Overnight Air Cargo $ 488  $ 506  $ 2,106  $ 1,672 
Ground Equipment Sales 1,544  4,267  3,074  7,521 
Commercial Jet Engines and Parts 500  (1,466) 2,524  (3,857)
Corporate and Other (1,985) (1,975) (5,806) (6,635)
Adjusted EBITDA $ 547  $ 1,332  $ 1,898  $ (1,299)



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.


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 December 31, 2021. 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 December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II -- OTHER INFORMATION
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

(a)The Company issued $5.0 million of its $5.0 million 8.0% Cumulative Capital Security Certificates (also referred to as the TruPs) to the Company’s wholly-owned subsidiary, Air T Acquisition 22.1, LLC in connection with its formation. The transaction was exempt, among other reasons, under Section 4(a)(2).
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(b)On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 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. No shares were repurchased during the quarter ended December 31, 2021.

Item 5.    Other information

(a) Other Information

N/A.

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Item 6.    Exhibits
(a) Exhibits
No. Description
10.1
10.2
10.3
10.4
10.5
10.6
10.7
31.1
31.2
32.1
101
The following financial information from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2021, 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: February 14, 2022
/s/ Nick Swenson
Nick Swenson, Chief Executive Officer and Director
/s/ Brian Ochocki
Brian Ochocki, Chief Financial Officer

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