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”), 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:

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

September 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 bargain purchase gain had

tax impact beyond the recording of a deferred tax liability of approximately

$589,000

as part of purchase accounting. The resulting non-taxable bargain purchase gain was approximately

$1,983,000.

Total transaction costs incurred in connection with this acquisition were approximately

$83,000.

The following table sets forth the revenue and expenses of Worthington, prior to intercompany eliminations, that are included in the Company’s condensed consolidated statement of income (loss) for the

six

months ended

September 30, 2018:

Revenue	$	7,104,386
Cost of Sales		4,842,616
Operating Expenses		1,646,577
Operating Income		615,193
Non-operating Income		1,927,898
Net Income	$	2,543,091

Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations for the

three

and

six

-month periods ended

September 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
	September 30, 2018			September 30, 2017
Revenue	$	49,340,777		$	53,543,645
Operating income (loss)		(1,620,001	)		112,480
Net income (loss) Attributable to Air T, Inc. Stockholders		(1,321,185	)		155,027
Basic income (loss) per share		(0.65	)		0.08
Dilutive income (loss) per share	$	(0.65	)	$	0.08

	Pro-Forma Six			Pro-Forma Six
	Months Ended			Months Ended
	September 30, 2018			September 30, 2017
Revenue	$	111,652,117		$	104,756,018
Operating income		779,434			2,098,294
Net income (loss) attributable to Air T, Inc. stockholders		(620,366	)		2,904,365
Basic income (loss) per share		(0.30	)		1.42
Dilutive income (loss) per share	$	(0.30	)	$	1.42

The unaudited pro forma consolidated results for the

three

and

six

-month periods were prepared using the acquisition method of accounting and are based on the historical financial information of Worthington and the Company. The historical financial information has been adjusted to give effect to pro forma adjustments that are: (i) directly attributable to the acquisition, (ii) factually supportable and (iii) expected to have a continuing impact on the combined results. The pro forma

six

months ended

September 30, 2018

exclude the bargain purchase gain recognized in connection with the acquisition as that gain is included in the pro-forma

six

months ended

September 30, 2017.

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.

July 31, 2018,

the Company purchased

100%

of the outstanding common units of Ambry Hill Technologies, LLC. (“AHT”) for

$50,000.

AHT offers the aviation business community technology to help them manage high volumes of request for quotes for aircraft part purchases. Subsequent to the acquisition, AHT is accounted for as a wholly-owned subsidiary of the Company.

Pro forma financial information is

not

presented for the above acquisitions as the results are

not

material to the Company’s consolidated financial statements.