airt-20200930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark one)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2020
☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____to _____

Commission File Number 001-35476

Air T, Inc.

(Exact name of registrant as specified in its charter)


Delaware			52-1206400
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

5930 Balsom Ridge Road, Denver, North Carolina 28037

(Address of principal executive offices, including zip code)

(828) 464 – 8741

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	AIRT	NASDAQ Global Market
Alpha Income Preferred Securities (also referred to as 8% Cumulative Capital Securities) (“AIP”)	AIRTP	NASDAQ Global Market
Warrant to purchase AIP	AIRTW	NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.


Common Stock			Common Shares, par value of $.25 per share
Outstanding Shares at October 30, 2020			2,881,853

AIR T, INC. AND SUBSIDIARIES

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS


		Page
	PART I

Item 1.	Financial Statements

	Condensed Consolidated Statements of Income (Loss) (Unaudited) For The Three and Six Months Ended September 30, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) For The Three and Six Months Ended September 30, 2020 and 2019	5

	Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and March 31, 2020	6

	Condensed Consolidated Statements of Cash Flows (Unaudited) For The Six Months Ended September 30, 2020 and 2019	7

	Condensed Consolidated Statements of Equity (Unaudited) for The Three and Six Months Ended September 30, 2020 and 2019	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	32

	PART II

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 5.	Other information	33

Item 6.	Exhibits	33
	Signatures	34
	Exhibit Index
	Certifications
	Interactive Data Files

Item 1. Financial Statements

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(UNAUDITED)


(in thousands, except (loss) income per share number)	Three Months Ended September 30,				Six Months Ended September 30,
	2020		2019		2020		2019
Operating Revenues:
Overnight air cargo	$	17,295	$	19,745	$	33,466	$	38,064
Ground equipment sales	12,060		12,741		27,888		24,991
Commercial jet engines and parts	6,114		17,801		10,808		34,128
Corporate and other	135		406		414		698
	35,604		50,693		72,576		97,881

Operating Expenses:
Overnight air cargo	15,234		17,707		29,401		34,226
Ground equipment sales	9,758		10,358		21,956		20,089
Commercial jet engines and parts	4,062		11,050		6,776		19,336
General and administrative	8,424		9,409		15,974		19,120
Depreciation and amortization	1,149		1,695		1,758		3,635
Write-down on inventory	535		—		535		—
Asset impairment	129		7		129		14
(Gain)/Loss on sale of property and equipment	(3)		1		(4)		(4)
	39,288		50,227		76,525		96,416

Operating (Loss) Income from continuing operations	(3,684)		466		(3,949)		1,465

Non-operating Income (Expense):
Other-than-temporary impairment loss on investments	—		(395)		—		(1,210)
Interest expense	(1,081)		(2,047)		(2,242)		(3,071)
Gain on settlement of bankruptcy	—		18		—		4,527
Loss from equity method investments	(498)		(34)		(1,056)		(355)
Other	359		(426)		1,086		(156)
	(1,220)		(2,884)		(2,212)		(265)

(Loss) Income from continuing operations before income taxes	(4,904)		(2,418)		(6,161)		1,200

Income Taxes Benefit	(1,547)		(296)		(1,847)		(668)

Net (Loss) Income from continuing operations	(3,357)		(2,122)		(4,314)		1,868

Loss from discontinued operations, net of tax	—		(235)		—		(70)
Gain on sale of discontinued operations, net of tax	4		8,359		4		8,359

Net (Loss) Income	(3,353)		6,002		(4,310)		10,157

Net Loss (Income) Attributable to Non-controlling Interests	$	433	$	(287)	$	549	$	(2,660)

Net (Loss) Income Attributable to Air T, Inc. Stockholders	$	(2,920)	$	5,715	$	(3,761)	$	7,497

Loss from continuing operations per share (Note 6)
Basic	$	(1.01)	$	(0.80)	$	(1.31)	$	(0.30)
Diluted	$	(1.01)	$	(0.80)	$	(1.31)	$	(0.30)

Income from discontinued operations per share (Note 6)
Basic	$	—	$	2.69	$	—	$	3.14
Diluted	$	—	$	2.68	$	—	$	3.13

(Loss) Income per share (Note 6)
Basic	$	(1.01)	$	1.89	$	(1.31)	$	2.84
Diluted	$	(1.01)	$	1.88	$	(1.31)	$	2.83

Weighted Average Shares Outstanding:
Basic	2,882		3,025		2,882		2,641
Diluted	2,882		3,029		2,882		2,645

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)


	Three Months Ended September 30,				Six Months Ended September 30,
(In Thousands)	2020		2019			2020		2019
Net (Loss) Income	$	(3,353)	$	6,002		$	(4,310)	$	10,157
Foreign currency translation (loss) gain	(68)		41			(135)		23
Unrealized gain (loss) on interest rate swaps, net of tax	55		(88)			29		(264)
Reclassification of interest rate swaps into earnings	(16)		—			(16)		—
Total Other Comprehensive Loss	(29)		(47)			(122)		(241)
Total Comprehensive (Loss) Income	(3,382)		5,955			(4,432)		9,916
Comprehensive Loss (Income) Attributable to Non-controlling Interests	433		(290)			549		(2,675)
Comprehensive (Loss) Income Attributable to Air T, Inc. Stockholders	$	(2,949)	$	5,665		$	(3,883)	$	7,241

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(In thousands, except share amounts)	September 30, 2020		March 31, 2020
ASSETS
Current Assets:
Cash and cash equivalents	$	4,253	$	5,952
Marketable securities	2,158		1,677
Restricted cash	8,616		9,619
Restricted investments	991		1,085
Accounts receivable, net of allowance for doubtful accounts of $1,250 and $680	10,302		13,077
Income tax receivable	3,237		1,174
Inventories, net	70,965		60,623
Other current assets	4,778		5,279
Total Current Assets	105,300		98,486

Assets on lease or held for lease, net of accumulated depreciation of $3,319 and $6,526	18,064		27,945
Property and equipment, net of accumulated depreciation of $4,631 and $4,319	6,095		5,272
Right-of-use assets	8,097		8,116
Equity method investments	3,945		5,208
Goodwill	4,227		4,227
Other assets	2,673		2,173
Total Assets	$	148,401	$	151,427

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable	$	9,134	10,864

Accrued expenses and other (Note 4)	12,294		13,024
Current portion of long-term debt	46,363		42,684
Short-term lease liability	1,325		1,174
Total Current Liabilities	69,116		67,746

Long-term debt	44,250		43,136
Deferred income tax liabilities, net	588		579
Long-term lease liability	7,397		7,473
Other non-current liabilities	1,380		1,402
Total Liabilities	122,731		120,336

Redeemable non-controlling interest	5,000		6,080

Commitments and contingencies (Note 15)

Equity:
Air T, Inc. Stockholders' Equity:
Preferred stock, $1.00 par value, 50,000 shares authorized	—		—
Common stock, $.25 par value; 4,000,000 shares authorized, 3,022,745 shares issued, 2,881,853 shares outstanding	756		756
Treasury stock, 140,892 shares at $18.58	(2,617)		(2,617)
Additional paid-in capital	2,175		2,636
Retained earnings	20,007		23,768
Accumulated other comprehensive loss	(643)		(537)
Total Air T, Inc. Stockholders' Equity	19,678		24,006
Non-controlling Interests	992		1,005
Total Equity	20,670		25,011
Total Liabilities and Equity	$	148,401	$	151,427

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


(In Thousands)	Six Months Ended September 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income	$	(4,310)	$	10,157
Loss from discontinued operations, net of income tax	—		70
Gain on sale of discontinued operations, net of income tax	(4)		(8,359)
Net (loss) income from continuing operations	(4,314)		1,868
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	1,758		3,648
Impairment of investment	—		1,210
Gain on settlement of bankruptcy	—		(4,527)
Other	1,741		(1,785)
Change in operating assets and liabilities:
Accounts receivable	2,202		(7,331)

Inventories	(1,942)		5,891
Accounts payable	(1,730)		3,188
Accrued expenses	(730)		739
Other	(2,611)		(3,392)
Net cash used in operating activities - continuing operations	(5,626)		(491)
Net cash provided by operating activities - discontinued operations	4		1,094
Net cash (used in) provided by operating activities	(5,622)		603
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities	(659)		(187)
Acquisition of businesses, net of cash acquired	—		(500)
Capital expenditures related to property & equipment	(1,708)		(575)
Capital expenditures related to assets on lease or held for lease	(85)		(17,614)
Other	1,837		346
Net cash used in investing activities - continuing operations	(615)		(18,530)
Net cash provided by investing activities - discontinued operations	—		20,463
Net cash (used in) provided by investing activities	(615)		1,933
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lines of credit	14,130		48,267
Payments on lines of credit	(22,257)		(35,324)
Proceeds from term loan	9,479		13,001
Payments on term loan	(4,875)		(17,900)
Proceeds from Payroll Protection Program loan ("PPP loan")	8,215		—
Proceeds received from issuance of Trust Preferred Securities ("TruPS")	—		5,407
Other	(1,030)		(1,124)
Net cash provided by financing activities - continuing operations	3,662		12,327
Effect of foreign currency exchange rates on cash and cash equivalents	(127)		26
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	(2,702)		14,889
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD	15,571		12,647
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	12,869	$	27,536

See notes to condensed consolidated financial statements.

AIR T, INC AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)


(In Thousands)	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interests		Total Equity
	Shares	Amount
Balance, March 31, 2019	2,022	$	506	$	2,866	$	21,191	$	(205)	$	(1,000)	$	23,358

Net income*	—	—		—		1,782		—		2,034		3,816

Repurchase of Common Stock	(17)	(4)		—		(122)		—		—		(126)

Stock Split	1,010	252		(252)		—		—		—		—

Issuance of Debt - Trust Preferred Securities	—	—		—		(4,000)		—		—		(4,000)

Issuance of Warrants	—	—		—		(840)		—		—		(840)

Adoption of ASC - Leasing	—	—		—		(41)		—		—		(41)

Unrealized loss on interest rate swaps, net of tax	—	—		—		—		(176)		—		(176)

Foreign currency translation (loss) gain	—	—		—		—		(30)		12		(18)

Adjustment to fair value of redeemable non-controlling interests	—	—		(985)		—		—		—		(985)

Balance, June 30, 2019	3,015	$	754	$	1,629	$	17,970	$	(411)	$	1,046	$	20,988

Net income (loss)*	—	—		—		5,715		—		(17)		5,698

Repurchase of Common Stock	8	2		—		(75)		—		—		(73)

Foreign currency translation gain	—	—		—		—		38		3		41

Adjustment to fair value of redeemable non-controlling interest	—	—		781		—		—		—		781

Unrealized loss on interest rate swaps, net of tax	—	—		—		—		(88)		—		(88)

Balance, September 30, 2019	3,023	$	756	$	2,410	$	23,610	$	(461)	$	1,032	$	27,347


(In Thousands)	Common Stock			Treasury Stock				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interests		Total Equity
	Shares	Amount		Shares		Amount
Balance, Balance, March 31, 2020	3,023	$	756	$	141	$	(2,617)	$	2,636	$	23,768	$	(537)	$	1,005	$	25,011

Net loss*	—	—		—		—		—		(841)		—		(5)		(846)

Unrealized loss on interest rate swaps, net of tax	—	—		—		—		—		—		(26)		—		(26)

Foreign currency translation (loss)	—	—		—		—		—		—		(67)		—		(67)

Adjustment to fair value of redeemable non-controlling interest	—	—		—		—		429		—		—		—		429

Balance, June 30, 2020	3,023	756		141		(2,617)		3,065		22,927		(630)		1,000		24,501


Net loss*	—	—		—		—		—		(2,920)		—		(8)		(2,928)

Foreign currency translation (loss)	—	—		—		—		—		—		(68)		—		(68)

Adjustment to fair value of redeemable non-controlling interest	—	—		—		—		(890)		—		—		—		(890)

Unrealized gain on interest rate swaps, net of tax	—	—		—		—		—		—		55		—		55

Balance, September 30, 2020	3,023	$	756	$	141	$	(2,617)	$	2,175	$	20,007	$	(643)	$	992	$	20,670

*Excludes amount attributable to redeemable non-controlling interest in Contrail.

See notes to condensed consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Financial Statement Presentation

The condensed consolidated financial statements of Air T, Inc. (“Air T”, the “Company”, “we”, “us” or “our”) have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the following disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the results for the periods presented have been made.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended March 31, 2020. The results of operations for the period ended September 30, 2020 are not necessarily indicative of the operating results for the full year.

Certain reclassifications have been made to the prior period amounts to conform to the current presentation.

Discontinued Operations

On September 30, 2019, the Company completed the sale of Global Aviation Services, LLC ("GAS"). The results of operations of GAS are reported as discontinued operations in the condensed consolidated statements of operations for the three and six months ended September 30, 2020 and 2019. Refer to Footnote 3 - "Discontinued Operations" for additional information. Unless otherwise indicated, the disclosures accompanying the condensed consolidated financial statements reflect the Company's continuing operations.

Liquidity

Contrail Aviation Support, LLC ("Contrail") is a subsidiary of the Company in the Commercial Jet Engines and Parts segment. The Contrail Credit Agreement contains affirmative and negative covenants, including covenants that restrict the ability of Contrail and its subsidiaries to, among other things, incur or guarantee indebtedness, incur liens, dispose of assets, engage in mergers and consolidations, make acquisitions or other investments, make changes in the nature of its business, and engage in transactions with affiliates. The Contrail Credit Agreement also contains quarterly financial covenants applicable to Contrail and its subsidiaries, including a minimum debt service coverage ratio of 1.25 to 1.0 and a minimum tangible net worth of $15 million.

On September 25, 2020, Contrail entered into a Third Amendment to Supplement #2 to Master Loan Agreement dated June 24, 2019 with Old National Bank ("ONB"). The material changes within the Third Amendment are: (a) to extend the date for compliance with the provision where Contrail is required to pay down the total outstanding principal balance of its revolver to zero for at least thirty consecutive days to September 5, 2021; and (b) to extend the date for compliance with the required quarterly debt service coverage ratio covenant such that Contrail shall commence compliance with the covenant commencing on March 31, 2022 and on the last day of each fiscal quarter thereafter.

In addition, the Third Amendment adds an event of default to the Master Loan Agreement if Contrail does not consummate an approximate $43.6 million loan transaction under the Main Street Priority Loan Facility Program established by the U.S. Federal Reserve ("Fed") by December 31, 2020. As of the issuance date of this report, the loan transaction has been finalized with ONB, however, the financing is in escrow pending final approval from the Fed. As the Fed's approval has not yet been granted as of the issuance date of this report, no assurance can be given at this time that this financing will be completed and funded.

The obligations of Contrail under the Contrail Credit Agreement are also guaranteed by the Company, up to a maximum of $1.6 million, plus costs of collection. The Company is not liable for any other assets or liabilities of Contrail and there are no cross-default provisions with respect to Contrail’s debt in any of the Company’s debt agreements with other lenders. If Contrail were to cease operations, the Company believes it, along with the rest of its businesses, will continue to operate, given the maximum guarantee of Contrail’s obligations of $1.6 million, plus costs of collection.

AirCo 1, LLC ("AirCo 1") is a wholly-owned subsidiary of AirCo, LLC, which is a wholly-owned subsidiary of Stratus Aero Partners LLC, which is a wholly-owned subsidiary of the Company in the Commercial Jet Engines and Parts segment. The revolving lines of credit at both Air T and AirCo 1 with Minnesota Bank & Trust ("MBT") have a due date or expire within the next twelve months. We are currently seeking to refinance these obligations prior to August 31, 2021; however, there is no assurance that we will be able to

execute this refinancing or, if we are able to refinance these obligations, that the terms of such refinancing would be as favorable as the terms of our existing credit facility.

With respect to alternative financing, AirCo 1 also intends to access debt financing under the Main Street Priority Loan Facility Program, established by the Federal Reserve in response to economic uncertainty caused by the COVID-19 pandemic. Main Street loans are intended to provide additional credit to companies that were in sound condition prior to the onset of the COVID-19 pandemic. While AirCo 1 believes that they qualify under the criteria set forth under the Main Street Priority Loan Facility Program, there is no assurance that AirCo 1 will obtain funding under the Main Street Priority Loan Facility Program or if such credit is obtained that it would be sufficient.

The obligation of AirCo 1 under the AirCo 1 Credit Agreement with MBT is not guaranteed by the Company. The Company is not liable for any other assets or liabilities of AirCo 1 and there are no cross-default provisions with respect to AirCo 1’s debt in any of the Company’s debt agreements with MBT. If AirCo 1 were to cease operations, the Company believes it, along with the rest of its businesses, will continue to operate, given that AirCo 1's obligation is not guaranteed by the Company.

In April 2020, the Company obtained loans under the PPP, as authorized by the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), of $8.2 million to help pay for payroll costs, mortgage interest, rent and utility costs. The Company will apply to MBT for forgiveness of the PPP Loan, however, forgiveness is not fully assured. The Company believes it is probable that the cash on hand (including that obtained from the PPP), net cash provided by operations from its remaining operating segments, together with its current revolving lines of credit, as amended or replaced, will be sufficient to meet its obligations as they become due in the ordinary course of business for at least 12 months following the date these financial statements are issued.

COVID-19 Pandemic

The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business. Even though the Company undertook measures to attempt to limit the effect of the pandemic and its impact on the Company, the Company continued to experience a decrease in revenues during the second fiscal quarter and the month of October. The extent to which the COVID-19 pandemic continues to impact the Company’s operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.

Financial Instruments Designated for Trading

Except for short sales of equity securities, the Company accounts for all other financial instruments (including derivative instruments) designated for trading in accordance with ASC 815. All changes in the fair value of the financial instruments designed for trading are recognized in earnings as they occur. Further, all gains and losses on derivative instruments designated for trading are presented net on the condensed consolidated Statements of Income (Loss). The fair value of derivative instruments designated for trading in a gain position are recorded in Other Current Assets and the fair value of derivative instruments designed for trading in a loss position are recorded in Accrued Expenses and Other on the condensed consolidated Balance Sheets.

The Company accounts for short sales of equity securities in accordance with ASC 942 and ASC 860. The obligations incurred in short sales are reported in Accrued Expenses and Other on the condensed consolidated Balance Sheets. They are subsequently measured at fair value through the income statement at each reporting date with gains and losses on securities. Interest on the short positions are accrued periodically and reported as interest expense. The market value of the Company’s equity securities and cash held by the broker are used as collateral against any outstanding margin account borrowings for purposes of short selling equities. This collateral is recorded in Other Current Assets on the condensed consolidated Balance Sheets.

The Company reports all cash receipts and payments resulting from the purchases and sales of securities, loans, and other assets that are acquired specifically for resale as operating cash flows.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This standard significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, including trade receivables. The standard requires an entity to estimate its lifetime “expected credit loss” for such assets at inception, and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The Company adopted this standard on April 1, 2020. As of September 30, 2020, the standard did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies how an entity is required to test goodwill for impairment by eliminating Step Two from the goodwill impairment test. Step Two measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Under this standard, an entity will recognize an impairment charge for the amount by which the carrying value of a reporting unit exceeds its fair value. The Company adopted this amendment on April 1, 2020. As of September 30, 2020, the amendment did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

In October 2018, the FASB updated the Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities of the Accounting Standards Codification. The amendments in this update affect reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation—Overall. Indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The Company adopted this amendment on April 1, 2020. As of September 30, 2020, the amendment did not have a material impact on the Company's condensed consolidated financial statements and disclosures.

In December 2019, the FASB updated the Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes of the Accounting Standards Codification. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments in this Update simplify the accounting for income taxes by removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (for example, discontinued operations or other comprehensive income), among other changes. The Company early adopted this amendment as of April 1, 2020. The amendment resulted in an immaterial impact to its condensed consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements

In January 2020, the FASB updated the Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with Topic 321 immediately before applying or upon discontinuing the equity method. The Company is currently evaluating the impact of this amendment on its condensed consolidated financial statements and disclosures.

In March 2020, the FASB issued ASU 2020-04- Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments in this Update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this Update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. Further, in accordance with the amendments in this Update, an entity may make a one-time election to sell, transfer, or both sell and transfer debt securities classified as held to maturity that reference a rate affected by reference rate reform and that are classified as held to maturity before January 1, 2020. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of this ASU. An entity may elect to apply the amendments prospectively through December 31, 2022. The Company is currently evaluating the impact of this amendment on our contracts, hedging relationships, and other transactions affected by reference rate reform.

2. Revenue Recognition

Substantially all of the Company’s revenue is derived from contracts with an initial expected duration of one year or less, as a result, the Company has applied the practical expedient to exclude consideration of significant financing components from the determination of transaction price, to expense costs incurred to obtain a contract, and to not disclose the value of unsatisfied performance obligations.

The following is a description of the Company’s performance obligations:


Type of Revenue			Nature, Timing of Satisfaction of Performance Obligations, and Significant Payment Terms
Product Sales			The Company generates revenue from sales of various distinct products such as parts, aircraft equipment, printing equipment, jet engines, airframes, and scrap metal to its customers. A performance obligation is created when the Company accepts an order from a customer to provide a specified product. Each product ordered by a customer represents a performance obligation. The Company recognizes revenue when obligations under the terms of the contract are satisfied; generally, this occurs at a point-in-time upon shipment or when control is transferred to the customer. Transaction prices are based on contracted terms, which are at fixed amounts based on standalone selling prices. While the majority of the Company's contracts do not have variable consideration, for the limited number of contracts that do, the Company records revenue based on the standalone selling price less an estimate of variable consideration (such as rebates, discounts or prompt payment discounts). The Company estimates these amounts based on the expected incentive amount to be provided to customers and reduces revenue accordingly. Performance obligations are short-term in nature and customers are typically billed upon transfer of control. The Company records all shipping and handling fees billed to customers as revenue. The terms and conditions of the customer purchase orders or contracts are dictated by either the Company’s standard terms and conditions or by a master service agreement or by the contract.
Support Services			The Company provides a variety of support services such as aircraft maintenance, printer maintenance, and short-term repair services to its customers. Additionally, the Company operates certain aircraft routes on behalf of FedEx. A performance obligation is created when the Company agrees to provide a particular service to a customer. For each service, the Company recognizes revenues over time as the customer simultaneously receives the benefits provided by the Company's performance. This revenue recognition can vary from when the Company has a right to invoice to the output or input method depending on the structure of the contract and management’s analysis. For repair-type services, the Company records revenue over-time based on an input method of costs incurred to total estimated costs. The Company believes this is appropriate as the Company is enhancing an asset that the customer controls as repair work, such as labor hours are incurred, and parts installed, is being performed. The vast majority of repair-services are short term in nature and are typically billed upon completion of the service. Some of the Company’s contracts contain a promise to stand ready as the Company is obligated to perform certain maintenance or administrative services. For most of these contracts, the Company applies the 'as invoiced' practical expedient as the Company has a right to consideration from the customer in an amount that corresponds directly with the value of the entity's performance completed to date. A small number of contracts are accounted for as a series and recognized equal to the amount of consideration the Company is entitled to less an estimate of variable consideration (typically rebates). These services are typically ongoing and are generally billed on a monthly basis.

In addition to the above type of revenues, the Company also has Leasing Revenue, which is in scope under Topic 842 (Leases) and out of scope under Topic 606 and Other Revenues (Freight, Management Fees, etc.) which are immaterial for disclosure under Topic 606.

The following table summarizes disaggregated revenues by type (in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2020		2019		2020		2019
Product Sales
Air Cargo	$	5,728	$	6,680	$	10,043	$	12,094
Ground equipment sales	11,833		12,489		27,571		24,492
Commercial jet engines and parts	4,283		13,218		6,979		24,388
Corporate and other	—		20		33		68
Support Services
Air Cargo	11,558		13,033		23,408		25,927
Ground equipment sales	67		105		84		210
Commercial jet engines and parts	956		1,597		2,580		3,007
Corporate and other	6		217		24		269
Leasing Revenue
Air Cargo	—		—		—		—
Ground equipment sales	23		33		71		53
Commercial jet engines and parts	791		2,941		1,164		6,655
Corporate and other	107		36		142		81
Other
Air Cargo	9		32		15		43
Ground equipment sales	137		114		162		236
Commercial jet engines and parts	84		45		85		78
Corporate and other	22		133		215		280

Total	$	35,604	$	50,693	$	72,576	$	97,881

See Note 12 for the Company's disaggregated revenues by geographic region and Note 13 for the Company’s disaggregated revenues by segment. These notes disaggregate revenue recognized from contracts with customers into categories that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

Contract Balances and Costs

Contract liabilities relate to deferred income and advanced customer deposits with respect to product sales. The following table presents outstanding contract liabilities as of April 1, 2020 and September 30, 2020 and the amount of contract liabilities that were recognized as revenue during the six-month period ended September 30, 2020 (in thousands):


	Outstanding contract liabilities		Outstanding contract liabilities as of April 1, 2020 Recognized as Revenue
As of September 30, 2020	$	1,480
As of April 1, 2020	1,853
For the six months ended September 30, 2020			619

3. Discontinued Operations

On September 30, 2019, the Company completed the sale of 100% of the equity ownership in the Company’s wholly-owned subsidiary, Global Aviation Services, LLC ("GAS") to PrimeFlight Aviation Services, Inc., a Delaware corporation. The agreement included a purchase price of $21 million as well as an earn-out provision of $4 million if certain performance metrics were achieved by March 31, 2020. Those metrics were not achieved per the final settlement statement received during the three-months ended September 30, 2020. The Company received approximately $20.5 million of total proceeds at closing after the initial net working capital adjustment. The Company recognized a pre-tax gain on the sale of GAS of approximately $10.8 million with tax impact of $2.4 million for a net of tax gain of $8.4 million in the second quarter of 2019.

Summarized results of operations of GAS for the three and six months ended September 30, 2020 and 2019 through the date of disposition are as follows (in thousands):


	Three Months Ended September 30,				Six Months Ended September 30,
	2020		2019		2020		2019
Net sales	$	—	$	8,120	$	—	$	16,637
Operating Income (Expense)	4		(9,015)		4		(17,319)
Gain/(Loss) from discontinued operations before income taxes	4		(895)		4		(682)
Income tax expense (benefit)	—		(660)		—		(612)
Gain/(Loss) from discontinued operations, net of tax	$	4	$	(235)	$	4	$	(70)

4. Accrued Expenses


(in thousands)	September 30, 2020		March 31, 2020

Salaries, wages and related items	$	4,804	$	3,616
Profit sharing and bonus	2,447		3,349
Other	5,043		6,059
Total	$	12,294	$	13,024

5. Income Taxes

During the three-month period ended September 30, 2020, the Company recorded $1.5 million in income tax benefit at an effective tax rate ("ETR") of 31.5%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b) and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the three-month period ended September 30, 2019, the Company recorded $0.3 million in income tax benefit at an ETR of 12.2%. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the three-month period ended September 30, 2019 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for foreign derived intangible income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC.

During the six-month period ended September 30, 2020, the Company recorded $1.8 million in income tax benefit at an ETR of 30.0%. The Company records income taxes using an estimated annual effective tax rate for interim reporting. The primary factors contributing to the difference between the federal statutory rate of 21.0% and the Company's effective tax rate for the six-month period ended September 30, 2020 were the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC. During the six-month period ended September 30, 2019, the Company recorded $0.7 million in income tax benefit which resulted in an effective tax rate of (55.6)%. The primary factors contributing to the difference between the federal statutory rate and the Company's effective tax rate for the six-month period ended September 30, 2019 were related to the change in valuation allowance related to Delphax, the estimated benefit for the exclusion of income for the Company's captive insurance company subsidiary under Section 831(b), the estimated deduction for foreign derived intangible income, and the exclusion from the tax provision of the minority owned portion of the pretax income of Contrail Aviation Support, LLC.

6. Net Earnings Per Share

Basic earnings per share has been calculated by dividing net income (loss) attributable to Air T, Inc. stockholders by the weighted average number of common shares outstanding during each period. For purposes of calculating diluted earnings per share, shares issuable under stock options were considered potential common shares and were included in the weighted average common shares unless they were anti-dilutive. The computation of basic and diluted earnings per common share is as follows (in thousands, except for per share figures):


	Three Months Ended September 30,				Six Months Ended September 30,
	2020		2019		2020		2019
Net (loss) income from continuing operations	$	(3,357)	$	(2,122)	$	(4,314)	$