1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (AS RESTATED)

Principles of Consolidation

– The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and Delphax. All intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

- Certain prior period amounts have been reclassified to conform with the current period presentation. Such reclassifications had

impact on previously reported levels of consolidated net income or equity.

Accounting Estimates

– The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported and disclosed. Actual results could differ from those estimates.

Concentration of Credit Risk

– The Company’s potential exposure to concentrations of credit risk consists of trade accounts and notes receivable, and bank deposits. Accounts receivable are normally due within

days and the Company performs periodic credit evaluations of its customers’ financial condition. Notes receivable payments are normally due monthly. The required allowance for doubtful accounts is determined using information such as customer credit history, industry information, credit reports, customer financial condition and the collectability of past-due outstanding accounts receivables. The estimates can be affected by changes in the financial strength of the aviation industry, customer credit issues or general economic conditions.

At various times throughout the year, the Company had deposits with banks in excess of amounts covered by federal depository insurance and investments in corporate notes that are

not

covered by insurance.

A majority of the Company

’s revenues are concentrated in the aviation industry and revenues can be materially affected by current economic conditions and the price of certain supplies such as fuel, the cost of which is passed through to the Company’s cargo customer. The Company has a customer concentration in its overnight air cargo segment which provides service to

one

major customer. The loss of a major customer would have a material impact on the Company’s results of operations. See Note

“Major Customers”.

Cash and Cash Equivalents

– Cash equivalents consist of liquid investments with maturities of

three

months or less when purchased.

Foreign exchange

- Delphax, which is headquartered in the United States, has subsidiaries in Canada, France, and the United Kingdom. The functional currency of the Delphax’s Canadian subsidiary is the U.S. dollar, whereas the functional currency of Delphax’s subsidiaries in France and the United Kingdom is the Euro and Pound Sterling, respectively. The balance sheets of foreign operations with a functional currency of other than the U.S. dollar are translated to U.S. dollars using rates of exchange as of the applicable balance sheet date. The statements of income items of foreign operations are translated to U.S. dollar using average rates of exchange for the applicable period. The gains and losses resulting from translation of the financial statements of Delphax’s foreign operations are recorded within the accumulated other comprehensive income (loss) and non-controlling interests categories of the Company’s consolidated equity.

Goodwill

- Goodwill of approximately

$375,000

was provisionally recorded in connection with the acquisition of interests in Delphax (Note

). Goodwill reflects the excess of the estimated fair value of Delphax’s shareholders’ equity at the date of the Company’s investment over the fair values assigned to Delphax’s identifiable net assets as of the same date. Goodwill is

not

amortized; rather, it is subject to a periodic assessment for impairment.

The Company intends to perform its annual impairment test of Delphax

’s goodwill as of

September 30,

which is the end of Delphax’s fiscal year. An impairment test will also be carried out anytime events or changes in circumstances indicate that goodwill might be impaired. Goodwill is tested for impairment at a level of reporting referred to as a reporting unit. The Company has determined that the reporting unit for all goodwill as of

March 31, 2016

is at the consolidated Delphax level. The applicable accounting standards provide for

two

methods to assess goodwill for possible impairment,

one

qualitative and the other a

two

-step quantitative method.

The Company is permitted to

first

assess qualitative factors to determine whether it is more likely than

not

(this is, a likelihood of more than

percent) that the fair value of a reporting unit is less than its carrying value, including goodwill. In qualitatively evaluating whether it is more likely than

not

that the fair value of a reporting unit is less than its carrying amount, the Company assesses relevant events and circumstances such as macroeconomic conditions, industry and market developments, cost factors, and the overall financial performance of the reporting unit. If, after assessing these events and circumstances, it is determined that it is

not

more likely than

not

that the fair value of a reporting unit is less than its carrying amount, then the

first

and

second

steps of the quantitative goodwill impairment test are unnecessary. In the

first

step of the quantitative method, recoverability of goodwill is evaluated by estimating the fair value of the reporting unit

’s goodwill using multiple techniques, including a discounted cash flow model income approach and a market approach. The estimated fair value is then compared to the carrying value of the reporting unit. If the fair value of a reporting unit is less than its carrying value, a

second

step is performed to determine the amount of impairment loss, if any. The

second

step requires allocation of the reporting unit’s fair value to all of its assets and liabilities using the acquisition method prescribed under authoritative guidance for business combinations. Any residual fair value is allocated to goodwill. Impairment losses, limited to the carrying value of goodwill, represent the excess of the carrying amount of goodwill over its implied fair value.

Considering all relevant factors, the Company identified a potential goodwill impairment during the quarter ended

March 31, 2016.

After review, the Company estimated and recorded an impairment charge in the amount of

$100,000.

Intangible Assets

- Amortizable intangible assets consist of acquired patents and tradenames recorded at fair value in connection with the acquisition of interests in Delphax (Note

). Amortization is recorded using the straight-line method over the estimated useful lives of the assets. In accordance with the applicable accounting guidance, the Company evaluates the recoverability of amortizable intangible assets whenever events occur that indicate potential impairment. In doing so, the Company assesses whether the carrying amount of the asset is unrecoverable by estimating the sum of the future cash flows expected to result from the asset, undiscounted and without interest charges. If the carrying amount is more than the recoverable amount, an impairment charge must be recognized based on the estimated fair value of the asset. Considering all relevant factors, the Company estimated and recorded a tradename impairment charge in the amount of

$50,000

in the quarter ended

March 31, 2016.

The estimated amortizable lives of the intangible assets are as follows:

	Years
Tradenames		5
Patents		9

Marketable Securities

– In accordance with Accounting Standards Codification (“ASC”)

320,

Investments –

Debt and Equity Securities

, and based on our intentions regarding these instruments, we classify all of our marketable equity securities as available-for-sale. Marketable equity securities are reported at fair value, with all unrealized gains (losses) reflected net of tax in stockholders’ equity on our consolidated balance sheets, and as a line item in our consolidated statements of comprehensive income. If we determine that an investment has other than a temporary decline in fair value, we recognize the investment loss in non-operating income, net in the accompanying consolidated statements of comprehensive income. We regularly evaluate our investments for impairment using both quantitative and qualitative criteria. For equity securities we consider the length of time and magnitude of the amount of each security that is in an unrealized loss position. Other than our investment in Insignia Systems, Inc., all of our marketable securities investments are classified as current based on the nature of the investments and their availability for use in current operations.

Inventories

– Inventories related to the Company’s manufacturing and service operations are carried at the lower of cost (

first

in,

first

out) or market. When finished goods units are leased to customers under operating leases, the units are transferred to Property and Equipment. Consistent with aviation industry practice, the Company includes expendable aircraft parts and supplies in current assets, although a certain portion of these inventories

may

not

be used or sold within

one

year.

Property and Equipment

– Property and equipment is stated at cost or, in the case of equipment under capital leases, the present value of future lease payments. Rotable parts represent aircraft parts which are repairable, capitalized and depreciated over their estimated useful lives. Depreciation and amortization are provided on a straight-line basis over the asset’s useful life. Leased equipment is depreciated using the accelerated method. Useful lives range from

three

years for computer equipment,

seven

years for flight equipment and

ten

years for deicers and other equipment leased to customers.

The Company assesses long-lived assets used in operations for impairment when events and circumstances indicate the assets

may

be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their carrying amount. In the event it is determined that the carrying values of long-lived assets are in excess of the estimated undiscounted cash flows from those assets, the Company then will write-down the value of the assets by such excess.

Asset Retirement Obligation

- Under the terms of a lease for a manufacturing facility in Canada, Delphax is responsible for restoring the leased property to its original condition, normal wear and tear excepted. The Company’s provisional accounting for the acquisition of Delphax reflects an estimated asset retirement obligation (“ARO”) liability for this matter of approximately

$560,000.

The ARO liability was determined using the present value of the estimated facility restoration costs. Determination of this estimated liability involves significant judgment. The liability is reflected on the accompanying

March 31, 2016

consolidated balance sheet within other long-term liabilities. The liability will be periodically adjusted to reflect revisions to estimated future costs and the accretion of interest. The liability as reflected in the Company’s consolidated balance sheet will also change with movement in the U.S. dollar to Canadian dollar exchange rate. The balance at

March 31, 2016

was left unchanged compared to the amount estimated for purchase accounting because there was

change of estimate between

November 24, 2015

and

March 31, 2016

and because the impact of interest accretion and exchange rate movement was deemed inconsequential.

Restricted Cash

— Restricted cash consists of cash held by SAIC as statutory capital reserves and cash collateral securing SAIC’s participation in certain reinsurance pools.

Revenue Recognition

– Cargo revenue is recognized upon completion of contract terms. Revenues from maintenance and ground support services and services within our printing equipment and maintenance segment are recognized when the service has been performed. Revenue from product sales is recognized when contract terms are completed and ownership has passed to the customer.

Operating Expenses Reimbursed by Customer

– The Company, under the terms of its overnight air cargo dry-lease service contracts, passes through to its air cargo customer certain cost components of its operations without markup. The cost of flight crews, fuel, landing fees, outside maintenance, parts and certain other direct operating costs are included in operating expenses and billed to the customer, at cost, and included in overnight air cargo revenue on the accompanying statements of income. These pass through costs totaled

$24,632,000

and

$32,672,000

for the years ended

March 31, 2016

and

2015,

respectively.

Stock Based Compensation

– The Company maintains a stock option plan for the benefit of certain eligible employees and directors of the Company. The Company recognizes compensation expense on stock options based on their fair values over the requisite service period. The compensation cost we record for these awards is based on their fair value on the date of grant. The Company uses the Black Scholes option-pricing model as its method for valuing stock options. The key assumptions for this valuation method include the expected term of the option, stock price volatility, risk-free interest rate and dividend yield. Many of these assumptions are judgmental and highly sensitive in the determination of compensation expense.

Warranty Reserves

– The Company warranties its ground equipment products for up to a

three

-year period from date of sale. The Company’s printing equipment and maintenance segment provides a limited short-term (typically

days) warranty on equipment and spare parts. Product warranty reserves are recorded at time of sale based on the historical average warranty cost and are adjusted as actual warranty cost becomes known.

Product warranty reserve activity is as follows:

	Year Ended March 31,
	2016			2015
Beginning Balance	$	231,803		$	242,000
Amounts charged to expense		140,768			169,683
Actual warranty costs paid		(166,916	)		(179,880	)
Delphax acquisition		60,800			-
Ending Balance	$	266,455		$	231,803

Income Taxes

– Income taxes have been provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Attribution of net income or loss of partially-owned consolidated entities

- In the case of Delphax, we determined that the attribution of net income or loss should be based on consideration of all of Air T’s investments in Delphax and Delphax Canada. Our investment in the 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. The effect of interest expense arising under the Senior Subordinated Note and of other intercompany transactions are reflected in the attribution of Delphax net income or

losses to non-controlling interests because Delphax is a variable interest entity.

The above-described attribution methodology applies only to our investments in Delphax. We establish the appropriate attribution methodology on an entity-specific basis.

Research and Development Costs

– All research and development costs are expensed as incurred. The research and development costs for the period

November 24, 2015

through

March 31, 2016

amounted

$778,000.

There were

research and development costs for the fiscal year ended

March 31, 2015.