2.Adjustment of Previously Reported Financial Information

The Company adopted the direct expensing method under Financial Accounting Standards Board (“FASB”) Staff Position AUG AIR-1, Accounting for Planned Major Maintenance Activities (“FSP AUG AIR-1”) on January 1, 2007. Under FSP AUG AIR-1, non-refundable maintenance reserves were recorded as maintenance reserves revenue (assuming cash was received or collections was reasonably assured), and associated maintenance work was recorded as maintenance expense when the work was performed. The Company has evaluated its method of accounting for maintenance reserves and lessor maintenance obligations and has elected to change its method of accounting, effective January 1, 2014, to:

(i) Recognize non-refundable maintenance reserves as liabilities for deposits against future maintenance reimbursements of maintenance reserves received in the normal course of ongoing leases;

(ii) Recognize reimbursements from such collected reserves as disbursements against the liability when claims are submitted for payment against previously collected maintenance reserves;

(iii) Reflect as liabilities non-refundable reserves received by the prior lessor upon acquisition of an aircraft which are claimable by the lessee when maintenance is performed;

(iv) Recognize as income non-refundable reserves not refunded to lessees upon termination of the lease and return of the aircraft to the Company in accordance with all lease return requirements; and

(v) Record lessor maintenance obligations as liabilities upon acquisition of an aircraft subject to a lease under which the Company assumes the prior lessor’s obligation to pay a portion of a first-time maintenance event.

In management’s judgment, the change to this accounting method is preferable in that it will provide the user of the Company’s financial statements a better understanding of the underlying business terms of the Company’s leasing transactions and provide additional clarity with respect to the Company’s sources of income, its non-refundable reserve obligations, and its lessor maintenance obligations. The change in accounting method resulted in a cumulative net decrease of $8,088,200 in stockholders’ equity as of January 1, 2013.

The effects on the Company’s December 31, 2013 balance sheet as a result of the retroactive application of the change in accounting principle in accordance with ASC 250 were as follows:

	December 31, 2013
	As reported previously			As adjusted			Effect of change
Cash and cash equivalents	$	2,112,700		$	2,112,700		$	-
Accounts receivable, net		3,313,700			3,303,800			(9,900	)
Finance leases receivable		1,895,200			1,895,200			-
Aircraft and aircraft engines held for lease, net		152,375,200			152,954,600			579,400
Assets held for sale		735,000			735,000			-
Prepaid expenses and other		3,633,000			3,633,000			-
Total assets	$	164,064,800		$	164,634,300		$	569,500
Accounts payable and accrued expenses	$	1,175,300		$	1,202,700		$	27,400
Notes payable and accrued interest		77,527,300			77,527,300			-
Maintenance reserves and accrued maintenance costs		13,254,100			18,283,900			5,029,800
Security deposits		6,265,000			6,265,000			-
Unearned revenues		646,700			646,700			-
Deferred income taxes		16,099,700			14,573,800			(1,525,900	)
Total liabilities		114,968,100			118,499,400			3,531,300
Preferred stock		-			-			-
Common stock		1,600			1,600			-
Paid-in capital		14,780,100			14,780,100			-
Retained earnings		34,819,100			31,857,300			(2,961,800	)
Treasury stock		(504,100	)		(504,100	)		-
Total stockholders’ equity		49,096,700			46,134,900			(2,961,800	)
Total liabilities and stockholders’ equity	$	164,064,800		$	164,634,300		$	569,500

The effects on the Company’s statements of operations for the six months and three months ended June 30, 2013 as a result of the retroactive application of the change in accounting principle in accordance with ASC 250 were as follows:

	For the Six Months Ended June 30, 2013							For the Three Months Ended June 30, 2013
	As reported previously		As adjusted		Effect of change			As reported previously		As adjusted		Effect of change
	As reported previously		As adjusted		Effect of change			As reported previously		As adjusted		Effect of change


Operating lease revenue, net	$	9,573,100	$	9,573,100	$	-		$	4,672,800	$	4,672,800	$	-
Maintenance reserves income, net		7,703,600		7,720,000		16,400			569,300		1,191,500		622,200
Gain on disposal of assets and other income		2,769,200		2,769,200		-			2,001,100		2,001,100		-
		20,045,900		20,062,300		16,400			7,243,200		7,865,400		622,200

Maintenance		3,788,700		3,469,800		(318,900	)		1,383,600		1,330,400		(53,200	)
Depreciation		3,549,400		3,573,000		23,600			1,803,400		1,815,800		12,400
Management fees		2,164,500		2,172,600		8,100			1,072,400		1,076,700		4,300
Interest		2,068,100		2,068,100		-			1,002,500		1,002,500		-
Professional fees, general and administrative and other		669,400		669,400		-			320,000		320,000		-
Insurance		552,000		552,000		-			298,000		298,000		-
		12,792,100		12,504,900		(287,200	)		5,879,900		5,843,400		(36,500	)

Income before taxes		7,253,800		7,557,400		303,600			1,363,300		2,022,000		658,700
Tax provision		2,299,800		2,403,100		103,300			461,600		685,600		224,000
Net income	$	4,954,000	$	5,154,300	$	200,300		$	901,700	$	1,336,400	$	434,700
Earnings per share:
Basic	$	3.21	$	3.34	$	0.13		$	0.58	$	0.87	$	0.29
Diluted	$	3.12	$	3.25	$	0.13		$	0.57	$	0.84	$	0.27