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 June 30, 2019 and March 31, 2019:



	June 30, 2019			March 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	9,430		$	12,315
Accounts receivable, net	49,844			46,844
Other current assets	9,672			58,441
Total current assets	68,946			117,600
Other tax receivables-long-term				311,000
Total assets	$	68,946		$	428,600
LIABILITIES
Current liabilities:
Accounts payable	$	96,109		$	2,151,235
Accrued expenses	401,275			3,157,707
Short-term debt	—			1,749,779
Total current liabilities	497,384			7,058,721
Total liabilities	$	497,384		$	7,058,721
Net Liabilities	$	(428,438	)	$	(6,630,121	)

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 June 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 June 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 provides that in the event that dividends are paid on the common stock of Delphax, the holder of the Warrant is entitled to participate in such dividends on a ratable basis as if the 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 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 June 30, 2019 and June 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 June 30, 2019 and 2018.



	Three Months Ended June 30,
	2019			2018
Operating Revenues	$	—		$	—

Operating Expenses:
Cost of sales	—			—
General and administrative	72,748			52,260
	72,748			52,260

Operating Loss	(72,748		)	(52,260		)

Non-operating Income (Expenses), net	6,237,385			(87,917		)

Income (Loss) Before Income Taxes	6,164,637			(140,177		)

Income Taxes	—			—

Net Income (Loss)	$	6,164,637		$	(140,177	)

Unconsolidated Variable Interest Entities and Other Entities

As discussed in Note 3, BCCM Advisors holds equity interests in certain investment funds as of June 30, 2019 and March 31, 2019. The Company determined that the equity interests it holds as the general partner in the following funds are variable interests based on the applicable GAAP guidance: Blue Clay Capital Partners CO I LP, Blue Clay Capital Partners CO III LP, Blue Clay Capital SMid-Cap LO LP and AO Partners II LP. However, the Company further determined that these funds should not be consolidated as BCCM Advisors is not the primary beneficiary of these variable interest entities. The Company determined that its equity interest in the Blue Clay Capital Master Fund Ltd. is not a variable interest and should not be consolidated based on the applicable GAAP guidance. The Company’s total investment within these investment funds at June 30, 2019 is valued at approximately $318,020. The Company’s exposure to loss is limited to its initial investment.

As mentioned in Footnote 12, Financing Arrangements, the Company formed the Trust to issue and distribute TruPs and Warrants to our existing shareholders. The Company determined that it holds variable interest in the Trust and therefore, is the primary beneficiary of the Trust. As such, the Company consolidated the Trust as of June 30, 2019.