AIRT 10-Q Quarterly Report Sept. 30, 2019

AIR T INC

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Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)


x			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2019
☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____to _____

Commission File Number 001-35476

Air T, Inc.

(Exact name of registrant as specified in its charter)


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

5930 Balsom Ridge Road, Denver, North Carolina 28037

(Address of principal executive offices, including zip code)

(828) 464 – 8741

(Registrant’s telephone number, including area code)

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


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

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

Yes x No ☐

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

Yes x No ☐

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


Large accelerated filer ☐			Accelerated filer ☐

Non-accelerated filer x			Smaller reporting company x

			Emerging growth company ☐

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

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

Yes ☐ No x

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


Common Stock			Common Shares, par value of $.25 per share
Outstanding Shares at November 6, 2019			3,023,805

AIR T, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page
	PART I

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income ( Loss) (Unaudited) Three and Six Months Ende d September 30, 2019 and 2018	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three and Six Months Ended September 30, 2019 and 2018	6

	Condensed Consolidated Balance Sheets September 30, 2019 (Unaudited) and March 31, 2019	7

	Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended September 30, 2019 and 2018	9

	Condensed Consolidated Statements of Equity (Unaudited) Six Months Ended September 30, 2019 and 2018	11

	Notes to Condensed Consolidated Financial Statements (Unaudited)	13

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures	37

	PART II

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

Item 5.	Other information	38

Item 6.	Exhibits	39
	Signatures	41
	Exhibit Index
	Certifications
	Interactive Data Files

Item 1. Financial Statements

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)


(In Thousands)	Three Months Ended September 30,						Six Months Ended September 30,
	2019		2018		2019		2018
Operating Revenues:
Overnight air cargo	$	19,745	$	17,064	$	38,064	$	34,705
Ground equipment sales	12,741		12,838		24,991		19,224
Printing equipment and maintenance	249		139		313		439
Commercial jet engines and parts	17,801		10,643		34,128		37,963
Corporate and other	157		183		385		356
	50,693		40,867		97,881		92,687

Operating Expenses:
Overnight air cargo	17,707		15,350		34,226		30,524
Ground equipment sales	10,358		10,980		20,089		15,917

Printing equipment and maintenance	121		49		160		194
Commercial jet engines and parts	11,050		5,663		19,336		25,784
General and administrative	9,288		7,997		18,960		15,378
Depreciation and amortization	1,695		1,697		3,635		3,057
Impairment	7		10		14		21
Loss on sale of property and equipment	1		—		( 4 )		—
	50,227		41,746		96,416		90,875

Operating Income (Loss)	466		( 879 )		1,465		1,812

Non-operating Income (Expense):


Other-than-temporary impairment loss on investments	( 395 )		—		( 1,210 )		—

Interest expense	( 2,047 )		( 714 )		( 3,071 )		( 1,421 )

Gain on settlement of bankruptcy	18		—		4,527		—
Bargain purchase acquisition gain	14		—		49		1,984
Income (loss) from equity method investments	( 34 )		160		( 355 )		170
Other	( 440 )		354		( 205 )		133
	( 2,884 )		( 200 )		( 265 )		866

Income (Loss) from continuing operations before income taxes	( 2,418 )		( 1,079 )		1,200		2,678
Income Taxes (Benefit)	( 296 )		( 300 )		( 668 )		117
Net income (Loss) from continuing operations	( 2,122 )		( 779 )		1,868		2,561

Loss from discontinued operations, net of tax	( 235 )		( 648 )		( 70 )		( 705 )
Gain on sale of discontinued operations, net of tax	8,359		—		8,359		—

Net income (loss)	6,002		( 1,427 )		10,157		1,856

Net (Income) Loss Attributable to Non-controlling Interests	( 287 )		106		( 2,660 )		( 348 )
Net Income (Loss) Attributable to Air T, Inc. Stockholders	$	5,715	$	( 1,321 )	$	7,497	$	1,508


Income (Loss) from continuing operations per share (Note 6)
Basic	$	( 0.80 )	$	( 0.22 )	$	( 0.30 )	$	0.72
Diluted	$	( 0.80 )	$	( 0.22 )	$	( 0.30 )	$	0.72

Income (Loss) from discontinued operations per share (Note 6)
Basic	$	2.69	$	( 0.21 )	$	3.14	$	( 0.23 )
Diluted	$	2.68	$	( 0.21 )	$	3.13	$	( 0.23 )

Weighted Average Shares Outstanding:
Basic	3,025		3,066		2,641		3,066
Diluted	3,029		3,066		2,645		3,074

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Three Months Ended September 30,						Six Months Ended September 30,
(In Thousands)	2019		2018		2019			2018

Net income (loss)	$	6,002	$	( 1,427 )	$	10,157		$	1,856

Other comprehensive income (loss):

Foreign currency translation gain	41		32		23			79

Unrealized gain (loss) on interest rate swaps, net of tax	( 88 )		29		( 264 )			29


Total Other Comprehensive Income (loss)	( 47 )		61		( 241 )			108

Total Comprehensive Income (Loss)	5,955		( 1,366 )		9,916			1,964

Comprehensive (Income) Loss Attributable to Non-controlling Interests	( 290 )		98		( 2,675 )			( 373 )

Comprehensive Income (Loss) Attributable to Air T, Inc. Stockholders	$	5,665	$	( 1,268 )	$	7,241		$	1,591

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(In thousands, except share amounts)	September 30, 2019		March 31, 2019
ASSETS
Current Assets:
Cash and cash equivalents	$	27,434	$	12,417
Marketable securities	1,423		1,760
Restricted cash	102		123
Restricted investments	1,018		831
Accounts receivable, net of allowance for doubtful accounts of $382 and $408	18,464		10,881

Income tax receivable	1,030		142
Inventories, net	40,370		27,455
Other current assets	9,232		6,138
Current assets of discontinued operations	—		11,601
	99,073		71,348

Assets on lease, net of accumulated depreciation of $6,007 and $6,689	21,019		25,164
Property and equipment, net of accumulated depreciation of $3,935 and $3,470	4,310		4,264
Right-of-use assets	7,154		—
Cash surrender value of life insurance policies, net of policy loans	80		122
Other tax receivables-long-term	—		311
Deferred income taxes	781		548
Investments in securities	785		1,086
Equity method investments	4,046		5,611
Other assets	284		200
Intangible assets, net of accumulated amortization of $2,229 and $2,097	898		998
Goodwill	4,227		4,227
Non-current assets of discontinued operations	—		1,264
Total Assets	142,657		115,143

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	12,540		11,409
Income tax payable	940		888

Advanced customer deposits	9,996		1,520

Accrued expenses and other	1,380		12,314
Deferred income	295		341
Current portion of long-term debt	29,836		24,735
Short-term lease liability	1,131		—
Current liabilities of discontinued operations	—		1,587
	56,118		52,794

Long-term debt	45,544		32,918

Long-term lease liability	6,446		—
Other non-current liabilities	1,202		597

Total Liabilities	109,310		86,309
Redeemable non-controlling interest	6,000		5,476

Commitments and contingencies (Note 16)



Equity:
Air T, Inc. Stockholders' Equity:
Preferred stock, $1.00 par value, 50,000 shares authorized	—		—
Common stock, $.25 par value; 4,000,000 shares authorized, 3,022,745 and 2,022,637 shares issued and outstanding	756		506
Additional paid-in capital	2,410		2,866
Retained earnings	23,610		21,191
Accumulated other comprehensive loss	( 461 )		( 205 )
Total Air T, Inc. Stockholders' Equity	26,315		24,358
Non-controlling Interests	1,032		( 1,000 )
Total Equity	27,347		23,358
Total Liabilities and Equity	$	142,657	$	115,143

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


(In Thousands)	Six Months Ended September 30,
	2019		2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,157	$	1,856
Loss from discontinued operations, net of income tax	70		705
Gain on sale of discontinued operations, net of income tax	( 8,359 )		—
Net income (loss) from continuing operations	1,868		2,561
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	3,648		3,077
Bargain purchase acquisition gain	( 49 )		( 1,984 )
Impairment of investment	1,210		—

Gain on settlement of bankruptcy	( 4,527 )		—
Other	( 1,785 )		( 464 )

Change in operating assets and liabilities:
Accounts receivable	( 7,331 )		( 1,853 )
Costs and estimated earnings in excess of billings and uncompleted projects	—		2,012
Notes receivable and other non-trade receivables	( 2,984 )		( 3,126 )
Inventories	5,891		10,123
Accounts payable	3,188		3,124
Accrued expenses	739		2,233
Other	( 359 )		( 300 )
Total adjustments	( 856 )		12,213
Net cash provided by (used in) operating activities - continuing operations	( 491 )		15,403
Net cash provided by (used in) operating activities - discontinued operations	1,094		( 532 )
Net cash provided by operating activities	603		14,871
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	( 187 )		( 2,014 )
Acquisition of businesses, net of cash acquired	( 500 )		( 3,376 )
Investment in reinsurance entity	—		( 2,000 )
Capital expenditures related to property & equipment	( 575 )		( 763 )
Capital expenditures related to assets on lease	( 17,614 )		( 19,149 )
Other	346		( 213 )
Net cash used in investing activities - continuing operations	( 18,530 )		( 27,515 )
Net cash provided by (used in) investing activities - discontinued operations	20,463		( 61 )
Net cash provided by (used in) investing activities	1,933		( 27,576 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit	48,267		51,151
Payments on lines of credit	( 35,324 )		( 58,355 )
Proceeds from term loan	13,001		21,714
Payments on term loan	( 17,900 )		( 3,190 )
Proceeds received from exercise of warrants	5,407		—
Proceeds from life insurance policy loan	—		1,897
Other	( 1,124 )		41
Net cash provided by financing activities - continuing operations	12,327		13,258
Effect of foreign currency exchange rates on cash and cash equivalents	26		5


NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	14,889		558
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD	12,647		5,073
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	27,536	$	5,631

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Equipment leased to customers transferred to inventory	18,710		234
Issuance of Debt - Trust Preferred Securities	4,000		—
Issuance of warrant liability	840		—

See notes to condensed consolidated financial statements.

AIR T, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


	Equity
	Air T, Inc. Stockholders' Equity
(In Thousands)	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interests		Total Equity
	Shares	Amount
Balance, March 31, 2018	2,044	$	511	$	4,172	$	20,696	$	( 261 )	$	( 875 )	$	24,243

Net income (loss)*	—	—		—		2,829		—		( 46 )		2,782

Reclassification of unrealized loss on marketable securities, net of tax	—	—		—		( 106 )		106		—		—

Foreign currency translation gain	—	—		—		—		31		17		48


Balance, June 30, 2018	2,044	$	511	$	4,172	$	23,418	$	( 124 )	$	( 904 )	$	27,073

Net loss*	—	—		—		( 1,321 )		—		( 42 )		( 1,363 )

Exercise of stock options	2	—		18		—		—		—		18

Repurchase of common stock	( 1 )	—		( 2 )		( 21 )		—		—		( 23 )



Foreign currency translation gain	—	—		—		—		24		8		32

Unrealized gain on interest rate swaps, net of tax	—	—		—		—		29		—		29



Balance, September 30, 2018	2,045	$	511	$	4,188	$	22,076	$	( 71 )	$	( 938 )	$	25,766

* Excludes amount attributable to redeemable non-controlling interest in Contrail Aviation.


	Equity
	Air T, Inc. Stockholders' Equity
(In Thousands)	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interests		Total Equity
	Shares	Amount
Balance, March 31, 2019	2,022	$	506	$	2,866	$	21,191	$	( 205 )	$	( 1,000 )	$	23,358

Net income*	—	—		—		1,782		—		2,034		3,816

Repurchase of Common Stock	( 17 )	( 4 )		—		( 122 )		—		—		( 126 )

Stock Split	1,010	252		( 252 )		—		—		—		—

Issuance of Debt - Trust Preferred Securities	—	—		—		( 4,000 )		—		—		( 4,000 )

Issuance of Warrants	—	—		—		( 840 )		—		—		( 840 )

Adoption of ASC 842 - Leasing	—	—		—		( 41 )		—		—		( 41 )

Unrealized loss on interest rate swaps, net of tax	—	—		—		—		( 176 )		—		( 176 )

Foreign currency translation gain (loss)	—	—		—		—		( 30 )		12		( 18 )

Adjustment to fair value of redeemable non-controlling interest	—	—		( 985 )		—		—		—		( 985 )

Balance, June 30, 2019	3,015	$	754	$	1,629	$	17,970	$	( 411 )	$	1,046	$	20,988

Net income (loss)*	—	—		—		5,715		—		( 17 )		5,698





Repurchase of common stock	8	2		—		( 75 )		—		—		( 73 )

Foreign currency translation gain	—	—		—		—		38		3		41

Adjustment to fair value of redeemable non-controlling interest	—	—		781		—		—		—		781

Unrealized gain (loss) on interest rate swaps, net of tax	—	—		—		—		( 88 )		—		( 88 )

Balance, September 30, 2019	3,023	$	756	$	2,410	$	23,610	$	( 461 )	$	1,032	$	27,347

*Excludes amount attributable to redeemable non-controlling interest in Contrail Aviation.

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Financial Statement Presentation

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

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2019. The results of operations for the period ended September 30, 2019 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.

Discontinued Operations

On September 30, 2019, the Company completed the sale of Global Aviation Services, LLC ("GAS"). The results of operations of GAS are reported as discontinued operations in the condensed consolidated statements of operations for the three and six months ended September 30, 2019 and 2018. Refer to Foot n ote 4 - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) as amended by multiple standards updates. The new standard provides that a lessee should recognize the assets and the liabilities that arise from leases, including operating leases. Under the new requirements, a lessee will recognize in the statement of financial position a liability to make lease payments (the lease liability) and the right-of-use asset representing the right to the underlying asset for the lease term. For leases with a term of twelve months or less, the lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities.

The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within such fiscal year, with early adoption permitted. Topic 842 permits two transition methods: (1) a modified retrospective transition method requiring retrospective adjustment of each comparative presented with an adjusting entry at the beginning of the earliest comparative period presented and (2) a modified retrospective approach with no restatement of prior periods and an adjusting entry as of the effective date. Under both transition methods, entities may elect certain transition practical expedients that would be required to be applied to all leases.

The Company adopted the standard in the fiscal year beginning April 1, 2019 using the modified retrospective transition method that does not require retrospective adjustment of the comparative periods. The Company reviewed existing leases to determine the impact of the adoption of the standard on its consolidated financial statements. Implementation had an immaterial cumulative effect on retained earnings. Adoption resulted in the recognition of right-of-use assets of approximately $ 10.7 million, and lease liabilities of approximately $ 11.2 million.

Upon adoption, the Company elected practical expedients related to a) short term lease exemption b) not separate lease and non-lease components c) not reassess whether expired or existing contracts contain leases, d) not reassess lease classification for existing or expired leases and e) not consider whether previously capitalized initial direct costs would be appropriate under the new standard.

Recently Issued Accounting Pronouncements

In October 2018, the FASB updated the Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities of the Accounting Standards Codification. The amendments in this update affect reporting entities that are required to

determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation—Overall. Indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests.

The amendments in this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of this amendment on its consolidated financial statements and disclosures.

2. Revenue Recognition

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

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


Type of Revenue			Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
Product Sales			The Company generates revenue from sales of various distinct products such as parts, aircraft equipment, 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, discounts or prompt payment discounts). The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue. The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service agreement or by the contract.
Support Services			The Company provides a variety of support services such as aircraft maintenance, 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. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis. For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is appropriate as the Company is enhancing an asset that the customer controls as repair work, such as labor hours are incurred, and parts installed, is being performed. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service. Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis.

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

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


	Three Months Ended September 30,						Six Months Ended September 30,
	2019		2018		2019		2018
Product Sales
Air Cargo	$	6,680	$	5,003	$	12,094	$	10,523
Ground equipment sales	12,489		12,447		24,492		18,617
Commercial jet engines and parts	13,218		7,380		24,388		32,409
Printing equipment and maintenance	20		122		68		409
Corporate and other	—		—		—		—
Support Services
Air Cargo	13,033		11,985		25,927		24,082
Ground equipment sales	105		148		210		249
Commercial jet engines and parts	1,597		1,327		3,007		2,293
Printing equipment and maintenance	225		12		236		20
Corporate and other	( 8 )		16		33		16
Leasing Revenue
Air Cargo	—		—		—		—
Ground equipment sales	33		15		53		46
Commercial jet engines and parts	2,941		1,826		6,655		3,027
Printing equipment and maintenance	—		—		—		—
Corporate and other	36		32		81		72
Other
Air Cargo	32		76		43		100
Ground equipment sales	114		228		236		312
Commercial jet engines and parts	45		110		78		234
Printing equipment and maintenance	4		5		9		10
Corporate and other	129		135		271		268

Total	$	50,693	$	40,867	$	97,881	$	92,687

The following table summarizes total revenues by segment (in thousands):


	Three Months Ended September 30,						Six Months Ended September 30,
	2019		2018		2019		2018
Air cargo	$	19,745	$	17,064	$	38,064	$	34,705
Ground equipment sales	12,741		12,838		24,991		19,224
Commercial jet engines and parts	17,801		10,643		34,128		37,963
Printing equipment and maintenance	249		139		313		439
Corporate and other	157		183		385		356

Total	$	50,693	$	40,867	$	97,881	$	92,687

See Note 1 4 for the Company's disaggregated revenues by geographic region and Note 1 5 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Contract Balances and Costs

Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2019 and September 30, 2019 and the amount of contract liabilities that were recognized as revenue during the six-month period ended September 30, 2019 (in thousands):


	Outstanding contract liabilities		Outstanding contract liabilities as of April 1, 2019 Recognized as Revenue
As of September 30, 2019	$	10,291
As of April 1, 2019	1,867
For the six months ended September 30, 2019			1,781

Contract assets primarily relate to deposits paid to vendors. The following table presents the amount of contract assets as of April 1, 2019 and September 30, 2019 (in thousands):


			Contract assets
As of September 30, 2019			$ 5,174
As of April 1, 2019			1,743

3. Business Combinations

Acquisition of Worthington Aviation Parts, Inc.

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 Parts, Inc. (“Worthington”), 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 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 (in thousands):


Earnest money	$	50
Cash consideration	3,300
Cash acquired	( 24 )
Total consideration	$	3,326

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 excess of fair value of net assets acquired recorded as a bargain purchase gain. 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 (in thousands):


	May 4, 2018

ASSETS
Accounts receivable	$	1,929
Inventories	4,564
Other current assets	150
Property and equipment	392
Other assets	189
Intangible assets - tradename	138
Total assets	7,362

LIABILITIES
Accounts payable	1,289
Accrued expenses	175
Deferred tax liability	589
Total liabilities	2,053


Net assets acquired	5,309

Consideration paid	3,350
Less: Cash acquired	( 24 )
Bargain purchase gain	$	1,983

The transaction resulted in a bargain purchase gain because Worthington was a non-marketed transaction and in financial distress at the time of the acquisition. 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 . Total transaction costs incurred in connection with this acquisition were approximately $ 83,000 .

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

4. Discontinued Operations

On September 30, 2019, the Company completed the sale of 100 % of the equity ownership in the Company’s wholly-owned subsidiary, Global Aviation Services, LLC ("GAS") to PrimeFlight Aviation Services, Inc., a Delaware corporation. The agreement includes a purchase price of $ 21 million as well as an earn-out provision of $ 4 million if certain performance metrics are achieved by March 31, 2020. The Company received approximately $ 20.5 million of total proceeds at closing after the initial net working capital adjustment. The Company recognized a pre-tax gain on the sale of GAS of approximately $ 10.8 million with tax impact of $ 2.4 million for a net of tax gain of $ 8.4 million in the second quarter of 2019. The gain is subject to change pending final settlement statement, final transaction costs and net working capital adjustments.

Summarized results of operations of GAS for the three and six months ended September 30, 2019 and 2018 through the date of disposition are as follows (in thousands):


	Three Months Ended September 30,						Six Months Ended September 30,
	2019		2018		2019		2018
Net sales	$	8,120	$	8,474	$	16,637	$	17,522
Operating Expense	( 9,015 )		( 9,215 )		( 17,319 )		( 18,350 )

Loss from discontinued operations before income taxes	( 895 )		( 741 )		( 682 )		( 828 )
Income tax benefit	( 660 )		( 93 )		( 612 )		( 123 )
Loss from discontinued operations, net of tax	$	( 235 )	$	( 648 )	$	( 70 )	$	( 705 )

The following table presents summary balance sheet information of GAS that is presented as discontinued operations as of March 31, 2019 (in thousands):


Assets:	March 31, 2019
Cash and cash equivalents	$	107
Accounts receivable, net	8,197
Income tax receivable	17
Inventories, net	2,512
Other current assets	769
Current assets of discontinued operations	11,601
Property and equipment, net	554
Intangible assets, net	228
Goodwill	190
Other non-current assets	292
Non-current assets of discontinued operations	1,264
Liabilities:
Accounts payable	1,144
Income tax payable	( 226 )
Accrued expenses	669
Current liabilities of discontinued operations	$	1,587

5. Income Taxes

During the three-month period ended September 30, 2019, the Company recorded $ 296,000 in income tax benefit from continuing operations at an effective rate ("ETR") of 12.2 %. The Company records income taxes using a discrete, year-to-date tax expense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the three month period ended September 30, 2018, the Company recorded $ 300,000 in income tax benefit from continuing operations at an ETR of 27.8 %. 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 September 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 six-month period ended September 30, 2019, the Company recorded $ 668,000 in income tax benefit from continuing operations at an ETR of ( 55.6 )%. The Company records income taxes using a discrete, year-to-date tax expense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the six-month period ended September 30, 2018, the Company recorded $ 117,000 in income tax expense from continuing operations at an ETR of 4.4 %. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the six-month period ended September 30, 2018 were related to the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary afforded under Section 831(b), the change in valuation allowance and the presentation of the tax impact of the bargain purchase gain.

For the three and six months ended September 30, 2019, the ETR in discontinued operations is 73.7 % and 89.7 %, respectively. The ETR is impacted by the effect of the release of the valuation allowance recorded in fiscal year 2019 against the $ 2 million impaired reinsurance contracts. For the three and six months ended September 30, 2018, the ETR in discontinued operations is 12.6 % and 14.8 %, respectively. The ETR is impacted by permanent, non-deductible items for tax.

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. There were 3,151 anti-dilutive securities as of September 30, 2019. The computation of basic and diluted earnings per common share is as follows (in thousands):


	Three Months Ended September 30,						Six Months Ended September 30,
	2019		2018		2019		2018
Net income (loss) from continuing operations	$	( 2,122 )	$	( 779 )	$	1,868	$	2,561
Net (income) loss from continuing operations attributable to non-controlling interests	( 287 )		106		( 2,660 )		( 348 )
Net income (loss) from continuing operations attributable to Air T, Inc. stockholders	( 2,409 )		( 673 )		( 792 )		2,213
Income (loss) from continuing operations per share:
Basic	$	( 0.80 )	$	( 0.22 )	$	( 0.30 )	$	0.72
Diluted	$	( 0.80 )	$	( 0.22 )	$	( 0.30 )	$	0.72

Loss from discontinued operations, net of tax	$	( 235 )	$	( 648 )	$	( 70 )	$	( 705 )
Gain on sale of discontinued operations, net of tax	8,359		—		8,359		—

Gain (loss) from discontinued operations attributable to Air T, Inc. stockholders	8,124		( 648 )		8,289		( 705 )

Income (loss) from discontinued operations per share:
Basic	$	2.69	$	( 0.21 )	$	3.14	$	( 0.23 )
Diluted	$	2.68	$	( 0.21 )	$	3.13	$	( 0.23 )

Weighted Average Shares Outstanding:
Basic	3,025		3,066		2,641		3,066
Diluted	3,029		3,066		2,645		3,074

On June 10, 2019, the Company effected a three-for-two stock split of its common stock in the form of a 50 % stock dividend to shareholders of record as of June 4, 2019. All share and earnings per share information have been retroactively adjusted to reflect the stock split and the incremental par value of the newly-issued shares was recorded with the offset to additional paid-in capital.

With respect to our September 30, 2019 Quarterly Report on Form 10-Q, the effect of the stock split was recognized retroactively in the stockholders’ equity accounts in the Condensed Consolidated Balance Sheets, and in all share data in the Condensed Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

7. Investments in Securities

As of September 30, 2019, the Company had a gross unrealized gain aggregating to $ 2,273 and gross unrealized losses aggregating to $ 420,208 , which are included in the Consolidated Statement of Income.

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

8. Equity Method Investments

The Company’s investment in Insignia Systems, Inc. (“Insignia”) is accounted for under the equity method of accounting. The Company has elected a three-month lag upon adoption of the equity method. At September 30, 2019, the Company held approximately 3.5 million shares of Insignia’s common stock representing approximately 29 % of the outstanding shares. For the quarter ended September 30, 2019, the Company recorded approximately $ 142,196 as its share of Insignia’s net loss for the three months ended June 30, 2019 along with a basis difference adjustment of approximately $ 24,032 . In addition, due to the adverse financial results as reported in Insignia's Form 10-Q for the quarter ended June 30, 2019 in addition to consideration of analyst reports and other qualitative factors, the Company determined that it has suffered from an other-than-temporary impairment in its investment in Insignia . As such, the Company recorded an impairment charge of $ 395,031 during the quarter ended September 30, 2019. After the impairment, the Company's net investment basis in Insignia is $ 3,439,547 as of September 30, 2019.

Summarized unaudited financial information for Insignia for the three months ended June 30, 2019 and 2018 is as follows (in thousands):


	Three Months Ended June 30, 2019		Three Months Ended June 30, 2018
Revenue	$	5,842	$	8,245
Gross Profit	1,465		3,005
Operating income (loss)	( 683 )		253
Net income (loss)	( 488 )		184
Net income attributable to Air T, Inc. stockholders	$	( 166 )	$	31

9. Inventories

Inventories consisted of the following (in thousands):


	September 30, 2019		March 31, 2019

Ground equipment manufacturing:
Raw materials	$	4,191	$	2,498
Work in process	910		1,660
Finished goods	1,922		973
Printing equipment and maintenance
Raw materials	476		401
Finished goods	912		1,048
Commercial jet engines and parts	32,133		21,032
Total inventories	40,544		$	27,612
Reserves	( 174 )		( 157 )
Total inventories, net of reserves	$	40,370	$	27,455

10. Leases

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

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

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

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

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

The components of lease cost for the three and six months ended September 30, 2019 are as follows (in thousands):


	Three Months Ended September 30, 2019		Six Months Ended September 30, 2019
Operating lease cost	$	514	$	920
Short-term lease cost	50		255
Variable lease cost	71		207
Sublease income	—		—
Total lease cost	$	635	$	1,382

Amounts reported in the consolidated balance sheets for leases where we are the lessee as of the quarter ended September 30, 2019 were as follows (in thousands):


	September 30, 2019
Operating leases
Operating lease right-of-use assets	$	7,154
Operating lease liabilities	$	7,577

Weighted-average remaining lease term	15.50 years
Operating leases

Weighted-average discount rate	4.51		%
Operating leases

Maturities of lease liabilities under non-cancellable leases where we are the lessee as of the quarter ended September 30, 2019 are as follows (in thousands):


	Operating Leases
2020 (excluding the six months ended September 30, 2019)	$	786
2021	1,311
2022	1,131
2023	938
2024	637
2025	402
Thereafter	5,757
Total undiscounted lease payments	$	10,962
Less: Interest	2,890
Less: Discount	495
Total lease liabilities	$	7,577

At March 31, 2019, future minimum annual lease payments (foreign currency amounts translated using applicable March 31, 2019 exchange rates) are as follows (in thousands):


Year ended March 31,
2020	$	3,133
2021	2,115
2022	1,625
2023	1,241
2024	692
Thereafter	6,267
Total minimum lease payments	$	15,073

11. Financing Arrangements

Borrowings of the Company and its subsidiaries are summarized below (in thousands) at September 30, 2019 and March 31, 2019, respectively. AirCo and Contrail Aviation (“Contrail”) are subsidiaries of the Company in the commercial jet engines and parts segment.


(In Thousands)	September 30, 2019		March 31, 2019		Maturity Date	Interest Rate	Unused commitments as of September 30, 2019
Revolver - MB&T	$	18,424	$	12,403	November 30, 2019	Prime - 1%	$	1,576
Term Note A - MB&T	8,250		8,750		January 1, 2028	1-month LIBOR + 2%
Term Note B - MB&T	4,125		4,375		January 1, 2028	4.5%
Term Note D - MB&T	1,574		1,607		January 1, 2028	1-month LIBOR + 2%
Debt - Trust Preferred Securities	9,632		—		June 7, 2049	8%
Air T Debt	42,005		27,135

Revolver - MB&T	—		3,820		May 21, 2019	7.5%
Revolver - MB&T	6,921		—		November 30, 2019	greater of 6.50% or Prime + 2%	3,078
Term Loan - MB&T	—		450		December 17, 2019	7.50%
Term Loan - MB&T	—		400		June 17, 2020	7.25%
Term Loan - Park State	—		2,100		June 17, 2020	8.50%
AirCo Debt	6,921		6,770

Revolver	—		—		September 5, 2021	1-month LIBOR + 3%	20,000
Term Loan A	7,466		8,617		January 26, 2021	1-month LIBOR + 3.75%
Term Loan B	6,500		15,500		September 14, 2021	1-month LIBOR + 3.75%
Term Loan C	12,805		—		August 1, 2024	1-month LIBOR + 3.75%
Contrail Debt - Old National	26,771		24,117

Total Debt	75,697		58,022

Less: Unamortized Debt Issuance Costs	( 317 )		( 369 )
Total Debt, net	$	75,380	$	57,653

At September 30, 2019, our contractual financing obligations, including payments due by period, are as follows (in thousands):


Due by	Amount
September 30, 2020	$	29,836
September 30, 2021	17,535
September 30, 2022	4,172
September 30, 2023	4,271
September 30, 2024	4,138
Thereafter	15,745
	75,697
Less: Unamortized Debt Issuance Costs	( 317 )
	$	75,380

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

• A dividend of one additional share for every two shares already held (a 50 % stock dividend, or the equivalent of a 3-for-2 stock split). See Footnote 6 for discussion.

• The Company issued and distributed to existing common shareholders an aggregate of 1.6 million trust preferred capital security ("TruPs") shares (aggregate $ 4.0 million stated value) and an aggregate of 8.4 million warrants ("Warrants") (representing warrants to purchase $ 21.0 million in stated value of TruPs). The Warrants are exercisable for one year from issuance.

The issuance of the TruPs and Warrants on June 10, 2019 is disclosed on our consolidated statements of equity as well as within the supplemental non-cash disclosure of the Company's consolidated statements of cash flows. As of September 30, 2019, 2,252,797 Warrants have been exercised. As a result, the amount outstanding on the Company's Debt - Trust Preferred Securities is $ 9,632,243 as of September 30, 2019.

At September 30, 2019, the Company had Warrants outstanding and exercisable to purchase 6,147,203 shares of its TruPs at an exercise price of $ 2.40 per share, which represents a discount to the $ 2.50 face value of each Trust Preferred Security. The Warrants will expire on June 7, 2020 or earlier upon redemption or liquidation.


	Fair Value Measurement as of September 30, 2019
Warrant liability (Level 2)	$	614,720

As of September 30, 2019, the Warrants are recorded within "Other non-current liabilities" on our consolidated balance sheets. Fair value measurement was based on market activity and trading volume as observed on the NASDAQ Global Market. The liability is classified as Level 2 in the hierarchy (Level 2 is defined as quoted prices in markets that are not active or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability).

On August 16, 2019, Contrail entered into a term loan agreement with to borrow $ 13 million at the interest rate of LIBOR plus 3.75 % per annum. The maturity date of the term loan is August 1, 2024.

On September 24, 2019, Air T amended the MBT revolver ("Air T Revolver") to temporarily increase the borrowing commitment from $ 17 million to $ 20 million. All other terms of the credit agreement remain unchanged. As noted in Footnote 17 - Subsequent Events, on November 8, 2019, Air T extended the maturity date of the Air T Revolver to February 28, 2020. The principal amount reverted back to $ 17 million. Concurrently, the Company also extended the maturity date of the AirCo MBT revolver ("AirCo Revolver") to February 28, 2020. Principal amount and terms of the AirCo Revolver remained unchanged.

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.

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

As of August 1, 2018, these swap contracts were designated as cash flow hedging instruments and qualified as effective hedges in accordance with ASC 815-30. The effective portion of changes in the fair value on these instruments is recorded in other comprehensive income and is reclassified into the consolidated statement of income as interest expense in the same period in which the underlying hedge transaction affects earnings. As of September 30, 2019 and March 31, 2019, the fair value of the interest-rate swap contracts was a liability of $ 570,069 and $ 227,000 , respectively, which is included within other non-current liabilities in the consolidated balance sheets. During the three months ended September 30, 2019, the Company recorded a loss of approximately $ 88,000 , net of tax, in the consolidated statement of comprehensive income (loss) for changes in the fair value of the instruments.

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 Delphax 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 September 30, 2019 and March 31, 2019 (in thousands):


	September 30, 2019		March 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	13	$	12
Accounts receivable, net	50		47
Other current assets	9		59
Total current assets	72		118
Other tax receivables-long-term	—		311
Total assets	72		429
LIABILITIES
Current liabilities:
Accounts payable	96		2,151
Accrued expenses	392		3,158
Short-term debt	—		1,750
Total current liabilities	488		7,059
Total liabilities	488		7,059
Net Liabilities	$	( 416 )	$	( 6,630 )

Upon petition by the Company, on August 8, 2017 the Ontario Superior Court of Justice in Bankruptcy and Insolvency adjudged Delphax Canada to be bankrupt. As a result, Delphax Canada ceased to have capacity to deal with its property, which then vested in the trustee in bankruptcy of Delphax Canada subject to the rights of secured creditors. As of June 30, 2019, the bankruptcy proceedings were finalized in accordance with Canadian law and, therefore, Delphax Canada was legally discharged of its liabilities. The conclusion of the bankruptcy proceedings also resulted in the dissolution of Delphax Canada. In addition, on June 11, 2019, the Company has also fully dissolved Delphax UK. As such, the only Delphax entity that remains in existence as of September 30, 2019 is Delphax France. The Company extinguished the assets and liabilities of Delphax Canada and Delphax UK during the quarter ended June 30, 2019 and recognized a gain on dissolution of entities of $ 4,509,302 .

Delphax’s revenues and expenses are included in our consolidated financial statements beginning November 24, 2015 through September 30, 2019. 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 Delphax warrant ("Delphax warrant") provides that in the event that dividends are paid on the common stock of Delphax, the holder of the Delphax warrant is entitled to participate in such dividends on a ratable basis as if the Delphax 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 Delphax 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 September 30, 2019 and September 30, 2018 the attribution of Delphax losses to non-controlling interests was 33 % and 33 %, 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 for the three months ended September 30, 2019 and 2018 (in thousands):


	Six Months Ended September 30,
	2019		2018
Operating Revenues	$	—	$	—

Operating Expenses:
Cost of sales	—		—
General and administrative	125		222
	125		222

Operating Loss	( 125 )		( 222 )

Non-operating Income (Expenses), net	6,237		( 46 )

Income (Loss) Before Income Taxes	6,112		( 268 )

Income Taxes	—		—

Net Income (Loss)	$	6,112	$	( 268 )

13. Share Repurchase

On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period.

During the three months ended September 30, 2019, the Company repurchased 5,883 shares at an aggregate cost of $ 101,039 . These shares are reflected as retired as of September 30, 2019 in accordance with the intent of the authorized share repurchase program. The Company has reduced common stock and retained earnings to reflect the retirement of those shares.

14. Geographical information

Total property and equipment, including assets on lease, net of accumulated depreciation, located in the United States, the Company's country of domicile, and held outside the United States are summarized in the following table as of September 30, 2019 and March 31, 2019, in thousands:


	September 30, 2019		March 31, 2019
United States	$	18,321	$	4,393
Foreign	7,008		25,035
Total property and equipment, net	$	25,329	$	29,428

The Company's tangible long-lived assets, net of accumulated depreciation, held outside of the United States represent engines and aircraft on lease at September 30, 2019. The net book value located within each individual country at September 30, 2019 and March 31, 2019 is listed below, in thousands:


	September 30, 2019		March 31, 2019
Australia	$	3	$	5
Mexico	1,845		2,681
Netherlands	5,160		5,541
China	—		16,808
Total property and equipment, net	$	7,008	$	25,035

Total revenue from continuing operations, in and outside the United States is summarized in the following table for the six months ended September 30, 2019 and September 30, 2018, in thousands:


	September 30, 2019		September 30, 2018
United States	$	75,891	$	79,267
Foreign	21,990		13,420
Total revenue from continuing operations	$	97,881	$	92,687

15. Segment Information

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


(In Thousands)	Three Months Ended September 30,						Six Months Ended September 30,
	2019		2018		2019		2018
Operating Revenues by Segment:
Overnight Air Cargo	$	19,745	$	17,064	$	38,065	$	34,705
Ground Equipment Sales:
Domestic	12,102		11,070		22,960		16,362
International	639		1,776		2,030		2,871
Total Ground Equipment Sales	12,741		12,846		24,990		19,233

Printing Equipment and Maintenance:
Domestic	175		3		197		194
International	74		137		120		245
Total Printing Equipment and Maintenance	249		140		317		439
Commercial Jet Engines and Parts:
Domestic	6,203		5,341		14,631		27,659
International	11,699		5,302		19,840		10,304
Total Commercial Jet Engines and Parts	17,902		10,643		34,471		37,963
Corporate and other	542		189		1,141		365
Intercompany	( 486 )		( 15 )		( 1,103 )		( 18 )
Total	50,693		40,867		97,881		92,687

Operating Income (Loss):
Overnight Air Cargo	216		197		264		1,253
Ground Equipment Sales	1,221		697		2,568		1,091
Printing Equipment and Maintenance	( 381 )		( 413 )		( 837 )		( 654 )
Commercial Jet Engines and Parts	1,193		575		3,191		3,788
Corporate and other	( 1,902 )		( 1,935 )		( 3,860 )		( 3,666 )
Intercompany	119		—		139		—
Total	466		( 879 )		1,465		1,812

Capital Expenditures:
Overnight Air Cargo	26		29		56		34
Ground Equipment Sales	286		156		10		296
Printing Equipment and Maintenance	—		—		—		—
Commercial Jet Engines and Parts	16,005		19,287		17,656		19,471
Corporate and other	51		34		72		111
Total	16,368		19,506		17,794		19,912

Depreciation, Amortization and Impairment:
Overnight Air Cargo	19		21		37		44
Ground Equipment Sales	63		65		116		157
Printing Equipment and Maintenance	27		15		30		30
Commercial Jet Engines and Parts	1,456		1,456		3,192		2,554
Corporate and other	137		151		277		296
Intercompany	—		( 1 )		( 3 )		( 3 )
Total	$	1,702	$	1,707	$	3,649	$	3,078

16. 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 has paid

in full the contingent consideration as of September 30, 2019 and there is no remaining liability as of September 30, 2019.

Contrail Aviation entered into an Operating Agreement (the “Operating Agreement”) with the Seller 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 commencing on the fifth anniversary of the acquisition, which is on July 18, 2021. The Company has presented this redeemable non-controlling interest in Contrail Aviation between the liabilities and equity sections of the accompanying consolidated balance sheets. In addition, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The fair value of the redeemable non-controlling interest is $ 6,000,000 . The net change in the redemption value compared to March 31, 2019 is an increase of $ 524,000 , of which $ 203,858 was related to the net change in fair value during the six months ended September 30, 2019, which is reflected on our consolidated statements of equity.

17. 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.

On November 8, 2019, we extended the maturity date of the Air T Revolver to February 28, 2020. The borrowing capacity returned to $ 17 million from a temporary increase to $ 20 million on September 24, as mentioned in Footnote 12, Fi nancing Arrang ements . Concurrently, the Company also extended the maturity date of the AirCo Revolver to February 28, 2020. Principal amount remained at $ 10 million. All other terms for both agreements remained unchanged.

On November 8, 2019, the Company purchased a 19.90 % interest in Cadillac Castings, Inc, a Michigan corporation (“Cadillac”). The purchase price for the interest acquired approximated $ 3,000,000 . Cadillac is a full-service ductile iron foundry located in Cadillac, Michigan. Cadillac operates a 275,000 square-foot facility located on 43 acres and is a major supplier of engineered ductile iron, including high silicon molybdenum cast components.

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

Overview

Air T, Inc. (the “Company,” “Air T,” “we” or “us”) is a holding company with a portfolio of operating businesses and financial assets. Our goal is to prudently and strategically diversify Air T’s earnings power and compound the growth in its free cash flow per share over time.

We currently operate in five industry segments:

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

• Ground equipment sales, which manufactures and provides mobile deicers and other specialized equipment products to passenger and cargo airlines, airports, the military and industrial customers;

• Commercial aircraft, engines and parts, which manages and leases aviation assets; supplies surplus and aftermarket commercial jet engine components; provides commercial aircraft disassembly/part-out services; commercial aircraft parts sales; procurement services and overhaul and repair services to airlines;

• Printing equipment and maintenance, which designs, manufactures and sells advanced digital print production equipment and provides maintenance services to commercial customers; and commercial aircraft companies and,

• Corporate and other, which acts as the capital allocator and resource for other segments.

On September 30, 2019, we completed the sale of 100% of the equity ownership in the Company's wholly-owned subsidiary, Global Aviation Services, LLC.

Each business segment has separate management teams and infrastructures that offer different products and services. We evaluate the performance of our business segments based on operating income.

All discussions and disclosures below are in thousands, unless stated otherwise.

Second Quarter Fiscal 2020 Compared to Second Quarter Fiscal 2019

Consolidated revenue increased by $9,826 or 24% to $50,693 for the three-month period ended September 30, 2019 compared to the same quarter in the prior fiscal year.

Following is a table detailing revenue by segment, net of intercompany during the three months ended September 30, 2019 compared to the same quarter in the prior fiscal year (in thousands):


	Three Months Ended September 30,						Change
	2019		2018
Overnight Air Cargo	$	19,745	$	17,064	$	2,681	16	%
Ground Equipment Sales	12,741		12,838		(97)		(1)	%

Commercial Jet Engines and Parts	17,801		10,643		7,158		67	%
Printing Equipment and Maintenance	249		139		110		79	%
Corporate and other	157		183		(26)		(14)	%
	$	50,693	$	40,867	$	9,826	24	%

Revenues from the air cargo segment increased by $2,681 (16%) compared to the second quarter of the prior fiscal year. The increase was principally attributable to higher administrative fees and pass-through revenues to FedEx and higher sales to maintenance customers outside of FedEx.

The ground equipment sales segment contributed approximately $12,741 and $12,838 to the Company’s revenues for the three-month periods ended September 30, 2019 and 2018 respectively, representing a $97 (1)% decrease in the current quarter. At September 30, 2019, the ground equipment sales segment’s order backlog was $36.2 million compared to $30.6 million at September 30, 2018.

The commercial jet engines and parts segment contributed $17,801 of revenues in the quarter ended September 30, 2019 compared to $10,643 in the comparable prior year quarter which is an increase of $7,158 or 67%. The increase was primarily driven by Contrail's higher aircraft and component sales as well as higher lease revenue in the current quarter.

Following is a table detailing operating income (loss) by segment during the three months ended September 30, 2019 compared to the same quarter in the prior fiscal year (in thousands):


	Three Months Ended September 30, 2019						Change
	2019		2018
Overnight Air Cargo	$	254	$	198	$	56	28	%
Ground Equipment Sales	1,221		696		525		75	%

Commercial Jet Engines and Parts	1,083		575		508		88	%
Printing Equipment and Maintenance	(300)		(413)		113		(27)	%
Corporate and other	(1,791)		(1,935)		144		(7)	%
	$	467	$	(879)	$	1,346	n/m

Consolidated operating income for the quarter ended September 30, 2019 was $467, an increase of $1,346 from the operating loss of $879 in the comparable quarter of the prior year.

The ground equipment sales segment operating income increased by $525 (75%) to $1,221. This increase was primarily attributable to the fact that sales in the current quarter contained higher margin orders when compared to prior quarter sales that included broader product mix with lower margin orders.

The commercial jet engines and parts segment generated an operating income of $1,083 in the current-year quarter compared to an operating income of $575 in the prior-year quarter. The change was due to Contrail's higher margin aircraft and component sales, offset by higher medical claims costs at other companies in the same segment.

Consolidated operating expenses increased by $8,482 or 20% to $50,227 in the current year quarter. The increase in operating expenses was primarily driven by the commercial jet engines and parts segment and the ground equipment sales segment. The higher operating expenses was a direct result of increased sales in these two segments.

Following is a table detailing non-operating income (loss) during the three months ended September 30, 2019 compared to the same quarter in the prior fiscal year (in thousands):


	Three Months Ended September 30,						Change
	2019		2018
Other-than-temporary impairment loss on investments	$	(395)	$	—	$	(395)
Interest expense	(2,047)		(714)		(1,333)
Gain on settlement of bankruptcy	18		—		18
Bargain purchase acquisition gain	14		—		14
Income (Loss) from equity method investments	(34)		160		(194)
Other	(440)		354		(794)
	$	(2,884)	$	(200)	$	(2,684)

The Company had net non-operating loss of $(2,884) for the quarter ended September 30, 2019, an increase of $(2,684) from $(200) in the prior-year quarter, principally due to an impairment loss in the investment of Insignia of $(395) and an increase in interest expense of $(1,333) generated by increased debt activities as detailed in Foot note 11 .

Pretax loss from continuing operations for the three-month period ended September 30, 2019 was $(2,418) compared to $(1,079) in the prior year comparable period, which was primarily attributable to the increase in non-operating loss of $(2,684), offset by increase in operating income of $1,346 as explained above.

During the three-month period ended September 30, 2019, the Company recorded $296 in income tax benefit at an effective rate of 12.24%. The Company records income taxes using a discrete, year-to-date tax expense calculation 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 September 30, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the three month period ended September 30, 2018, the Company recorded $300 in income tax benefit

which resulted in an effective tax rate of 27.80%. 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 September 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.

First Six Months of Fiscal 2019 Compared to First Six Months of Fiscal 2018

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


	Six Months Ended September 30,								Change
	2019		2018		6 mos

Overnight Air Cargo	$	38,064	$	34,705	$	3,359	10	%
Ground Equipment Sales	24,991		19,224		5,767		30	%
Printing Equipment and Maintenance	313		439		(126)		(29)	%
Commercial Jet Engines and Parts	34,128		37,963		(3,835)		(10)	%
Corporate	385		356		29		8	%
	$	97,881	$	92,687	$	5,194	6	%

Revenues from the air cargo segment increased by $3,359 or 10% compared to the six months ended September 30, 2018. The increase was principally attributable to higher administrative fees and pass-through revenues to FedEx and higher sales to maintenance customers outside of FedEx.

The ground equipment sales segment contributed approximately $24,991 and $19,224 to the Company’s revenues for the six-month periods ended September 30, 2019 and 2018 respectively, representing a $5,767 or 30% increase in the current six-month period. The increase was due to increased orders of commercial and military deicers in addition to new customers.

The commercial jet engines and parts segment contributed $34,128 of revenues in the six months ended September 30, 2019 compared to $37,963 in the comparable prior year six months. The decrease was primarily driven by the fact that Contrail sold four whole engines in May 2018 totaling $17.4 million, which did not recur in 2019. This decrease was slightly offset by higher component and lease revenues in the three months ended September 30, 2019 compared to the three months ended September 30, 2018.

Following is a table detailing operating income (loss) by segment during the six months ended September 30, 2019 compared to the same six months in the prior fiscal year (in thousands):


	Six Months Ended September 30,								Change
	2019		2018		6 mos

Overnight Air Cargo	$	271	$	1,255	$	(984)	(78)	%
Ground Equipment Sales	2,568		1,089		1,479		136	%
Printing Equipment and Maintenance	(682)		(654)		(28)		(4)	%
Commercial Jet Engines and Parts	2,971		3,788		(817)		(22)	%
Corporate	(3,663)		(3,666)		3		—	%
	$	1,465	$	1,812	$	(347)	(19)	%

Consolidated operating income for the six months ended September 30, 2019 was $1,465, a decrease of $347 from operating income of $1,812 for the comparable six months of prior year.

Operating income for the air cargo segment decreased by $984 (78)% due primarily to higher pilot salaries and increased pilot headcount.

The ground equipment sales segment operating income increased by $1,479 (136%) to $2,568 in the six-month period ended September 30, 2019. This increase was primarily attributable to increased sales volume as well as higher margin product mix.

The commercial jet engines and parts segment generated an operating income of $2,971 in the current-year six months compared to an operating income of $3,788 in the prior-year six months. The decrease corresponded to the decrease in sales in this segment in addition to higher medical claim costs when compared to prior year six months.

Consolidated operating expenses increased by $5,541 or 6% to $96,416 in the six months ended September 30, 2019. The increase in operating expenses was primarily driven by the increases in the overnight air cargo segment due to higher pilot salaries and the ground equipment sales segment (higher operating expenses as a result of increased sales), offset by the decrease in the commercial jet engines and parts segment as a result of decreased sales at Contrail and higher medical claims costs at other companies in the same segment.

Following is a table detailing non-operating income (loss) during the six months ended September 30, 2019 compared to the same six months in the prior fiscal year (in thousands):


	Six Months Ended September 30,						Change
	2019		2018		6 months
Other-than-temporary impairment loss on investments	$	(1,210)	$	—	$	(1,210)
Interest expense	(3,071)		(1,421)		(1,650)
Gain on settlement of bankruptcy	4,527		—		4,527
Bargain purchase acquisition gain	49		1,984		(1,935)
Income (Loss) from equity method investments	(355)		170		(525)
Other	(205)		133		(338)
	$	(265)	$	866	$	(1,131)

The Company had net non-operating loss of $(265) for the six months ended September 30, 2019, a decrease of $(1,131) from net non-operating income of $866 in the prior-year six-month period, principally due to an impairment loss in the investment of Insignia of $(1,210), an increase in interest expense of $(1,650) generated by increased debt activities as detailed in Footnote 11 , a decrease in bargain purchase acquisition gain of $(1,935) offset by the $4,527 gain on settlement of bankruptcy related to Dephax Canada and UK.

Pretax income from continuing operations for the six-month period ended September 30, 2019 was $1,200 compared to $2,678 in the prior year comparable period, which was primarily attributable to the decrease in non-operating loss of $(1,131) in addition to decrease in operating income of $(347) as explained above.

During the six-month period ended September 30, 2019, the Company recorded $668 in income tax expense at an effective rate of 55.65%. The Company records income taxes using a discrete, year-to-date tax expense calculation for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21% and the Company's effective tax rate for the six-month period ended September 30, 2019 were the change in valuation allowance related to Delphax, the estimated expense for the exclusion of loss for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for Foreign-Derived Intangible Income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the six-month period ended September 30, 2018, the Company recorded $117 in income tax benefit which resulted in an effective tax rate of 4.37%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the six-month period ended September 30, 2018 were related to the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary afforded under Section 831(b), the change in valuation allowance and the presentation of the tax impact of the bargain purchase gain.

Critical Accounting Policies and Estimates

The Company’s significant accounting policies are fully described in Note 1 to the consolidated financial statements and in the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019. The preparation of the Company’s consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions to determine certain assets, liabilities, revenues and expenses. Management bases these estimates and assumptions upon the best information available at the time of the estimates or assumptions. The Company’s estimates and assumptions could change materially as conditions within and beyond our control change. Accordingly, actual results could differ materially from estimates. There were no significant changes to the Company’s critical accounting policies and estimates during the three-months ended September 30, 2019.

Seasonality

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

Liquidity and Capital Resources

As of September 30, 2019, the Company held approximately $27,536 in cash and cash equivalents and restricted cash. The Company also held $1,018 in restricted investments held as statutory reserve of SAIC and the remaining $102 of restricted investments pledged to secure SAIC’s participation in certain reinsurance pools. The Company has approximately $4,862 of marketable securities as of September 30, 2019.

As of September 30, 2019, the Company’s working capital amounted to $42,955, an increase of $24,401 compared to September 30, 2018.

As of September 30, 2019, the exercise of Warrants to purchase TruPs issued on June 10, 2019 has generated cash proceeds of $5,407, which is disclosed in the financing section on our consolidated statements of cash flows.

On August 16, 2019, Contrail entered into a term loan agreement with Old National Bank to borrow $13 million at the interest rate of LIBOR plus 3.75% per annum. The maturity date of the term loan is August 1, 2024.

On September 24, 2019, Air T amended the MBT revolver to temporarily increase the borrowing commitment from $17 million to $20 million. All other terms of the credit agreement remain unchanged.

The revolving lines of credit at both Air T and AirCo have due dates or expire within the next twelve months, as does some term debts within various business units. On November 8, 2019, we entered into agreements with MBT ("extension agreements") to extend the maturity date of the Air T Revolver and AirCo Revolver to February 28, 2020. As part of the extension agreement, the Air T revolver's borrowing capacity was also returned to $17 million. We are currently seeking to refinance these obligations prior to February 28,

2020; however, there is no assurance that we will be able to execute this refinancing or, if we are able to refinance these obligations, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.

As of September 30, 2019, the Company had sufficient capital resources to cover contractual financing obligations due by September 30, 2020. Cash flows from operations, cash and cash equivalents, and the other sources of liquidity described above are expected to be available and sufficient to meet foreseeable cash requirements.

The Company’s Credit Agreement with MBT (the Air T debt in Footnote 11 to the financial statements) includes several covenants that are measured once a year as of March 31, including but not limited to a negative covenant requiring a debt service coverage ratio of 1.25. The Company is working with its operating subsidiaries to assure compliance with the MBT covenants at March 31, 2020. However, there is no assurance that the Company will meet each covenant at March 31, 2020 and in such event the Company will work with MBT to seek a waiver and/or undertake other actions to avoid an event of non-compliance.

Cash Flows

Following is a table of changes in cash flow for the six months ended September 30, 2019 and 2018 (in thousands):


	Six Months Ended September 30,
	2019	2018

Net Cash Provided by Operating Activities	603	14,871
Net Cash Provided by (Used in) Investing Activities	1,933	(27,576)
Net Cash Provided by Financing Activities	12,327	13,258
Effect of foreign currency exchange rates on cash and cash equivalents	26	5

Net Increase in Cash and Cash Equivalents and Restricted Cash	14,889	558

Net cash provided by operating activities was $603 for the six-month period ended September 30, 2019 compared to the net cash provided by operating activities of $14,871 in prior year period. The primary drivers in the decrease in cash provided by operating activities for the six months ended September 30, 2019 was the increase in accounts receivable at GGS due to significant increase in commercial deicer sales as well as increased inventory levels at Contrail due to two engines coming off lease into inventory and at GGS due to significant backlog and production requirements in the current quarter.

Net cash provided by investing activities for the six-month period ended September 30, 2019 was $1,933 compared to net cash used in investing activities of $(27,576) in prior year period. The primary driver in generating cash from investing activities was the lower cash used in business combinations, purchases of marketable securities as well as lower capital expenditures, and cash provided by the sale of GAS.

Net cash provided by financing activities for the six-month period ended September 30, 2019 was $12,327 compared to net cash provided by financing activities of $13,258 in the prior year period. The slight decrease was primarily driven by lower net cash proceeds from lines of credit and term loans, in addition to cash proceeds from exercise of Warrants to purchase TruPs.

Impact of Inflation

The Company believes that inflation has not had a material effect on its operations, because increased costs to date have generally been passed on to its customers. Under the terms of its overnight air cargo business contracts the major cost components of this business’ operations, consist principally of fuel, and certain other direct operating costs, and certain maintenance costs that are reimbursed by its customer. Significant increases in inflation rates could, however, have a material impact on future revenue and operating income.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to various risks, including interest rate risk. As interest rates are projected to increase and can be volatile, the Company has designated a risk management policy which provides for the use of derivative instruments to provide protection against rising interest rates on variable rate debt.

Item 4. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, referred to collectively herein as the Certifying Officers, are responsible for establishing and maintaining our disclosure controls and procedures. The Certifying Officers have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of September 30, 2019. Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the Certifying Officers have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Company required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving the stated goals under all potential future conditions, regardless of how remote.

There has not been any change in the Company’s internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II -- OTHER INFORMATION

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

(a) None.

(b) On May 14, 2014, the Company announced that its Board of Directors had authorized a program to repurchase up to 750,000 shares of the Company’s common stock from time to time on the open market or in privately negotiated transactions, in compliance with SEC Rule 10b-18, over an indefinite period.

Purchases during the quarter ended September 30, 2019 are described below:

Issuer Purchases of Equity Securities


Dates of Shares Purchased	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Public Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 - July 31, 2019	2,097	$	17.81	24,438	699,027
August 1 - August 31, 2019	2,674	$	17.87	21,764	677,263
September 1 - September 30, 2019	1,112	$	14.32	20,652	656,611
	5,883

Item 5. Other information

(a) Other Information

On November 8, 2019, AirCo 1, LLC, a wholly-owned subsidiary of AirCo, LLC, a wholly-owned subsidiary of Stratus Aero Partners, LLC, a wholly-owned subsidiary of Air T, Inc., and MBT, entered into that certain Change in Terms Agreement (the “ AirCo 1 Amendment ”). The AirCo 1 Amendment amends the AirCo Revolving Credit Note in the original principal amount of $10,000,000 by extending the maturity date to February 28, 2020, and providing for a three-month interest only payment schedule with final payment of all principal and unpaid accrued interest due on the new maturity date.

On November 8, 2019, the Company and MBT entered into that certain Change in Terms Agreement (the “ Company Amendment ”). The Company Amendment amends the Company Revolving Credit Note to return the principal amount to $17,000,000, extend the maturity date to February 28, 2020 with final payment of all principal and unpaid accrued interest due on the maturity date.

The above discussion is qualified in its entirety by reference to the AirCo 1 Amendment and the Company Amendment filed as Exhibits 10.29 and 10.30 to this Report, which are incorporated herein by reference.

On November 8, 2019, the Company purchased a 19.90% interest in Cadillac Castings, Inc, a Michigan corporation (“Cadillac”). The purchase price for the interest acquired approximated $3,000,000. In connection with the transaction, investment entities controlled by Nick Swenson increased ownership interest in Cadillac from approximately 33% to approximately 61%. Gary Kohler, a director of the Company is an investor in the investment entity controlled by Mr. Swenson that purchased the additional shares.

Cadillac is a full-service ductile iron foundry located in Cadillac, Michigan (“Cadillac”). Cadillac operates a 275,000 square-foot facility located on 43 acres and is a major supplier of engineered ductile iron, including high silicon molybdenum cast components. Molds are made with a high-speed green sand horizontal Combustion Engineering (CE) SpoMatic process. Cadillac also uses a custom automated Resin Bonded Sand (RBS) process, for difficult and “rangy” products . Cadillac provides support from the design and prototype phases all the way through production of its products. Cadillac operates in the automotive, commercial vehicle, off highway, industrial and railroad industries. Cadillac’s annual revenues exceeded $100MM in each of the last two calendar years.

Item 6. Exhibits

(a) Exhibits


No.			Description

10.1			Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank.

10.2			Air T, Inc. Continuing Guaranty in favor of Old National Bank, dated June 24, 2019.

10.3			Supplement #1 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank.

10.4			Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC First Amended and Restated Promissory Note Term Note A in the principal amount of $9,920,000.00 to Old National Bank.

10.5			Supplement #2 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, and Old National Bank.

10.6			Contrail Aviation Leasing, LLC Continuing Guaranty in favor of Old National Bank, dated June 24, 2019.

10.7			Contrail Aviation Support, LLC First Amended and Restated Promissory Note Revolving Note in the principal amount of $20,000,000.00 to Old National Bank.

10.8			Supplement #3 to Master Loan Agreement, dated June 24, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank.

10.9			Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC First Amended and Restated Promissory Note Term Note B in the principal amount of $18,000,000.00 to Old National Bank.

10.10			Supplement #4 to Master Loan Agreement, dated August 16, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank.

10.11			Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC Term Note C in the principal amount of $13,000,594.00 to Old National Bank.

10.12			Trustee Aircraft Security Agreement, dated August 16, 2019 by and between Wells Fargo Trust Company, National Association, Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, and Old National Bank.

10.13			Beneficial Interest Pledge Agreement, dated August 16, 2019 by and between Contrail Aviation Leasing, LLC, and Old National Bank.

10.14			Assignment of Beneficial Interest of Trust, dated August 16, 2019 by and between Contrail Aviation Leasing, LLC and Old National Bank.

10.15			Aircraft Asset Sale and Purchase Agreement, dated August 2, 2019 by and between Sapphire Leasing I (AOE 5) Limited, Sapphire Finance I Holding Designated Activity Company, Wilmington Trust SP Services (Dublin) Limited, and Contrail Aviation Support, LLC.*

10.16			Form of Third Aircraft Lease Amendment Agreement, dated August 2, 2019 by and between Sapphire Aviation Finance I (UK) Limited and MIAT Mongolian Airlines.*

10.17			Buyer Guarantee, dated August 2, 2019 by and between Contrail Aviation Support, LLC and Sapphire Leasing I (AOE 5) Limited.

10.18			Form of Declaration of Trust (MSN 29922), dated June 26, 2019 by and between Contrail Aviation Leasing, LLC, Wilmington Trust SP Services (Dublin) Limited, and Contrail Aviation Support, LLC.

10.19			Novation and Amendment Agreement, dated October 24, 2019 by and between Sapphire Aviation Finance I (UK) Limited, Wilmington Trust SP Services (Dublin) Limited, and MIAT Mongolian Airlines.*

10.20			Netting Letter, dated October 31, 2019 by and between Sapphire Leasing I (AOE 5) Limited and Wilmington Trust SP Services (Dublin) Limited.*

10.21			Supplement #5 to Master Loan Agreement, dated October 30, 2019 by and between Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC and Old National Bank.

10.22			Contrail Aviation Support, LLC and Contrail Aviation Leasing, LLC Term Note D in the principal amount of $7,553,165.00 to Old National Bank.



10.23			Trustee Aircraft Security Agreement, dated October 30, 2019 by and between Wilmington Trust SP Services (Dublin) Limited, Contrail Aviation Support, LLC, Contrail Aviation Leasing, LLC, and Old National Bank.

10.24			Beneficial Interest Pledge Agreement, dated October 30, 2019 by and between Contrail Aviation Leasing, LLC and Old National Bank.

10.25			Form of Assignment of Beneficial Interest of Trust, dated October 30, 2019 by and between Contrail Aviation Leasing, LLC and Old National Bank.

10.26			Aircraft Sale and Purchase Agreement, dated June 4, 2019 by and between Diamond Head 2 (Ireland) DAC, Diamond Head 3 (Ireland) DAC, and Contrail Aviation Support, LLC.*

10.27			Equity Purchase Agreement, dated September 30, 2019, by and among PrimeFlight Aviation Services, Inc., Global Aviation Services, LLC, and CSA Air, LLC.

10.28			Pro Forma Financial Information

10.29			Change in Terms Agreement, dated November 8, 2019, by and between AirCo 1, LLC and Minnesota Bank & Trust.

10.30			Change in Terms Agreement, dated November 8, 2019, by and between Air T, Inc. and Minnesota Bank & Trust.

10.31			Aircraft Asset Sale and Purchase Agreement, dated June 21, 2019 by and between Sapphire Finance I Holding Designated Activity Company, Contrail Aviation Leasing, LLC, and Contrail Aviation Support, LLC.*

10.32			Buyer Guarantee, dated June 25, 2019 by and between Contrail Aviation Support, LLC and Sapphire Finance I Holding Designated Activity Company.

10.33			Notice of Beneficial Interest Transfer, dated July 26, 2019 from Wells Fargo Trust Company, National Association, Sapphire Finance I Holding Designated Activity Company, and Contrail Aviation Leasing, LLC to Sun Country, Inc. d/b/a Sun Country Airlines.*

10.34			Guarantee, dated July 26, 2019 by and between Contrail Aviation Support, LLC and Sun Country, Inc. d/b/a Sun Country Airlines.*

10.35			Third Trust Assignment and Assumption Agreement, dated July 26, 2019 by and between Sapphire Finance I Holding Designated Activity Company and Contrail Aviation Leasing, LLC.

10.36			Netting Letter, dated July 26, 2019 by and between Sapphire Finance I Holding Designated Activity Company and Contrail Aviation Leasing, LLC.*

10.37			Amendment Number Five to Aircraft Lease Agreement, dated June 20, 2019 by and between Wells Fargo Trust Company, National Association and Sun Country, Inc. d/b/a Sun Country Airlines.*

10.38			Amendment No. 1 to Amended and Restated Credit Agreement, dated September 24, 2019 by and between Air T, Inc. and Minnesota Bank & Trust.

31.1			Section 302 Certification of Chief Executive Officer and President

31.2			Section 302 Certification of Chief Financial Officer

32.1			Section 1350 Certifications

99.1			Press Release dated September 30, 2019 regarding sale of Global Aviation Services, LLC

101			The following financial information from the Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, (iv) the Condensed Consolidated Statements of Stockholders Equity, and (v) the Notes to the Condensed Consolidated Financial Statements.

* Portions of the transaction exhibits have been omitted for confidential treatment.

SIGNATURES

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


			AIR T, INC.


Date: November 12, 2019
			/s/ Nick Swenson
			Nick Swenson, Chief Executive Officer and Director



			/s/ Brian Ochocki
			Brian Ochocki, Chief Financial Officer

TABLE OF CONTENTS

Item 1. Financial Statements Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II -- Other Information Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 5. Other Information Item 6. Exhibits

Exhibits

AIRT 10-Q Quarter ended Sept. 30, 2019

Exhibits