3.	Busines s Combinations

Acquisition of

AirCo Assets

May 2, 2017

and

May 31, 2017,

our newly formed subsidiaries, AirCo, LLC and AirCo Services, LLC (collectively, “AirCo”) acquired the inventory and principal business assets, and assumed specified liabilities, of Aircraft Instrument and Radio Company, Incorporated, and Aircraft Instrument and Radio Services, Inc. (collectively, the “AirCo Sellers”). The acquired business, which is based in Wichita, Kansas, distributes and sells airplane and aviation parts and maintains a license under Part

145

of the regulations of the Federal Aviation Administration. The consideration paid for the acquired business was

$2,400,000.

The following table summarizes the fair values of assets acquired and liabilities assumed by AirCo as of

May 2, 2017,

the date of the completion of the acquisition (the “AirCo Closing Date”):

	May 2, 2017

Assets acquired and liabilities assumed at fair value:
Accounts receivables	$	748,936
Inventories		3,100,000
Property and equipment		26,748
Accounts payable		(313,117	)
Accrued expenses		(382,687	)
Net assets acquired	$	3,179,880

Net assets acquired		3,179,880
Consideration paid		2,400,000
Bargain purchase gain	$	779,880

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

The transaction resulted in a bargain purchase because AirCo was a non-marketed transaction and in financial distress at the time of the acquisition. The inventory was

not

being marketed appropriately and as a result, the company was unable to realize market prices for the parts. The tax impact related to the bargain purchase gain was to record a deferred tax liability and record tax expense against the bargain purchase gain of approximately

$278,000.

The resulting net bargain purchase gain after taxes was approximately

$502,000.

Pro forma financial information is

not

presented as the results are

not

material to the Company’s condensed consolidated financial statements.

Acquisition of

rthing

ton

Aviation and Parts

May 4, 2018,

Air T, Inc. completed the acquisition (the “Transaction”) of substantially all of the assets and assumed certain liabilities of Worthington Aviation and Parts (“Worthington”), in each case pursuant to the Asset Purchase Agreement (the “Purchase Agreement”), dated as of

April 6, 2018,

by and among the Company, Worthington, and Churchill Industries, Inc., as guarantor of Worthington’s obligations as disclosed in the Purchase Agreement.

Worthington is primarily engaged in the business of operating, distributing and selling airplane and aviation parts along with repair services. The Company agreed to acquire the assets and assume the liabilities in exchange for payment to Worthington of

$50,000

as earnest money upon execution of the Agreement and a cash payment of

$3,300,000

upon closing. Total consideration is summarized in the table below:

Earnest money	$	50,000

Cash consideration		3,300,000

Cash acquired		(24,300	)

Total consideration	$	3,325,700

The Transaction was accounted for as a business combination in accordance with ASC Topic

805

"Business Combinations." Assets acquired and liabilities assumed were recorded in the accompanying consolidated balance sheet at their estimated fair values as of

May 4, 2018,

with the remaining unallocated purchase price recorded as a bargain purchase gain. A bargain purchase gain has been recognized by the Company due to Worthington being sold in a distressed sale, resulting in the fair value of net assets acquired exceeding consideration paid. The most significant asset acquired was Worthington’s inventory. The following table outlines the consideration transferred and purchase price allocation at the respective estimated fair values as of

May 4, 2018:

	May 4, 2018

ASSETS
Accounts receivable	$	1,929,120
Inventories		4,564,437
Other current assets		149,792
Property and equipment		391,892
Investment in JVs		189,607
Intangible assets - tradename		138,000
Total assets		7,362,848

LIABILITIES
Accounts payable		1,289,150
Accrued expenses		175,222
Deferred tax liability		589,000
Total liabilities		2,053,372


Net Assets Acquired	$	5,309,476

Consideration paid	$	3,350,000
Less: Cash acquired		(24,301	)
Bargain purchase gain	$	1,983,777

As of

June 30, 2018,

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

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

$589,000.

The resulting net bargain purchase gain after taxes was approximately

$1,983,000.

Worthington’s operating revenue and operating income included in the Company’s results for the

three

-months ended

June 30, 2018

were

$2,600,000

and

$165,000,

respectively.

Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations for the

three

-month periods ended

June 30, 2018

and

2017

present consolidated information of the Company as if the acquisition of Worthington had occurred as of

April 1, 2017:

	Pro-Forma Three		Pro-Forma Three
	Months Ended		Months Ended
	June 30, 2018		June 30, 2017
Revenue	$	62,311,340	$	51,212,373
Operating income		2,399,435		1,985,814
Net income Attributable to Air T, Inc. Stockholders		701,272		2,749,338
Basic income per share		0.34		1.35
Dilutive income per share	$	0.34	$	1.34

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

The pro forma net income for the

three

months ended

June 30, 2017

includes certain items, such as the bargain purchase gain and transaction costs directly attributable to the acquisition, which will

not

have an ongoing impact. These items include the bargain purchase gain of approximately

$1,983,000.

The unaudited pro forma consolidated results are

not

necessarily indicative of what the Company’s consolidated results of operations actually would have been had it completed these acquisitions on

April 1, 2017.

Other Acquisitions

and Business Investments

June 7, 2017,

the Company’s Space Age Insurance Company subsidiary (“SAIC”) invested

$500,000

for a

40%

interest in TFS Partners LLC (“TFS Partners”), a single-purpose investment entity organized by SAIC and other investors for the purpose of making an investment in a limited liability company, The Fence Store LLC (“Fence Store LLC”), organized for the purpose of acquiring substantially all of the assets of The Fence Store, Inc. (“Fence Store Inc.”). TFS Partners acquired a

60%

interest in Fence Store LLC, which has completed the purchase of substantially all of the assets of Fence Store Inc. Prior to this transaction, Fence Store Inc. operated a business under the tradename “Town and Country Fence” selling and installing residential and commercial fencing in the greater Twin Cities, Minnesota area. Fence Store LLC intends to continue this business. The Company accounts for its investment in TFS Partners using the equity method of accounting.

December 15, 2017,

BCCM, Inc. (“BCCM”), a newly-formed, wholly-owned subsidiary of the Company, completed the acquisition of Blue Clay Capital Management, LLC (“Blue Clay Capital”). In connection with the transaction, BCCM acquired the assets of, and assumed certain liabilities of Blue Clay Capital. Blue Clay Capital, BCCM, BCCM Advisors, LLC (“BCCM Advisors”), a wholly-owned subsidiary of BCCM purchased the general partnership interests in certain investment funds previously managed by Blue Clay Capital for a purchase price equal to

$227,000.

Upon acquisition of each of the general partnership interests, BCCM Advisors was admitted as the general partner of each fund.

Pro forma financial information is

not

presented for the above acquisitions as the results are

not

material to the Company’s consolidated financial statements.