UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)

Commission File Number 0-11720

Air T, Inc.

(Exact name of registrant as specified in its charter)

3524 Airport Road, Maiden, North Carolina 28650

(Address of principal executive offices, including zip code)

                            (828) 464 – 8741                  

(Registrant’s telephone number, including area code)

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

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

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

AIR T, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

Item 1. Financial Statements

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

* Derived from audited financial statements

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to condensed consolidated financial statements.

AIR T, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview

The Company operates in three business segments. The overnight air cargo segment, comprised of its Mountain Air Cargo, Inc. (“MAC”) and CSA Air, Inc. (“CSA”) subsidiaries, operates in the air express delivery services industry. The ground equipment sales segment, comprised of its Global Ground Support, LLC (“GGS”) subsidiary, manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the U.S. military and industrial customers. The ground support services segment, comprised of its Global Aviation Services, LLC (“GAS”) subsidiary, provides ground support equipment maintenance and facilities maintenance services to domestic airlines and aviation service providers. Each business segment has separate management teams and infrastructures that offer different products and services. The Company evaluates the performance of its operating segments based on operating income.

 Following is a table detailing revenues by segment and by major customer category:

MAC and CSA provide small package overnight airfreight delivery services on a contract basis throughout the eastern half of the United States and the Caribbean. MAC and CSA’s revenues are derived principally pursuant to “dry-lease” service contracts with FedEx. Under the dry-lease service contracts in place through May 31, 2015, FedEx leased its aircraft to MAC and CSA for a nominal amount and paid a monthly administrative fee to MAC and CSA to operate the aircraft. Under these contracts, all direct costs related to the operation of the aircraft (including fuel, outside maintenance, landing fees and pilot costs) were passed through to FedEx without markup. The pass through costs totaled $7,369,000 for the three-month period ended June 30, 2014.

Effective June 1, 2015, MAC and CSA entered into new dry-lease agreements with FedEx which together cover all of the revenue aircraft operated by MAC and CSA and replace all prior dry-lease service contracts.  The new dry-lease agreements provide for the lease of specified aircraft by MAC and CSA in return for the payment of monthly rent with respect to each aircraft leased, which monthly rent was increased from the prior dry-lease service contracts to reflect an estimate of a fair market rental rate.  The new dry-lease agreements provide that FedEx determines the type of aircraft and schedule of routes to be flown by MAC and CSA, with all other operational decisions made by MAC and CSA, respectively.  The new dry-lease agreements provide for the reimbursement by FedEx of MAC and CSA’s costs, without mark up, incurred in connection with the operation of the leased aircraft for the following: fuel, landing fees, third-party maintenance, parts and certain other direct operating costs.  The pass through costs totaled $6,515,000 for the three-month period ended June 30, 2015. Unlike the prior dry-lease contracts, under the new dry-lease agreements, certain operational crew costs incurred by MAC and CSA in operating the aircraft under the new dry-lease agreements are not reimbursed by FedEx at cost, and such operational costs are to be borne solely by MAC and CSA.  Under the new dry-lease agreements, MAC and CSA are required to perform maintenance of the leased aircraft in return for a maintenance fee based upon an hourly maintenance labor rate, which has been increased from the rate in place under the prior dry-lease service contracts.  Under prior dry-lease service contracts, the hourly maintenance labor rate had not been adjusted since 2008.  The new dry-lease agreements provide for the payment by FedEx to MAC and CSA of a monthly administrative fee based on the number and type of aircraft leased and routes operated.  The amount of the monthly administrative fee under the new dry-lease agreements is greater than under the prior dry-lease service contracts with FedEx, in part to reflect the greater monthly lease payment per aircraft and that certain operational costs are to be borne by MAC and CSA and not reimbursed.  The amount of the administrative fee is subject to adjustment based on the number of aircraft operated, routes flown and whether aircraft are considered to be soft-parked. 

The new dry-lease agreements have a term that would initially expire, unless renewed, on May 31, 2016.  The new dry-lease agreements may be terminated by FedEx or MAC and CSA, respectively, at any time upon 90 days’ written notice and FedEx may at any time terminate the lease of any particular aircraft thereunder upon 10 days’ written notice.  In addition, each new dry-lease agreement provides that FedEx may terminate the agreement upon written notice if 60% or more of MAC or CSA’s revenue (excluding revenues arising from reimbursement payments under the new dry-lease agreement) is derived from the services performed by it pursuant to the respective dry-lease agreement, FedEx becomes its only customer, or it employs less than six employees.  As of the date of this report, FedEx would have been permitted to terminate each of the new dry-lease agreements under this provision.  The Company believes that the short term and other provisions of its agreements with FedEx are standard within the airfreight contract delivery service industry.

As of June 30, 2015, MAC and CSA had an aggregate of 80 aircraft under agreement with FedEx.  Pursuant to the dry-lease agreements with FedEx, FedEx determines the schedule of routes to be flown by MAC and CSA.  Included within the 80 aircraft are two Cessna Caravan aircraft that are considered soft-parked.  Soft-parked aircraft remain covered under our agreements with FedEx although at a reduced administrative fee compared to aircraft that are in operation.  MAC and CSA continue to perform maintenance on soft-parked aircraft, but they are not crewed and do not operate on scheduled routes.

MAC and CSA combined contributed approximately $12,889,000 and $11,681,000 to the Company’s revenues for the three-month periods ended June 30, 2015 and 2014, respectively, a current year increase of $1,208,000 (10%).

GGS manufactures and supports aircraft deicers and other specialized equipment on a worldwide basis. GGS manufactures five basic models of mobile deicing equipment with capacities ranging from 700 to 2,800 gallons. GGS also offers fixed-pedestal-mounted deicers. Each model can be customized as requested by the customer, including single operator configuration, fire suppressant equipment, open basket or enclosed cab design, a patented forced-air deicing nozzle and on-board glycol blending system to substantially reduce glycol usage, color and style of the exterior finish. GGS also manufactures five models of scissor-lift equipment, for catering, cabin service and maintenance service of aircraft, and has developed a line of decontamination equipment, flight-line tow tractors, glycol recovery vehicles and other special purpose mobile equipment. GGS competes primarily on the basis of the quality, performance and reliability of its products, prompt delivery, customer service and price.

On May 15, 2014, GGS was awarded a contract to supply deicing trucks to the USAF. The initial contract award is for two years through July 13, 2016 with four additional one-year extension options that may be exercised by the USAF. Because this contract with USAF does not obligate the USAF to purchase a set or minimum number of units, the value of this contract, as well as the number of units to be delivered, depends upon the USAF’s requirements and available funding. In September 2014, GGS’s contract with the USAF to supply the flight line tow tractors expired.

GGS contributed approximately $4,039,000 and $5,312,000 to the Company’s revenues for the three-month periods ended June 30, 2015 and 2014, respectively, representing a $1,273,000 (24%) decrease. At June 30, 2015, GGS’s order backlog was $39.9 million as compared to $2.8 million at March 31, 2015 and $21.8 million at June 30, 2014.

Backlog at June 30, 2015 includes an order received in June 2015 to supply approximately $32 million of aircraft deicing vehicles to a major U.S.-based airline. Deliveries under this contract are expected to be completed in the third quarter of the current fiscal year.

GAS provides the aircraft ground support equipment, fleet, and facility maintenance services. At June 30, 2015, GAS was providing ground support equipment, fleet, and facility maintenance services to more than 75 customers at 54 North American airports.

GAS contributed approximately $5,430,000 and $4,786,000 to the Company’s revenues for the three-month periods ended June 30, 2015 and 2014, respectively, representing a $644,000 (13%) increase.

In March 2014, the Company formed Space Age Insurance Company (“SAIC”), a captive insurance company licensed in Utah, and initially capitalized with $250,000. SAIC insures risks of the Company and its subsidiaries that were not previously insured by the Company’s insurance programs and underwrites third-party risk through certain reinsurance arrangements. The activities of SAIC are included within the corporate results in the accompanying financial statements.

First Quarter Highlights

The first quarter of fiscal 2016 saw the Company revenues increase by $580,000 (3%) from the prior year comparable quarter. Operating income decreased $1,148,000 in the same first quarter compared to the prior year quarter. These results represent a challenging first quarter that saw decreased operating income in each segment.

Revenues from the air cargo segment increased $1,208,000 (10%) compared to the first quarter of the prior fiscal year, while operating income decreased $309,000 (57%). Administrative fee revenues increased to reflect the greater administrative fee amount paid under the new dry-lease agreements which became effective on June 1, 2015, as well as the impact of operating an additional ATR aircraft. Operating income decreased principally due to substantial costs incurred for the mandated regulatory rewrite of applicable maintenance manuals (which expense is not reimbursed by MAC and CSA’s customer), higher health benefit costs, pilot salaries expense reflecting the transition to the new dry-lease agreements, as well as reduced contract labor revenue driven by the decrease in calendar maintenance checks (1-, 2-, 4-, 8, and 12-year) as compared to the prior comparable quarter. The Company anticipates that expense of the maintenance manual rewrite will continue to adversely affect the segment’s operating results for the remainder of the current fiscal year. In addition, the Company anticipates that the changes in the new dry-lease agreements, increasing the administrative fee, as well as the rental expense for aircraft and the exclusion of certain operational crew costs from reimbursable expenses, will adversely affect the segment’s operating income as a percentage of revenues compared to the prior year periods, as revenues are expected to increase at a greater rate due to the structure changes effected by the new dry-lease agreement.

Revenues for GGS decreased $1,273,000 (24%) compared to the first quarter of the prior fiscal year. Operating loss increased by $244,000 (135%) for the quarter to a current period loss of $424,000, compared to $180,000 of operating loss in the prior year’s comparable quarter. The decline in revenues is principally due to the reduction in sales to the USAF during the three months ended June 30, 2015, as the contract to supply flight line tow tractors expired in September 2014 and no deicers were sold to the USAF during the current year period (military sales of $150,000 for the period was attributable to sales of parts). Sales of commercial units were essentially flat period to period. Higher employee benefit costs and service technician costs compared to the previous year contributed to the increased operating loss for the current year period. In addition, operating income for the prior year quarter included a $188,000 gain from sale of leased ground support equipment, which did not recur in the current quarter. As sales to the USAF have declined, GGS’s business has resumed its historical seasonal pattern, 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.

Revenues from our GAS subsidiary increased by $644,000 (13%) compared to the first quarter of the prior fiscal year as a result of the company’s growth in new markets and services offered to new and existing customers. Operating loss of $222,000 for the current year period compared to operating income of approximately the same amount in the prior year quarter. Overall operating costs increased in the current year period as GAS increased staffing, including leadership, marketing and data analysis roles, and made other infrastructure improvements, including facility upgrades, training, and additional controls, to position the business for anticipated growth during the fiscal year in providing services to new customers and at new locations. Increased maintenance and parts expense in select markets where GAS operates under fixed-price contracts also contributed to the operating loss.

Critical Accounting Policies and Estimates

The preparation of the Company’s 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. The Company believes that the following are its most significant accounting policies:

Allowance for Doubtful Accounts. An allowance for doubtful accounts receivable is established based on management’s estimates of the collectability of accounts receivable. The required allowance is determined using information such as customer credit history, industry information, credit reports, customer financial condition and the collectability of outstanding accounts receivables. The estimates can be affected by changes in the financial strength of the aviation industry, customer credit issues or general economic conditions.

Inventories. The Company’s inventories are valued at the lower of cost or market. Provisions for excess and obsolete inventories are based on assessment of the marketability of slow-moving and obsolete inventories. Historical parts usage, current period sales, estimated future demand and anticipated transactions between willing buyers and sellers provide the basis for estimates. Estimates are subject to volatility and can be affected by reduced equipment utilization, existing supplies of used inventory available for sale, the retirement of aircraft or ground equipment and changes in the financial strength of the aviation industry.

Warranty Reserves. The Company warranties its ground equipment products for up to a three-year period from date of sale. Product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted quarterly as actual warranty cost becomes known.

Income Taxes. Income taxes have been provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Revenue Recognition. Cargo revenue is recognized upon completion of contract terms. Maintenance and ground support services revenue is recognized when the service has been performed. Revenue from product sales is recognized when contract terms are completed and ownership has passed to the customer.

Seasonality

GGS’s 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. The Company had worked to reduce GGS’s seasonal fluctuation in revenues and earnings by increasing military and international sales and broadening its product line to increase revenues and earnings throughout the year. On May 15, 2014, GGS was awarded a contract to supply deicing trucks to the USAF, which replaced a prior contract initially awarded in 2009. The initial contract award is for two years through July 13, 2016 with four additional one-year extension options that may be exercised by the USAF. The value of the contract, as well as the number of units to be delivered, depends upon annual requirements and available funding to the USAF. Although GGS has retained the USAF deicer contract, recent orders under the contract have not been sufficient to offset the seasonal trend for commercial sales and revenues during the three months ended June 30, 2015 (the first fiscal quarter) attributable to sales to the USAF were not significant. As a result, GGS revenues and operating income have resumed their seasonal nature. The overnight air cargo and ground support services segments are not susceptible to seasonal trends.

Results of Operations

First Quarter 2016 Compared to First Quarter 2015

Consolidated revenue increased $580,000 (3%) to $22,359,000 for the three-month period ended June 30, 2015 compared to its equivalent prior period. The increase in revenues can be principally attributed to the increase in the overnight air cargo segment of $1,208,000 (10%). Administrative fee revenues increased to reflect the terms of the new dry-lease agreements which became effective June 1, 2015, as well as the impact of operating an additional ATR aircraft. Revenue in the ground equipment sales segment decreased by $1,273,000 (24%) this quarter as a result of decreased sales volumes, as well as decreases in sales of parts and service income. In September 2014, GGS’s contract with the USAF to supply flight-line tow tractors expired. Revenues in our ground support services segment increased $644,000 (13%) primarily as a result of the company’s growth in new markets and services offered to new and existing customers.

Operating expenses increased $1,728,000 to $23,408,000 for the three-month period ended June 30, 2015 compared to its equivalent prior period. The principal component of the increase was an increase of $1,174,000 in air cargo aircraft monthly rental expense under the terms of the new dry-lease agreements with FedEx effective June 1, 2015, mentioned above. Pass through costs for the overnight air cargo segment totaled $6,515,000 and $7,369,000 for the three-month periods ended June 30, 2015 and 2014, respectively. Ground equipment sales segment operating costs decreased $1,029,000 driven principally by the current quarter’s $1,273,000 (24%) decrease in revenues offset by higher employee benefit costs. Ground support services segment operating costs increased by $1,088,000 as the segment increased staffing, including leadership, marketing and data analysis roles, and made other infrastructure improvements, including facility upgrades, training, and additional controls, to position the business for anticipated growth during the fiscal year in providing services to new customers and at new locations.

General and administrative expenses increased $573,000 (18%) to $3,807,000 for the three-month period ended June 30, 2015 compared to its equivalent prior period. The principal components of this increase were $129,000 in costs for the maintenance manual rewrite, $141,000 increase in health benefits costs and a $174,000 increase in ground support services administrative salaries.

Operating loss for the quarter ended June 30, 2015 was $1,049,000, compared to operating income of $99,000 for the same quarter of the prior year. Each of the operating segments experienced declines in operating income this quarter. Operating income for the air cargo segment decreased $309,000 principally due to substantial costs incurred for the manual rewrite, higher health benefit costs, pilot salaries expense, as well as reduced contract labor revenue driven by the decrease in calendar maintenance checks (1-, 2-, 4-, 8, and 12-year) as compared to the prior comparable quarter. Operating income for the ground equipment segment decreased $244,000 as a result of decreased sales volumes, as well as reduced parts and service income. GGS also reported a $188,000 gain in operating income from sale of leased ground support equipment in the prior comparable quarter, which did not recur in the current quarter. Operating results for GAS swung by $444,000 for an operating loss of $222,000 for the current year period as a result of the significant increase in operating costs to position the segment for anticipated growth, as discussed above, as well as increased maintenance and parts expense in select markets where GAS operates under fixed-price contracts.

Pretax earnings decreased to $1,069,000 for the three-month period ended June 30, 2015 compared to the prior year comparable period, primarily due to the decreases in all three segments discussed above.

During the three-month period ended June 30, 2015, the Company recorded $333,000 in income tax benefit. The income tax provision for the three-month period ended June 30, 2015 differs from the federal statutory rate partially due to the effect of state income taxes and the federal domestic production activities deduction.  The rate for the period ended June 30, 2015 also includes the estimated benefit for the exclusion of income for the Company’s captive insurance company subsidiary afforded under Section 831(b). During the three-month period ended June 30, 2014, the Company recorded $38,000 in income tax expense. The start-up of SAIC was a significant factor in the prior period estimated annual tax rate of 34.3%. The estimated annual effective tax rate differed from the U.S. federal statutory rate of 34% primarily due to the effect of state income taxes offset by permanent tax difference.

Liquidity and Capital Resources

As of June 30, 2015 the Company's working capital amounted to $24,907,000, a decrease of $5,518,000 compared to March 31, 2015. As mentioned, the fair value of marketable securities in Insignia have been reclassified from current assets to non-current assets of $4,368,000.

On April 1, 2015, the Company replaced its existing $7.0 million credit line with a senior secured revolving credit facility of $20.0 million (the “Revolving Credit Facility”). The Revolving Credit Facility includes a sublimit for issuances of letters of credit of up to $500,000. Under the Revolving Credit Facility, each of the Company, MAC, CSA, GGS and GAS may make borrowings. Initially, borrowings under the Revolving Credit Facility bear interest (payable monthly) at an annual rate of one-month LIBOR plus 1.50%, although the interest rates under the Revolving Credit Facility are subject to incremental increases based on a consolidated leverage ratio. In addition, a commitment fee accrues with respect to the unused amount of the Revolving Credit Facility at an annual rate of 0.15%. Amounts applied to repay borrowings under the Revolving Credit Facility may be reborrowed, subject to the terms of the facility. The Revolving Credit Facility matures on April 1, 2017.

Borrowings under the Revolving Credit Facility, together with hedging obligations, if any owing to the lender under the Revolving Credit Facility or any affiliate of such lender, are secured by a first-priority security interest in substantially all assets of the Company and the other borrowers (including, without limitation, accounts receivable, equipment, inventory and other goods, intellectual property, contract rights and other general intangibles, cash, deposit accounts, equity interests in subsidiaries and joint ventures, investment property, documents and instruments, and proceeds of the foregoing), but excluding interests in real property.

The agreement governing the Revolving Credit Facility contains affirmative and negative covenants, including covenants that restrict the ability of the Company and the other borrowers to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of their business, enter into certain operating leases, and make certain capital expenditures. The Credit Agreement also contains financial covenants, including a minimum consolidated tangible net worth of $22.0 million, a minimum consolidated fixed charge coverage ratio of 1.35 to 1.0, a minimum consolidated asset coverage ratio of 1.75 to 1.0, and a maximum consolidated leverage ratio of 3.5 to 1.0. The agreement governing the Revolving Credit Facility contains events of default including, without limitation, nonpayment of principal, interest or other obligations, violation of covenants, misrepresentation, cross-default to other debt, bankruptcy and other insolvency events, judgments, certain ERISA events, certain changes of control of the Company, termination of, or modification to materially reduce the scope of the services required to be provided under, certain agreements with FedEx Corporation, and the occurrence of a material adverse effect upon the Company and the other borrowers as a whole.

At June 30, 2015, aggregate outstanding borrowings under the Revolving Credit Facility were approximately $4,981,000.

The Company is exposed to changes in interest rates on the Revolving Credit Facility. If the LIBOR interest rate had been increased by one percentage point, based on the weighted average balance outstanding for the three months ended June 30, 2015, the change in interest expense for that period would have been approximately $2,000.

Cash Flows

Following is a table of changes in cash flow for the respective periods ended June 30, 2015 and 2014:

Cash used in operating activities was $2,850,000 more for the three-month period ended June 30, 2015 compared to the similar prior year period, resulting from a variety of offsetting factors. The most significant factor was cash used to increase inventory for the ground equipment segment to support the substantial increase in backlog of June 30, 2015 of $39.9M for the supply of Global’s Ultimate 2200 aircraft deicing vehicles to a major U.S.-based airline.

Cash provided by investing activities for the three-month period ended June 30, 2015 was $1,894,000 less than the comparable prior year period due primarily to $1,070,000 purchases of marketable securities in the current quarter and proceeds from the sale of marketable securities of $458,000 and proceeds from sale of property and equipment of $530,000 that occurred in the prior comparable quarter that did not recur in the current quarter, and a $56,000 decrease in capital expenditures in the current quarter.

Cash provided by financing activities was $835,000 less in the three-month period ended June 30, 2015, than in the corresponding prior year period primarily due to $863,000 in borrowing under the line of credit in the prior quarter. Cash borrowing under the line of credit at March 31, 2015 totaled $5,000,000. The Company paid $19,000 bringing the outstanding principal balance to $4,981,000 for the three-month period ended June 30, 2015.

Impact of Inflation

The Company believes that inflation has not had a material effect on its operations, because increased costs to date have been passed on to its customers. Under the terms of the new dry-lease agreements, certain cost components of the air cargo segment’s operations, consisting principally of fuel, landing fees, third party maintenance, parts and certain other direct operating costs, and certain maintenance costs are reimbursed, without markup by its customer, but certain operational crew costs are borne by the Company and not reimbursed. Significant increases in inflation rates could have a material impact on future revenue and operating income.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

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 June 30, 2015. 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 June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II -- OTHER INFORMATION

Item 6. Exhibits

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.

AIR T, INC.

EXHIBIT INDEX

20