AIR T INC - Quarter Report: 2018 June (Form 10-Q)

 

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 June 30, 2018

☐	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)

 

 

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 ☒                    No☐

 

 

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).

Yes ☒                    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 ☐ (Do not check if smaller reporting company)	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☒

 

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

 

Common Stock	Outstanding Shares at July 31, 2018
Common Shares, par value of $.25 per share	2,043,607

 

 

 

		Page
PART I
Item 1.	Financial Statements
	Condensed Consolidated Statements of Income (Unaudited) Three Months Ended June 30, 2018 and 2017	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) Three Months Ended June 30, 2018 and 2017	4
	Condensed Consolidated Balance Sheets June 30, 2018 (Unaudited) and March 31, 2017	5
	Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended June 30, 2018 and 2017	6
	Condensed Consolidated Statements of Equity (Unaudited) Three Months Ended June 30, 2018 and 2017	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8-23
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24-32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
PART II
Item 6.	Exhibits	32
	Signatures	33
	Exhibit Index
	Certifications
	Interactive Data Files

 

 

 

		Three Months Ended June 30,
		2018				2017
Operating Revenues:
Overnight air cargo		$	17,640,658			$	16,742,175
Ground equipment sales			6,384,781				5,949,656
Ground support services			9,047,640				9,113,073
Printing equipment and maintenance			298,823				3,131,381
Commercial jet engines and parts			27,320,175				12,725,341
Corporate			175,392				35,747
			60,867,469				47,697,373
Operating Expenses:
Overnight air cargo			15,174,396				14,562,143
Ground equipment sales			4,937,312				4,754,215
Ground support services			7,805,209				7,418,393
Printing equipment and maintenance			145,528				1,501,056
Commercial jet engines and parts			20,121,118				10,069,850
Research and development			-				195,653
General and administrative			8,584,803				6,584,668
Depreciation, amortization and impairment			1,495,401				398,827
			58,263,767				45,484,805
Operating Income			2,603,702				2,212,568
Non-operating Income (Expense):
Foreign currency gain (loss), net			(2,182	)			(188,624	)
Other-than-temporary impairment loss on investments			-				(771,173	)
Other investment income (loss), net			(315,507	)			30,651
Interest expense and other			(707,199	)			(149,519	)
Unrealized gain on interest rate swap			97,337				-
Bargain purchase acquisition gain, net of tax			1,983,777				501,880
Equity in income (loss) of associated company			9,183				(31,903	)
			1,065,409				(608,688	)
Income Before Income Taxes			3,669,111				1,603,880
Income Taxes			387,000				374,000
Net Income			3,282,111				1,229,880
Net (Income) Attributable to Non-controlling
Interests		$	(453,417	)		$	(261,491	)
Net Income Attributable to Air T, Inc. Stockholders		$	2,828,694			$	968,389
Income Per Share:
Basic		$	1.38			$	0.47
Diluted		$	1.38			$	0.47
Weighted Average Shares Outstanding:
Basic			2,043,607				2,042,789
Diluted			2,049,698				2,047,623

---

 

		Three Months Ended June 30,
		2018				2017
Net income		$	3,282,111			$	1,229,880
Other comprehensive income (loss):
Foreign currency translation gain			47,660				134,789
Unrealized net loss on marketable securities			-				(920,309	)
Tax effect of unrealized net loss on marketable securities			-				331,761
Total unrealized net loss on marketable securities, net of tax			-				(588,548	)
Reclassification of other-than-temporary impairment loss on investments, net of gains on sale of marketable securities, included in income (loss), before income taxes			-				771,173
Tax effect of reclassification			-				(277,622	)
Reclassification adjustment, net of tax			-				493,551
Total Other Comprehensive Income			47,660				39,792
Total Comprehensive Income (Loss)			3,329,771				1,269,672
Comprehensive (Income) Attributable to Non-controlling Interests			(470,569	)			(260,646	)
Comprehensive Income Attributable to Air T, Inc. Stockholders		$	2,859,202			$	1,009,026

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		June 30, 2018				March 31, 2018*
		(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents (Delphax $371,831 and $241,430)**		$	5,746,521			$	4,803,238
Marketable securities			1,055,075				290,449
Restricted cash			18,832				269,659
Restricted investments			1,119,490				1,235,405
Accounts receivable, less allowance for doubtful accounts of $755,865 and $801,000 (Delphax $41,150 and $317,000)**			19,120,159				15,157,855
Costs and estimated earnings in excess of billings on uncompleted projects			-				2,012,121
Notes and other receivables-current			2,880,560				658,630
Income tax receivable			1,351,597				1,557,180
Inventories, net (Delphax $0 and $0)**			27,619,851				34,231,005
Prepaid expenses and other (Delphax $58,898 and $72,269)**			1,147,368				1,455,566
Total Current Assets			60,059,453				61,671,108
Investments in securities			2,840,175				1,026,920
Property and equipment, net			19,417,752				20,273,171
Cash surrender value of life insurance policies			2,372,289				2,356,507
Other tax receivables-long-term (Delphax $311,000 and $311,000)**			311,000				311,000
Investments in funds			314,026				324,854
Equity method investments			5,238,982				5,032,268
Other assets			772,109				420,981
Intangible assets, net			1,371,561				1,312,472
Goodwill			4,417,605				4,417,605
Total Assets		$	97,114,952			$	97,146,886
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable (Delphax $2,160,817 and $2,145,847)**		$	14,887,263			$	10,181,143
Income tax payable (Delphax $11,312 and $11,312)**			23,000				23,000
Accrued expenses (Delphax $3,180,724 and $3,244,514)**			10,418,865				11,743,973
Short-term debt			9,544,732				9,229,690
Total Current Liabilities			34,873,860				31,177,806
Long-term debt (Delphax $0 and $0)*			31,322,098				38,855,260
Deferred income taxes			681,000				92,000
Other non-current liabilities			719,252				785,797
Total Liabilities			67,596,210				70,910,863
Redeemable non-controlling interest			2,445,563				1,992,939
Commitments and contingencies (Note 15)
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, 2,043,607 shares issued and outstanding			510,901				510,901
Additional paid-in capital			4,171,869				4,171,869
Retained earnings			23,418,334				20,695,981
Accumulated other comprehensive loss			(124,051	)			(260,900	)
Total Air T, Inc. Stockholders' Equity			27,977,053				25,117,851
Non-controlling Interests			(903,874	)			(874,767	)
Total Equity			27,073,179				24,243,084
Total Liabilities and Equity		$	97,114,952			$	97,146,886

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		Three Months Ended June 30,
		2018				2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	3,282,111			$	1,229,880
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gain on sale of marketable securities			10,828				-
Gain on sale of property and equipment			1,661				(1,091	)
Change in inventory reserves			91,547				(405,302	)
Change in accounts receivable reserves			(45,628	)			(20,950	)
Depreciation, amortization and impairment			1,495,401				398,827
Change in cash surrender value of life insurance			(15,782	)			(14,335	)
Bargain purchase acquisition gain, net of tax			(1,983,777	)			(501,880	)
Warranty reserve			(980	)			27,706
Other-than-temporary impairment loss on investments			-				771,173
Unrealized loss on marketable securities			322,477				-
Unrealized gain on interest rate swap			(97,337	)			-
Change in operating assets and liabilities:
Accounts receivable			29,564				(1,071,687	)
Notes receivable and other non-trade receivables			(2,221,930	)			811,207
Inventories			11,319,597				(1,896,441	)
Prepaid expense and other assets			288,286				380,030
Accounts payable			3,942,185				(1,047,556	)
Accrued expenses			(1,982,397	)			(1,206,518	)
Income taxes payable/receivable			205,583				355,186
Non-current liabilities			75,525				47,240
Total adjustments			11,434,823				(3,374,391	)
Net cash provided by (used in) operating activities			14,716,934				(2,144,511	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities			(784,443	)			(30,476	)
Acquisition of businesses, net of cash acquired			(3,325,700	)			(2,900,000	)
Net cash used for equity method investments			(197,532	)			-
Purchase of debt security			(2,000,000	)			-
Capital expenditures			(459,575	)			(489,995	)
Proceeds from sale of property and equipment			50,602				1,861
Net cash used in investing activities			(6,716,648	)			(3,418,610	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit			28,933,742				17,002,765
Payments on lines of credit			(38,156,091	)			(14,520,242	)
Proceeds from term loan			3,400,000				2,400,000
Payments on term loan			(1,404,800	)			(200,000	)
Debt issuance costs			(35,702	)			-
Distribution to non-controlling member			(47,051	)			-
Net cash provided by (used in) financing activities			(7,309,902	)			4,682,523
Effect of foreign currency exchange rates on cash and cash equivalents			2,072				6,057
NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH			692,456				(874,541	)
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD			5,072,897				2,763,365
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD		$	5,765,353			$	1,888,824
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES
Equipment leased to customers transferred to inventory		$	234,151			$	-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest		$	629,264			$	160,191
Income taxes			181,417				18,814

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		Equity
		Air T, Inc. Stockholders' Equity
																		Accumulated
		Common Stock								Additional								Other
										Paid-In				Retained				Comprehensive				Non-controlling				Total
		Shares				Amount				Capital				Earnings				Income (Loss)				Interests				Equity
Balance, March 31, 2017			2,042,789			$	510,696			$	4,205,536			$	18,461,347			$	(212,047	)		$	(803,138	)		$	22,162,394
Net income*			-				-				-				968,389				-				18,239				986,628
Net change from marketable securities, net of tax			-				-				-				-				(94,997	)			-				(94,997	)
Foreign currency translation gain (loss)			-				-				-				-				135,634				(845	)			134,789
Redeemable non-controlling interest			-				-				(25,000	)			-				-				-				(25,000	)
Balance, June 30, 2017			2,042,789			$	510,696			$	4,180,536			$	19,429,736			$	(171,410	)		$	(785,744	)		$	23,163,814

		Equity
		Air T, Inc. Stockholders' Equity
																		Accumulated
		Common Stock								Additional								Other
										Paid-In				Retained				Comprehensive				Non-controlling				Total
		Shares				Amount				Capital				Earnings				Income (Loss)				Interests*				Equity
Balance, March 31, 2018			2,043,607			$	510,901			$	4,171,869			$	20,695,981			$	(260,900	)		$	(874,767	)		$	24,243,084
Net income*			-				-				-				2,828,694				-				(46,259	)			2,782,435
Adoption of ASU 2016-01			-				-				-				(106,341	)			106,341				-				-
Foreign currency translation gain			-				-				-				-				30,508				17,152				47,660
Balance, June 30, 2018			2,043,607			$	510,901			$	4,171,869			$	23,418,334			$	(124,051	)		$	(903,874	)		$	27,073,179

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1.	Financial Statement Presentation

 

The condensed consolidated financial statements of Air T, Inc. (“AirT”, the “Company”, “we”, “us” or “our”) have been prepared, without audit (except as it relates to the consolidated balance sheet as of March 31, 2018 which has been derived from audited financial statements), 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.

 

It is suggested that these condensed consolidated financial statements 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, 2018. The results of operations for the periods ended June 30 are not necessarily indicative of the operating results for the full year.

 

Certain reclassifications have been made to the prior period amounts to conform to the current presentation.

 

Recently Adopted Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board (FASB) issued ASU 2014-09, Revenue from Contracts with Customers, and created Topic 606 (ASC 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASC 606 replaced most existing revenue recognition guidance in GAAP and is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.

 

Effective April 1, 2018, the Company adopted the standard using the modified retrospective transition method. Results for reporting periods beginning after April 1, 2018 will be presented according to ASU 2014-09 while prior period amounts will not be adjusted and will continue to be reported in accordance with the Company’s historic accounting policies. The main area impacted by ASU 2014-09 includes the recognition of revenue with the Company’s Ground Equipment Sales segment transitioning from percentage of completion to point in time for the Government Contracts revenue stream. Additionally, certain repair service revenues which were recorded at a point-in-time upon completion of service are now recognized over-time. Due to the short-term nature of these contracts, over-time recognition does not result in a material difference from point-in-time recognition. The Company calculated the transition adjustment and concluded that there was an immaterial impact due to the adoption of ASC 606.

 

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, that amends the guidance on the classification and measurement of financial instruments (Subtopic 825-10). ASU 2016-01 becomes effective in fiscal years beginning after December 15, 2017, including interim periods therein. ASU 2016-01 removes equity securities from the scope of Accounting Standards Codification (“ASC”) Topic 320 and creates ASC Topic 321, Investments – Equity Securities. Under the new guidance, all equity securities with readily determinable fair values are measured at fair value on the statement of financial position, with changes in fair value recorded through earnings. The update eliminates the option to record changes in the fair value of equity securities through other comprehensive income. Transitional guidance provided that entities with unrealized gains or losses on available for sale (“AFS”) equity securities were required to reclassify those amounts to beginning retained earnings in the year of adoption. As a result, the Company has reclassified the beginning amount of accumulated other comprehensive income related to AFS securities to accumulated deficit and all changes in fair values of these securities are now reflected in the Statement of Operations in the Company’s net loss for the period.

 

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 clarifies how cash receipts and cash payments in certain transactions are presented and classified in the statement of cash flows. The effective date of this update is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The update requires retrospective application to all periods presented but may be applied prospectively if retrospective application is impracticable. The Company adopted the guidance within ASU 2016-15 as of April 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 requires that the statement of cash flows explain the changes in the combined total of restricted and unrestricted cash balance. Amounts generally described as restricted cash or restricted cash equivalents will be combined with unrestricted cash and cash equivalents when reconciling the beginning and end of period balances on the statement of cash flows. Further, the ASU requires a reconciliation of balances from the statement of cash flows to the balance sheet in situations in which the balance sheet includes more than one-line item of cash, cash equivalents, and restricted cash. Companies will also be disclosing the nature of the restrictions. ASU 2016-18 is effective for financial statements issued for fiscal years beginning after December 15, 2017. The Company adopted the guidance within ASU 2016-18 as of April 1, 2018. The impact of ASU 2016-18 on its financial statements was as follows: (1) changes in restricted cash balances are no longer shown in the statements of cash flows, as these balances are included in the beginning and ending cash balances in the statements of cash flows; and (2) included within Note 4 is a reconciliation between cash balances presented on the balance sheets with the amounts presented in the statements of cash flows.

 

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business (Topic 805). This ASU clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for fiscal years that begin after December 15, 2017 and is to be applied prospectively. The Company adopted the guidance within ASU 2017-01 as of April 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting. This update is effective for all entities for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company adopted the guidance within ASU 2017-01 as of April 1, 2018. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

 

Recently Issued Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition. Similarly, lessors will be required to classify leases as either sales-type, finance or operating, with classification affecting the pattern of income recognition. Classification for both lessees and lessors will be based on an assessment of whether risks and rewards as well as substantive control have been transferred through a lease contract. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective transition approach is required for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available. The Company is evaluating the impact of the adoption of the standard on its consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables. The standard requires an entity to estimate its lifetime “expected credit loss” for such assets at inception, and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. The Company is currently evaluating the impact of the adoption of the standard on its consolidated financial statements and disclosures.

 

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step Two from the goodwill impairment test. Step Two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this standard, an entity will recognize an impairment charge for the amount by which the carrying value of a reporting unit exceeds its fair value. The standard is effective for any interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and is to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements.

 

 

In August 2017, the FASB issued ASU 2017-12 – Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which provides guidance on hedge accounting for both financial and commodity risks. The provisions in this standard create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes, for investors and analysts. The standard is effective for public companies for fiscal years beginning after December 15, 2018. Early adoption is permitted in any interim period or fiscal years before the effective date of the standard. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

 

In February 2018, the FASB amended the Financial Instruments Topic of the Accounting Standards Codification. The amendments clarify certain aspects of the guidance issued in ASU 2016-01. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements. The Company has not yet concluded how the new standard will impact the consolidated financial statements.

 

In June 2018, the FASB amended the Compensation—Stock Compensation Topic of the Accounting Standards Codification. The amendments expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year-public business entities. Early adoption is permitted, but no earlier than an entity’s adoption date of Topic 606. The Company is currently evaluating the effects that the adoption of this ASU will have on its consolidated financial statements. The Company has not yet concluded how the new standard will impact the consolidated financial statements.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

 

 

2.	Revenue recognition

 

The Company accounts for revenue in accordance with ASC 606, which was adopted on April 1, 2018, using the modified retrospective method. As substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less 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, printing 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 or prompt payment discounts). Performance obligations are short-term in nature and customers are typically billed upon transfer of control.
Support Services	The Company provides a variety of support services such as aircraft maintenance, printer 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. For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. 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 840 (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:

 

 

 

See Note 13 for the Company's disaggregated revenues by geographic region and Note 14 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

 

The Company does not have material contract assets, liabilities or costs associated with arrangements with its customers at June 30, 2018.

 

 

3.	Business Combinations

 

Acquisition of AirCo Assets

 

On May 2, 2017 and May 31, 2017, our newly formed subsidiaries, AirCo, LLC and AirCo Services, LLC (collectively, “AirCo”) acquired the inventory and principal business assets, and assumed specified liabilities, of Aircraft Instrument and Radio Company, Incorporated, and Aircraft Instrument and Radio Services, Inc. (collectively, the “AirCo Sellers”). The acquired business, which is based in Wichita, Kansas, distributes and sells airplane and aviation parts and maintains a license under Part 145 of the regulations of the Federal Aviation Administration. The consideration paid for the acquired business was $2,400,000.

 

 

The following table summarizes the fair values of assets acquired and liabilities assumed by AirCo as of May 2, 2017, the date of the completion of the acquisition (the “AirCo Closing Date”):

 

 

The Company’s purchase price accounting reflects the estimated net fair value of the AirCo Sellers assets acquired and liabilities assumed as of the AirCo Closing Date.

 

The transaction resulted in a bargain purchase because AirCo was a non-marketed transaction and in financial distress at the time of the acquisition. The inventory was not being marketed appropriately and as a result, the company was unable to realize market prices for the parts. The tax impact related to the bargain purchase gain was to record a deferred tax liability and record tax expense against the bargain purchase gain of approximately $278,000.  The resulting net bargain purchase gain after taxes was approximately $502,000.

 

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

 

Acquisition of Worthington Aviation and Parts

 

On May 4, 2018, Air T, Inc. completed the acquisition (the “Transaction”) of substantially all of the assets and assumed certain liabilities of Worthington Aviation and Parts (“Worthington”), in each case pursuant to the Asset Purchase Agreement (the “Purchase Agreement”), dated as of April 6, 2018, by and among the Company, Worthington, and Churchill Industries, Inc., as guarantor of Worthington’s obligations as disclosed in the Purchase Agreement.

 

Worthington is primarily engaged in the business of operating, distributing and selling airplane and aviation parts along with repair services. The Company agreed to acquire the assets and assume the liabilities in exchange for payment to Worthington of $50,000 as earnest money upon execution of the Agreement and a cash payment of $3,300,000 upon closing. Total consideration is summarized in the table below:

 

 

 

The Transaction was accounted for as a business combination in accordance with ASC Topic 805 "Business Combinations." Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of May 4, 2018, with the remaining unallocated purchase price recorded as a bargain purchase gain. A bargain purchase gain has been recognized by the Company due to Worthington being sold in a distressed sale, resulting in the fair value of net assets acquired exceeding consideration paid. The most significant asset acquired was Worthington’s inventory. The following table outlines the consideration transferred and purchase price allocation at the respective estimated fair values as of May 4, 2018:

 

 

As of June 30, 2018, the purchase price allocation is considered preliminary. The Company’s initial accounting for this acquisition is incomplete as of the date of this report. Therefore, as permitted by applicable accounting guidance, the foregoing amounts are provisional. All relevant facts and circumstances are still being considered by management prior to finalization of the purchase price allocation.

 

The transaction resulted in a bargain purchase because Worthington needed access to additional capital to maintain its operations. The seller engaged in a formal bidding process and determined Air T was the best option for Worthington. The tax impact related to the bargain purchase gain was to record a deferred tax liability and record tax expense against the bargain purchase gain of approximately $589,000.  The resulting net bargain purchase gain after taxes was approximately $1,983,000.

 

Worthington’s operating revenue and operating income included in the Company’s results for the three-months ended June 30, 2018 were $2,600,000 and $165,000, respectively.

 

Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations for the three-month periods ended June 30, 2018 and 2017 present consolidated information of the Company as if the acquisition of Worthington had occurred as of April 1, 2017:

 

 

The unaudited pro forma financial results include certain adjustments for additional amortization expense based upon the definite-lived amortizable asset acquired in the transaction. The provision for income taxes has also been adjusted for all periods, based upon the foregoing adjustments to historical results.

 

The pro forma net income for the three months ended June 30, 2017 includes certain items, such as the bargain purchase gain and transaction costs directly attributable to the acquisition, which will not have an ongoing impact. These items include the bargain purchase gain of approximately $1,983,000. The unaudited pro forma consolidated results are not necessarily indicative of what the Company’s consolidated results of operations actually would have been had it completed these acquisitions on April 1, 2017.

 

 

Other Acquisitions and Business Investments

 

On June 7, 2017, the Company’s Space Age Insurance Company subsidiary (“SAIC”) invested $500,000 for a 40% interest in TFS Partners LLC (“TFS Partners”), a single-purpose investment entity organized by SAIC and other investors for the purpose of making an investment in a limited liability company, The Fence Store LLC (“Fence Store LLC”), organized for the purpose of acquiring substantially all of the assets of The Fence Store, Inc. (“Fence Store Inc.”). TFS Partners acquired a 60% interest in Fence Store LLC, which has completed the purchase of substantially all of the assets of Fence Store Inc. Prior to this transaction, Fence Store Inc. operated a business under the tradename “Town and Country Fence” selling and installing residential and commercial fencing in the greater Twin Cities, Minnesota area. Fence Store LLC intends to continue this business. The Company accounts for its investment in TFS Partners using the equity method of accounting.

 

On December 15, 2017, BCCM, Inc. (“BCCM”), a newly-formed, wholly-owned subsidiary of the Company, completed the acquisition of Blue Clay Capital Management, LLC (“Blue Clay Capital”). In connection with the transaction, BCCM acquired the assets of, and assumed certain liabilities of Blue Clay Capital. Blue Clay Capital, BCCM, BCCM Advisors, LLC (“BCCM Advisors”), a wholly-owned subsidiary of BCCM purchased the general partnership interests in certain investment funds previously managed by Blue Clay Capital for a purchase price equal to $227,000. Upon acquisition of each of the general partnership interests, BCCM Advisors was admitted as the general partner of each fund.

 

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

 

 

4.	Restricted Cash

 

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the Consolidated Statement of Cash Flows:

 

 

 

5.	Income Taxes

 

During the three-month period ended June 30, 2018, the Company recorded $387,000 in income tax expense at an effective rate of 10.5%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company’s effective tax rate for the three-month period ended June 30, 2018 were the estimated benefit for the exclusion of income for the Company’s captive insurance company subsidiary under Section 831(b), the presentation of the tax impact of the bargain purchase gain and state income tax expense. During the three-month period ended June 30, 2017, the Company recorded $374,000 in income tax expense which resulted in an effective tax rate of 23.3%. The primary factors contributing to the difference between the federal statutory rate and the Company’s effective tax rate for the three-month period ended June 30, 2017 were the change in valuation allowance against Delphax’s pretax activity in the period, the benefit for the federal domestic production activities deduction, the increase in the valuation allowance related to the Insignia unrealized impairment loss, state income tax expense, and the estimated benefit for the exclusion of income for the Company’s captive insurance company subsidiary afforded under Section 831(b).

 

 

 

6.	Net Earnings 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 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:

 

 

 

7.	Investments in Securities

 

At March 31, 2018, the Company classified the marketable equity securities as available-for-sale securities, which are recorded at fair value based upon quoted market prices with changes in fair value recorded in Other Comprehensive Income (Loss) (“OCI”). The gains and losses on available-for-sale securities are not reported in Net (Loss) in the consolidated Statement of Income (Loss) until the securities are sold or if there is an other-than temporary decline in fair value below cost.

 

The Company adopted ASU 2016-01 as of April 1, 2018 and as a result has reclassified the beginning accumulated OCI balance of approximately $106,000 related to marketable equity securities to beginning Retained Earnings (see Statement of Equity). As a result of adoption of this guidance, the Company now recognizes changes in fair value of these securities in the Consolidated Statement of Income (Loss).

 

During the three months ended June 30, 2018, the Company had a gross unrealized gains aggregating $61,000 and gross unrealized losses aggregating $416,000, which is included in the Consolidated Statement of Income (Loss).

 

All investments in marketable securities are priced using publicly quoted market prices and are considered Level 1 fair value measurements.

 

In June 2018, the Company invested $2,000,000 in a quota share reinsurance program in the form of participating notes. The investment period is 3 years; subject to early redemption if applicable. Based on the Company’s intent and the ability to hold the investment, the Company has classified the investment as held-to-maturity. The investment is reported at amortized cost of $2,000,000 at June 30, 2018.

 

 

 

8.	Equity Method Investments

 

On January 16, 2018, the Company purchased approximately 1,133,000 shares of Insignia (NASDAQ: ISIG) at a price of $1.25 per share for a total cost of approximately $1.4 million. After this purchase, the Company owned approximately 26% of Insignia’s total common stock and the Company adopted the equity method of accounting. Insignia Systems, Inc. markets in-store advertising products, programs and services to retailers and consumer packaged goods manufacturers. As a result, as of January 16, 2018, the Company adopted the equity method to account for this investment because of its ability to exercise significant influence, but not control, over the operating and financial policies of Insignia. Air T has elected a three-month lag upon adoption of the equity method. At June 30, 2018, the Company held approximately 3.5 million shares of Insignia’s common stock representing approximately 29% of the outstanding shares for a total net investment basis of approximately $4,801,000. For the quarter ended June 30, 2018, the Company recorded approximately $25,000 of its share of Insignia’s net income for the three months ended March 31, 2018 along with a basis difference adjustment of approximately $20,000.

 

As discussed previously, the Company’s investment in The Fence Store LLC is accounted for under the equity method of accounting. The Company’s net investment basis is approximately $437,000 at June 30, 2018.

 

 

9.	Inventories

 

Inventories consisted of the following:

 

 

 

 

10.	Employee and Non-employee Stock Options

 

Air T, Inc. maintains a stock option plan for the benefit of certain eligible employees and directors. In addition, Delphax maintains a number of stock option plans. Compensation expense is recognized over the requisite service period for stock options which are expected to vest based on their grant-date fair values. The Company uses the Black-Scholes option pricing model to value stock options granted under the Air T, Inc. plan and the Delphax plans. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate and dividend yield. Many of these assumptions are judgmental and highly sensitive in the determination of compensation expense.

 

No options were granted or exercised under Air T, Inc.’s stock option plan during the three-month periods ended June 30, 2018 and 2017. Stock-based compensation expense with respect to this plan in the amount of $0 was recognized for the three-month periods ended June 30, 2018 and 2017, respectively. At June 30, 2018, there was no unrecognized compensation expense related to the Air T Inc. stock options.

 

No options were granted or exercised during the June 2018 and June 2017 quarters under any of Delphax’s stock option plans. Delphax did not recognize any stock-based compensation expense during the June 2018 and June 2017 quarters.

 

 

 

11.	Financing Arrangements

 

Material financing arrangements for the Company and its subsidiaries are summarized as follows. AirCo, Contrail Aviation (“Contrail”) and Worthington are subsidiaries of the Company in the commercial jet engines and parts segment.

 

 

 

Refer to the Company’s Form 10K for the year ended March 31, 2018 for a detailed explanation of existing debts. For the quarter ended June 30, 2018, the Company has entered the following debt obligations:

 

On May 25, 2018, the Company’s wholly-owned subsidiaries Worthington Acquisition, LLC, Worthington Aviation, LLC and Worthington MRO, LLC, as Borrowers, completed a loan transaction with Minnesota Bank & Trust (“MBT”) pursuant to which Borrowers obtained from MBT a new revolving loan in the amount of up to $1,500,000 (the “Worthington Revolving Loan”) and new term loan in the amount of $3,400,000 (the “Worthington Term Loan” and together with the Worthington Revolving Loan, the “Worthington Loans”). The entire loan proceeds were disbursed by MBT to the Borrowers on May 25, 2018 and were used to reduce amounts previously advanced on the Company’s line of credit financing with MBT. Until the Worthington Term Loan is paid in full and certain other conditions met, the Company guaranteed up to $3,000,000 of the Worthington Loans. The interest rate on Worthington Term Loan floats at a rate equal to the one-month LIBOR rate plus 2.5% and the interest rate on the Worthington Revolving Loan floats at a rate equal to the one-month LIBOR rate plus 2.0%. The Worthington Loans mature on November 30, 2019, at which time the entire unpaid balance of the Worthington Loans will be due and payable in full. In addition, the loan agreement contains affirmative and negative covenants and the loans are secured by a first lien on all of the assets of the Borrowers and a pledge of certain assets held by Stratus Aero Partners, LLC, a subsidiary of the Company. At June 30, 2018, no borrowings have been made on the Worthington Revolving Loan and the outstanding balance on the Worthington Term Loan is $3,400,000.

 

 

The Company assumes various financial obligations and commitments in the normal course of its operations and financing activities. Financial obligations are considered to represent known future cash payments that the Company is required to make under existing contractual arrangements such as debt and lease agreements.

 

 

12.	Variable Interest Entities

 

A variable interest entity ("VIE") is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support, or (ii) has equity investors who lack the characteristics of a controlling financial interest. Under ASC 810 - Consolidation, an entity that holds a variable interest in a VIE and meets certain requirements would be considered to be the primary beneficiary of the VIE and required to consolidate the VIE in its consolidated financial statements. In order to be considered the primary beneficiary of a VIE, an entity must hold a variable interest in the VIE and have both:

 

●	the power to direct the activities that most significantly impact the economic performance of the VIE; and

 

●	the right to receive benefits from, or the obligation to absorb losses of, the VIE that could be potentially significant to the VIE.

 

The Company concluded that its investments in Delphax’s equity and debt, and its investment in the Warrant, each constituted a variable interest. In addition, the Company concluded that it became the primary beneficiary of Delphax on November 24, 2015. The Company consolidated Delphax in its consolidated financial statements beginning on that date.

 

The following table sets forth the carrying values of Delphax’s assets and liabilities as of June 30, 2018 and March 31, 2018:

 

 

The short-term debt is comprised of amounts due from Delphax to Air T, Inc. Those amounts have been eliminated in consolidation. As of June 30, 2018, the outstanding principal amount of the Senior Subordinated Note was approximately $800,000 ($900,000 as of March 31, 2018) and the outstanding borrowings under the Delphax Senior Credit Agreement were $0 ($0 as of March 31, 2018). Short-term debt as reflected in the above table includes approximately $967,000 and $888,000 of accrued interest, due to the Company from Delphax Technologies, Inc. under the Senior Subordinated Note as of June 30, 2018 and March 31, 2018. As a result of the foreclosure completed by the Company on August 10, 2017, the amount secured by the Delphax Senior Credit Agreement was satisfied.

 

The assets of Delphax can only be used to satisfy the obligations of Delphax. Furthermore, Delphax’s creditors do not have recourse to the assets of Air T, Inc. or its subsidiaries.

 

 

On January 6, 2017, the Company notified Delphax and Delphax Canada of certain “Events of Default” (as defined under the Delphax Senior Credit Agreement) existing under the Delphax Senior Credit Agreement and that the Company was reserving all rights to exercise remedies under the Delphax Senior Credit Agreement and that no delay in exercising any such remedy is to be construed as a waiver of any of its remedies. Also, on January 6, 2017, the Company and Delphax Canada entered into a Forbearance and Amendment Agreement dated as of January 6, 2017, which amended the Senior Subordinated Note to increase the default rate of interest from an annual rate of 10.5% to an annual rate of 18%, to be in effect until all amounts under the Senior Subordinated Note are paid in full, and which provides that so long as no Event of Default (as defined in the Senior Subordinated Note) occurs under the Senior Subordinated Note, other than Events of Default that existed as of January 6, 2017, the Company agreed to forbear from exercising its remedies under the Senior Subordinated Note until May 31, 2017 and further provided for the payment by Delphax Canada to the Company of a forbearance fee equal to approximately $141,000. Notwithstanding the existence of events of default, during the first six calendar months of 2017, the Company permitted additional borrowings under the Delphax Senior Credit Agreement to, among other things, fund a final production run by Delphax Canada of consumable products for its legacy printing systems, which production run was primarily completed over that period. Delphax Canada was Delphax's sole manufacturing subsidiary.

 

In light of continuing events of default under the Delphax Senior Credit Agreement and the conclusion of final production run by Delphax Canada of consumable products for Delphax’s legacy printing systems, on July 13, 2017, the Company delivered a demand for payment and Notice of Intention to Enforce Security to Delphax Canada. On August 10, 2017, the Company foreclosed on all personal property and rights to undertakings of Delphax Canada. The Company foreclosed as a secured creditor with respect to amounts owed to it by Delphax Canada under the Delphax Senior Credit Agreement. The Company provided notice of its intent to foreclose to Delphax Canada and its secured creditors and shareholders on July 26, 2017. The outstanding amount owed to the Company by Delphax Canada under the Delphax Senior Credit Agreement on July 26, 2017 was approximately $1,510,000. The Company also submitted an application to the Ontario Superior Court of Justice in Bankruptcy and Insolvency (the "Ontario Court") seeking that Delphax Canada be adjudged bankrupt. On August 8, 2017, the Ontario Court issued an order adjudging Delphax Canada to be bankrupt. The recipients of the foreclosure notice did not object to the foreclosure or redeem. As a result, the foreclosure was completed on August 10, 2017, and the Company accepted the personal property and rights to undertakings of Delphax Canada in satisfaction of the amount secured by the Delphax Senior Credit Agreement.

 

With it being adjudged bankrupt on August 8, 2017, Delphax Canada ceased to have capacity to deal with its property. The property of Delphax Canada vested in the trustee in bankruptcy of Delphax Canada subject to the rights of secured creditors. The Company’s rights under Delphax Senior Credit Agreement permitted it to foreclose upon the personal property and rights of undertakings of Delphax Canada. Since the Company foreclosed on Delphax Canada’s assets within very close time proximity to the commencement of bankruptcy proceedings and because the bankruptcy and foreclosure were undertaken in contemplation of one another, the Company treated these as one single financial reporting event. In accordance with applicable accounting guidance, the Company considered whether Delphax Canada was still a business post-bankruptcy and foreclosure of the assets by the Company and concluded that Delphax Canada no longer constituted a business as it is defined by accounting principles generally accepted in the United States of America and, accordingly, derecognition of Delphax Canada’s liabilities will occur when Delphax Canada is legally released as the primary obligor with respect to the liabilities in the bankruptcy proceedings. As of June 30, 2018, the bankruptcy proceedings were ongoing in accordance with Canadian law and, therefore, Delphax Canada was still the primary obligor of its liabilities.

 

The intercompany balances under the Delphax Senior Subordinated Note as of June 30, 2018 are eliminated in the presentation of the consolidated financial statements.

 

Delphax’s revenues and expenses are included in our consolidated financial statements beginning November 24, 2015 through June 30, 2018. Revenues and expenses prior to the date of initial consolidation were excluded. We have determined that the attribution of Delphax net income or loss should be based on consideration of all of Air T’s investments in Delphax and Delphax Canada. The Warrant provides that in the event that dividends are paid on the common stock of Delphax, the holder of the Warrant is entitled to participate in such dividends on a ratable basis as if the Warrant had been fully exercised and the shares of Series B Preferred Stock acquired upon such exercise had been converted into shares of Delphax common stock. This provision would have entitled Air T, Inc. to approximately 67% of any Delphax dividends paid, with the remaining 33% paid to the non-controlling interests. We concluded that this was a substantive distribution right which should be considered in the attribution of Delphax net income or loss to non-controlling interests. We furthermore concluded that our investment in the debt of Delphax should be considered in attribution. Specifically, Delphax’s net losses are attributed first to our Series B Preferred Stock and Warrant investments and to the non-controlling interest (67%/33%) until such amounts are reduced to zero. Additional losses are then fully attributed to our debt investments until they too are reduced to zero. This sequencing reflects the relative priority of debt to equity. Any further losses are then attributed to Air T and the non-controlling interests based on the initial 67%/33% share. Delphax net income is attributed using a backwards-tracing approach with respect to previous losses.

 

 

As a result of the application of the above-described attribution methodology, for the quarters ended June 30, 2018 and June 30, 2017 the attribution of Delphax losses to non-controlling interests was 33% and 3.4%, respectively.

 

The following table sets forth the revenue and expenses of Delphax prior to intercompany eliminations that are included in the Company’s condensed consolidated statement of income (loss) for the three months ended June 30, 2018 and 2017.

 

 

Non-operating income (expense), net, includes interest expense of approximately $97,000 associated with the Senior Subordinated Note and the Delphax Senior Credit Agreement for the quarter ended June 30, 2018 and approximately $132,000 associated with the Senior Subordinated Note for the quarter ended June 30, 2017. This interest expense was eliminated for purposes of net income (loss) presented in the Company’s accompanying consolidated statements of income (loss) and comprehensive income (loss) for the three months ended June 30, 2018 and 2017, though the effect of intercompany interest under the Senior Subordinated note and the Delphax Senior Credit Agreement is reflected in the attribution of Delphax net income or losses attributed to non-controlling interests.

 

Unconsolidated Variable Interest Entities and Other Entities

 

As discussed in Note 3, BCCM Advisors holds equity interests in certain investment funds as of March 31, 2018. The Company determined that the equity interest it holds as the general partner in the following funds are variable interests based on the applicable GAAP guidance: Blue Clay Capital Partners CO I LP, Blue Clay Capital Partners CO III LP, Blue Clay Capital SMid-Cap LO LP and AO Partners II LP. However, the Company further determined that these funds should not be consolidated as BCCM Advisors is not the primary beneficiary of these variable interest entities. The Company determined that its equity interest in the Blue Clay Capital Master Fund Ltd. is not a variable interest and should not be consolidated based on the applicable GAAP guidance. The Company’s total investment within these investment funds at June 30, 2018 is valued at approximately $314,000. The Company’s exposure to loss is limited to its initial investment.

 

As discussed in Note 4, the Company has an investment in Oxbridge RE NS in the amount of $2,000,000. The Company determined that this investment represents a variable interest based on the applicable GAAP guidance. However, the Company further determined that the Company should not consolidate Oxbridge RE NS as the Company is not the primary beneficiary of the variable interest entity. The Company’s exposure to loss is limited to its initial investment.

 

 

 

13.	Geographical information

 

Total property and equipment, net of accumulated depreciation, located in the United States, the Company's country of domicile, held outside the United States are summarized in the following table as of June 30, 2018 and March 31, 2018:

 

 

The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines on lease at June 30, 2018. The net book value located within each individual country at June 30, 2018 and March 31, 2018 is listed below:

 

 

 

Total revenue, in and outside the United States is summarized in the following table for the quarters ended June 30, 2018 and June 30, 2017:

 

 

 

 

14.	Segment Information

 

The Company has six business segments: overnight air cargo, ground equipment sales, ground support services, commercial jet engine and parts segment, printing equipment and maintenance and corporate. Segment data is summarized as follows:

 

 

 

 

15.	Commitments and Contingencies

 

Contrail Aviation Support, LLC (“Contrail Aviation”), a subsidiary of the Company, completed the purchase of all of the assets owned by Contrail Aviation Support, Inc. (the “Seller”) in July 2016. As part of this purchase, Contrail Aviation agreed to pay contingent additional deferred consideration of up to a maximum of $1,500,000 per year and $3,000,000 in the aggregate. The Company established a liability of $2,900,000 in the initial allocation of purchase price. The Company has paid $1,000,000 of contingent consideration as of June 30, 2018 and the remaining liability of $1,955,000, which includes a current portion of $1,500,000 and a non-current portion of $455,000, is included in the “Accrued expenses” and “Other non-current liabilities”, respectively, in the consolidated balance sheet at June 30, 2018.

 

Contrail Aviation entered into with the Seller an Operating Agreement (the “Operating Agreement”) providing for the governance of and the terms of membership interests in Contrail Aviation and including put and call options (“Put/Call Option”). the Put/Call Option permits the Seller to require Contrail Aviation to purchase all of the Seller’s equity membership interests in Contrail Aviation, the Company has presented this redeemable non-controlling interest in Contrail Aviation between the liabilities and equity sections of the accompanying consolidated balance sheets.

 

 

16.	Subsequent Events

 

Management performs an evaluation of events that occur after the balance sheet date but before consolidated financial statements are issued for potential recognition or disclosure of such events in its consolidated financial statements.

 

Management is not aware of any subsequent events as of the date of issuance.

 

 

 

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