10.	BUSINESS COMBINATIONS

Acquisition of AirCo Assets

May 2, 2017

and

June 1, 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 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 consolidated financial statements.

Acquisition of Worthington Aviation Parts, Inc.

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:

Earnest money	$	50,000
Cash consideration		3,300,000
Cash acquired		(24,301	)
Total consideration	$	3,325,699

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:

	May 4, 2018

ASSETS
Accounts receivable	$	1,929,120
Inventories		4,564,437
Other current assets		149,792
Property and equipment		391,892
Other assets		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

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

$1,984,000.

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 for the fiscal year ended

March 31, 2019:

	Income Statement
	Post-Acquisition

Revenue	$	15,563,192
Cost of Sales		10,919,841
Operating Expenses		4,364,349
Operating Income		279,002
Non-operating Income		1,808,211
Net Income	$	2,087,213

Pro Forma Financial Information

The following unaudited pro forma consolidated results of operations for the fiscal years ended

March 31, 2019

and

2018

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

April 1, 2017:

	Pro-Forma			Pro-Forma
	Year ended			Year ended
	March 31, 2019			March 31, 2018
Revenue	$	251,278,349		$	209,706,935
Earnings before taxes		7,881,644			3,594,265
Net income (loss) attributable to Air T, Inc. stockholders		(766,674	)		3,734,452
Basic income (loss) per share		(0.38	)		1.83
Dilutive income (loss) per share	$	(0.38	)	$	1.82

The unaudited pro forma consolidated results 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 for the year ended

March 31, 2019

excludes the bargain purchase gain recognized in connection with the acquisition as that gain is included in the pro-forma for the year ended

March 31, 2018.

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

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”), an investment management firm based in Minneapolis, Minnesota. In connection with the transaction, BCCM acquired the assets of, and assumed certain liabilities of, Blue Clay Capital in return for payment to Blue Clay Capital of

$1.00,

subject to adjustment for Blue Clay Capital’s net working capital as of the closing date. The fair value of the assets acquired, and liabilities assumed in connection with the transaction are provisional. Gary S. Kohler, a director of the Company, was the sole owner of Blue Clay Capital. In connection with the transaction, (i) BCCM replaced Blue Clay Capital as the managing general partner of certain investment funds managed by Blue Clay Capital (Blue Clay Capital Partners, LP, Blue Clay Capital Partners CO I, LP, Blue Clay Capital Partners CO III, LP and Blue Clay Capital SMid-Cap LO, LP); (ii) Mr. Kohler entered into an employment agreement with BCCM to serve as its Chief Investment Officer in return for an annual salary of

$50,000

plus variable compensation based on the management and incentive fees to be paid to the subsidiary by certain of these investment funds and eligibility to participate in discretionary annual bonuses; and (iii) David Woodis, President of Blue Clay Capital, entered into an employment agreement with BCCM to serve as its Chief Operating Officer and Chief Financial Officer in return for an annual salary of

$125,000

plus revenue sharing and eligibility to participate in discretionary annual bonuses.

In connection with the Blue Clay Capital acquisition, a Partnership Interest Conversion and General Partner Admittance Agreement (“Conversion Agreement”) was entered into effective

December 31, 2017

between Blue Clay Capital, BCCM, BCCM Advisors, LLC (“BCCM Advisors”), a wholly-owned subsidiary of BCCM, and various Blue Clay Capital investment funds. Per the Conversion Agreement, Blue Clay Capital sold to BCCM Advisors, and BCCM Advisors purchased from Blue Clay, the general partnership interests in certain investment funds previously managed by Blue Clay Capital (as specified above) for a purchase price equal to, with respect to each general partnership, of (i)

one

percent (

) of the aggregate capital accounts of each fund as valued on

December 31, 2017

and (ii)

$100,000

(or

$10,000

in the case of Blue Clay Capital SMid-Cap LO, LP). Upon acquisition of each of the general partnership interests, BCCM Advisors was admitted as the general partner of each fund. Blue Clay Capital retained the incentive allocations associated with Blue Clay Capital Partners CO I, LP and Blue Clay Capital Partners CO III. BCCM Advisors will receive all future incentive allocations accruing as of

January 1, 2018

and thereafter associated with Blue Clay Capital Partners, LP which is the onshore feeder fund to the Blue Clay Capital Master Fund Ltd. Management determined that the price paid of

$227,000

for the combined general partnership interests approximates the fair value of those interests. The portion of the purchase price paid for the general partnership interest in Blue Clay Capital Partners, LP is allocated as an equity interest in the Blue Clay Capital Master Fund, Ltd.

Additionally, effective

December 31, 2017,

BCCM Advisors entered into an Investment Management Agreement in which it agreed to manage the investments of the following funds: Blue Clay Capital Master Fund Ltd., Blue Clay Capital Fund Ltd. and Blue Clay Capital Partners LP. In connection with the effective date of the Investment Management Agreement, BCCM Advisors became the Incentive Allocation Shareholder of the Blue Clay Capital Master Fund Ltd.

Pro forma financial information is

not

presented for the above acquisitions as the results are

not

material to the Company’s consolidated financial statements.