AIR T INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
Form 10-K
_________________
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 31, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _____________

Commission file number 0-11720

Air T, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1206400
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

3524 Airport Road
Maiden, North Carolina 28650
(Address of principal executive offices) (Zip Code)

(704) 377-2109
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.25 per share
(Title of Class)
__________________
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 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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is an
accelerated filer (as defined in Exchange Act Rule 12G-2).
Yes No X
The aggregate market value of voting stock held by non-
affiliates of the registrant computed by reference to the average
of the closing bid and asked prices for such stock on September
30, 2003, was $3,588,724. As of May 20, 2004, 2,686,825 shares
of Common Stock were outstanding.

PART I

Item 1. Business.

Air T, Inc., incorporated under the laws of the State of
Delaware in 1980 (the "Company"), operates in two industry
segments, providing overnight air cargo services to the air
express delivery industry through its wholly owned subsidiaries,
Mountain Air Cargo, Inc. ("MAC") and CSA Air, Inc. ("CSA"), and
aviation ground support and other specialized equipment products
through its wholly owned subsidiary, Global Ground Support, LLC
("Global"). During fiscal 2003 the Company decided to dispose of
its aviation related parts brokerage and overhaul services
through its wholly owned subsidiary, Mountain Aircraft Services,
LLC ("MAS"). The Company entered into a letter of intent on June
19, 2003 to sell certain assets and a portion of the business
operations of MAS. In August 2003, the Company completed the
sale of certain assets of MAS for consideration of $1,885,000,
resulting in the recognition of losses associated with the
disposition of $1,121,000. In conjunction with the sale, MAS
changed its name to MAC Aviation Services, LLC (MACAS). The
Company's financial statements have been reclassified to reflect
the results of MAS as a discontinued operation.

For the fiscal year ended March 31, 2004 the Company's air
cargo services through MAC and CSA accounted for approximately
64.5% of the Company's consolidated revenues and aviation ground
support and other specialized equipment products through Global
accounted for approximately 35.5% of consolidated revenues. The
Company's air cargo services are provided exclusively to one
customer, Federal Express Corporation ("Customer"). Certain
financial data with respect to the Company's overnight air cargo
and ground support equipment segments are set forth in Note 16 of
Notes to Consolidated Financial Statements included under Part
II, Item 8 of this report. Such data are incorporated herein by
reference.

The principal place of business of the Company and MAC is
3524 Airport Road, Maiden, North Carolina; the principal places
of business of CSA and Global are, respectively, Iron Mountain,
Michigan and Olathe, Kansas. The principal place of business of
MACAS is in Kinston, North Carolina. The Company maintains an
Internet website at http://www.airt.net and posts links to its
SEC filings on its website.

Overnight Air Cargo Services.

MAC and CSA provide small package overnight air freight
delivery services on a contract basis throughout the eastern half
of the United States and Canada, South America, and in Puerto
Rico and the U.S. Virgin Islands. MAC and CSA's revenues are
derived principally pursuant to "dry-lease" service contracts.
Under the dry-lease service contracts, the customer leases its
aircraft to MAC (or CSA) for a nominal amount and pays an
administrative fee to MAC (or CSA). Under these arrangements,
all direct costs related to the operation of the aircraft
(including fuel, maintenance, landing fees and pilot costs) are
passed through to the customer. For the most recent fiscal year,
operations under dry-lease service contracts accounted for 98.0%
of MAC and CSA's revenues (64.5% of the Company's consolidated
revenues).

For the fiscal year ended March 31, 2004, 2003 and 2002 MAC
and CSA provided air delivery service exclusively to Federal
Express. As of March 31, 2004, MAC and CSA had an aggregate of
94 aircraft under agreements with Federal Express. MAC and CSA
currently operate in the eastern half of the United States and
Canada, South America, Puerto Rico and the Virgin Islands.
Separate agreements cover the four types of aircraft operated by
MAC and CSA for Federal Express -- Cessna Caravan, ATR-42,
Fokker F-27 and Short Brothers SD3-30. Cessna Caravan, ATR-42
and Fokker F-27 aircraft are dry-leased from Federal Express, and
Short Brothers SD3-30 aircraft are owned by the Company and
operated under "wet-lease" arrangements with Federal Express,
which provide for a fixed fee per flight regardless of the amount
of cargo carried. Pursuant to such agreements, Federal Express
determines the schedule of routes to be flown by MAC and CSA.

Agreements with Federal Express are renewable annually and
may be terminated by Federal Express any time upon 15 to 30 days'
notice. The Company believes that the short term and other
provisions of its agreements with Federal Express are standard
within the air freight contract delivery service industry. Loss
of Federal Express as a customer would have a material adverse
effect on MAC, CSA and the Company.

MAC and CSA operate under separate aviation certifications.
MAC is certified to operate under Part 121, Part 135 and Part 145
of the regulations of the Federal Aviation Administration (the
"FAA"). These certifications permit MAC to operate and maintain
aircraft that can carry up to 18,000 pounds of cargo and provide
maintenance services to third party operators. CSA is certified
to operate under Part 135 of the FAA regulations. This
certification permits CSA to operate aircraft with a maximum
cargo capacity of 7,500 pounds.

MAC and CSA, together, owned, operated or were in the
process of converting the following aircraft as of March 31,
2004:

Form of Number of
Type of Aircraft Model Year Ownership Aircraft

Cessna Caravan, 208A and 208B
(single turbo prop) 1985-1996 dry lease 71

Fokker F-27 (twin turbo prop) 1968-1981 dry lease 17

ATR-42 (twin turbo prop) 1992 dry lease 4

Short Brothers SD3-30
(twin turbo prop) 1981 owned 2

Beech King Air C90A 1990 owned 1
(twin turbo prop)
Total 95

Of the 95 aircraft fleet, 92 aircraft (the Cessna Caravan,
ATR-42 and Fokker F-27 aircraft) are owned by Federal Express and
operated by MAC and CSA under dry-lease service contracts. Under
the dry-lease service contracts, certain maintenance expense,
including cost of parts inventory, and maintenance performed by
personnel not employed by the Company, is passed directly to the
customer. The expense of daily, routine maintenance and aircraft
service checks is charged to the customer on an hourly basis.
Accordingly, the Company does not anticipate maintenance expense,
such as engine overhauls, to be material to the Company's
operating results. In May 2000, MAC completed its FAA
certification to commence operation of a Part 145 maintenance
facility at its Kinston, N.C. location to conduct these
maintenance services.

All FAA Part 135 aircraft, including Cessna Caravan models
208A and 208B, and Short Brothers SD3-30 aircraft are maintained
on FAA approved inspection programs. The inspection intervals
range from 100 to 200 hours. The engines are produced by Pratt &
Whitney, and overhaul periods are based on FAA approved
schedules. The current overhaul period on the Cessna aircraft is
7,500 hours. The Short Brothers manufactured aircraft are
maintained on an "on condition" maintenance program (i.e.,
maintenance is performed when performance deviates from certain
specifications) with engine inspections at each phase inspection
and in-shop maintenance at predetermined intervals.

The Fokker F-27 aircraft are maintained under a FAA Part 121
maintenance program. The program consists of A, B, C, D and I
service checks which are inspections designed to ensure the
Company's maintenance procedures are in compliance with the
applicable FAA regulations. The engine overhaul period is 6,700
hours.

The ATR-42 aircraft which are not yet operational, will be
maintained under a FAA Part 121 maintenance program, final
requirements of which are still pending. The program consist of
A and C service checks. The engine overhaul period is "on
condition".

King Air is maintained under a FAA Part 91 maintenance
program. The program consists of a phase inspection program.
The engine overhaul period is 3,600 hours.

The Company operates in highly competitive markets and
competes with approximately 50 other contract cargo carriers in
the United States based on safety, reliability, compliance with
Federal and State regulations, price and other service related
measurements set by their customer. MAC and CSA's contracts with
its customer are renewed on an annual basis. Accurate industry
data is not available to indicate the Company's position within
its marketplace (in large measure because most of the Company's
competitors are privately held), but management believes that MAC
and CSA, combined, constitute one of the largest contract
carriers of the type described immediately above.

The Company's air cargo operations are not materially
seasonal.

Aircraft Deice and Other Equipment Products.

In August 1997, the Company organized Global to acquire the
Simon Deicer Division of Terex Aviation Ground Equipment, and the
acquisition was completed that month. Global is located in
Olathe, Kansas and manufactures, sells and services aircraft
ground support and other specialized equipment sold to domestic
and international passenger and cargo airlines, the U.S. Air
Force, airports and industrial customers. During the past six
fiscal years, Global diversified its product line to include
additional models of aircraft deicers, scissor type lifts,
military and civilian decontamination units and other specialized
types of equipment. Global is organized as a limited liability
company and is 100 % owned by Air T.

In the manufacture of its ground service equipment, Global
assembles components acquired from third party suppliers.
Components are readily available from a number of different
suppliers. The primary components are the chassis (which is
similar to the chassis of a medium to heavy truck), fluid
storage, a boom mounted delivery system, heating and pumping
equipment.

Global manufactures five basic models of mobile deicing
equipment ranging from 700 to 3,200 gallon capacity models, in
addition to fixed-pedestal-mounted deicers. Each model can be
customized as requested by the customer, including the addition
of twin engine deicing systems, fire suppressant equipment,
modifications for open or enclosed cab design, a patented forced-
air deicing nozzle to substantially reduce glycol usage, and
color and style of the exterior finish. Global also manufactures
three models of scissor-lift equipment, for catering, cabin
service and maintenance service of aircraft, and has developed a
line of decontamination equipment and other special purpose
mobile equipment. Global competes primarily on the basis of
reliability of its products, prompt delivery, service and price.
The market for aviation ground service equipment is highly
competitive and directly related to the financial health of the
aviation industry, weather patterns and changes in technology.

Global's mobile deicing equipment business, in addition to
being highly seasonal, was significantly impacted by the
softening economy and effect of the September 11, 2001 terrorist
attacks on the United States. Historically, the bulk of Global's
revenues have occurred during the second and third fiscal
quarters, and comparatively little revenue has occurred during
the first and fourth fiscal quarters. The Company has continued
its efforts to reduce Global's seasonal fluctuation in revenues
and earnings by broadening its product line to increase revenues
and earnings in the first and fourth fiscal quarters. In June
1999, Global was awarded a four-year contract to supply deicing
equipment to the United States Air Force, and in June 2003 Global
was awarded a three-year extension on the contract. In January
2001 and March 2003 Global received two large-scale, fixed-stand
deicer contracts, which the Company believes contributed to
management's plan to reduce seasonal fluctuation in revenues
during fiscal 2004 and 2002. However, as these contracts are
completed, seasonal trends for Global's business may resume.

Revenue from Global's contract with the U.S. Air Force
accounted for approximately 16.4%, 19.9% and 22.9% of the
Company's consolidated revenue for the years ended March 31,
2004, 2003 and 2002, respectively.

Aviation Related Parts Brokerage and Overhaul Services.

MAS provided aircraft maintenance and parts and other
aviation related services to the commercial and military aviation
industries. MAS's principal offices and primary overhaul
facilities were located at the Global TransPark in Kinston, North
Carolina and Miami,

During the fourth quarter of fiscal 2003, Company management
agreed to a plan to sell the assets of Mountain Aircraft
Services, LLC (MAS) and to discontinue the operations of the
Company's aviation service sector business. The Company entered
into a letter of intent on June 19, 2003 to sell certain assets
and the business operations of MAS to an investor group, which
included former management of MAS. In August 2003, the Company
completed the sale of certain assets of MAS for consideration of
$1,885,000, resulting in the recognition of losses associated
with the disposition of $1,121,000. The loss associated with
the disposal is reflected in discontinued operations. In
conjunction with the above sale, the Company agreed to indemnify
the buyer and its affiliates with respect to certain matters
related to contractual representations and warranties and the
operation of the business prior to closing.

In connection with this sale, the Company also entered into
a three-year consignment agreement granting the buyer an
exclusive right to sell the majority of the remaining MAS
inventory included in the Company's consolidated balance sheet as
of that date. Upon termination of the consignment agreement the
buyer will return all unsold inventory, if any, to the Company.
Such consigned inventory is stated at the lower of cost or market
at March 31, 2004 in the accompanying financial statements. The
accompanying consolidated financial statements reflect the sale
of certain MAS assets and reclassify the net operations of MAS as
discontinued operations, net of tax, for all periods presented.

Backlog.

The Company's backlog for its continuing operations consists
of "firm" orders supported by customer purchase orders for the
equipment sold by Global. At March 31, 2004, the Company's
backlog of orders was $13.5 million attributable to Global, all
of which the Company expects to be filled in the fiscal year
ending March 31, 2005.

Governmental Regulation.

The Department of Transportation ("DOT") has the authority
to regulate economic issues affecting air service. The DOT has
authority to investigate and institute proceedings to enforce its
economic regulations, and may, in certain circumstances, assess
civil penalties, revoke operating authority and seek criminal
sanctions.

In response to the terroist attacks of September 11, 2001,
Congress enacted the Aviation and Transportation Security Act
("ATSA") of November 2001. ATSA created the Transportation
Security Administration ("TSA"), an agency within the DOT, to
oversee, among other things, aviation and airport security. In
2003, TSA was transferred from the DOT to the Department of
Homeland Security, however the basic mission and authority of TSA
remain unchanged. ATSA provided for the federalization of
airport passenger, baggage, cargo, mail, and employee and vendor
screening processes.

Under the Federal Aviation Act of 1958, as amended, the FAA
has safety jurisdiction over flight operations generally,
including flight equipment, flight and ground personnel training,
examination and certification, certain ground facilities, flight
equipment maintenance programs and procedures, examination and
certification of mechanics, flight routes, air traffic control
and communications and other matters. The Company has been
subject to FAA regulation since the commencement of its business
activities. The FAA is concerned with safety and the regulation
of flight operations generally, including equipment used, ground
facilities, maintenance, communications and other matters. The
FAA can suspend or revoke the authority of air carriers or their
licensed personnel for failure to comply with its regulations and
can ground aircraft if questions arise concerning airworthiness.
The FAA also has power to suspend or revoke for cause the
certificates it issues and to institute proceedings for
imposition and collection of fines for violation of federal
aviation regulations. The Company, through its subsidiaries,
holds all operating airworthiness and other FAA certificates that
are currently required for the conduct of its business, although
these certificates may be suspended or revoked for cause. The
FAA periodically conducts routine reviews of MAC and CSA's
operating procedures and flight and maintenance records.

The FAA has authority under the Noise Control Act of 1972,
as amended, to monitor and regulate aircraft engine noise. The
aircraft operated by the Company are in compliance with all such
regulations promulgated by the FAA. Moreover, because the
Company does not operate jet aircraft, noncompliance is not
likely. Such aircraft also comply with standards for aircraft
exhaust emissions promulgated by the Environmental Protection
Agency pursuant to the Clean Air Act of 1970, as amended.

Because of the extensive use of radio and other
communication facilities in its aircraft operations, the Company
is also subject to the Federal Communications Act of 1934, as
amended.

Maintenance and Insurance.

The Company, through its subsidiaries, maintains its
aircraft under the appropriate FAA standards and regulations.

The Company has secured public liability and property damage
insurance in excess of minimum amounts required by the United
States Department of Transportation. The Company has also
obtained all-risk hull insurance on Company-owned aircraft.

The Company maintains cargo liability insurance, workers'
compensation insurance and fire and extended coverage insurance,
for leased as well as owned facilities and equipment.

Risk Factors Related to the Company and to the Commercial
Aviation Industry

The following risk factors, as well as others, should be
considered by investors as well as other information included in
the Company's Annual Report on Form 10-K in connection with any
investment in the Company's common stock.

Economic conditions in the Company's markets;
The continuing impact of the events of September 11, 2001,
or any subsequent terrorist activities on United States soil or
abroad;
The Company's ability to manage its cost structure for
operating expenses, or unanticipated capital requirements, and
match them to shifting customer service requirements and
production volume levels;
Market acceptance of the Company's new commercial and
military equipment and services;
Competition from other providers of similar equipment and
services;
Changes in government regulation and technology;
Mild winter weather conditions reducing the demand for
deicing equipment.

Employees.

At May 7, 2004, the Company and its subsidiaries had 396
full-time and full-time-equivalent employees, of which 29 are
employed by the Company, 253 are employed by MAC, 52 are employed
by CSA and 62 are employed by Global. None of the Company's
employees are represented by a union. The Company believes its
relations with its employees are good.

Item 2. Properties.

The Company leases the Little Mountain Airport in Maiden,
North Carolina from a corporation whose stock is owned in part by
William H. Simpson and John J. Gioffre, officers and directors of
the Company, and the estate of David Clark, of which, Walter
Clark, the Company's chairman and Chief Executive Officer, is a
co-executor and beneficiary, and Allison Clark, a director, is a
beneficiary. The facility consists of approximately 68 acres
with one 3,000 foot paved runway, approximately 20,000 square
feet of hangar space and approximately 12,300 square feet of
office space. The operations of the Company and MAC are
headquartered at this facility. The two leases for this facility
extend through May 31, 2006, and the total monthly lease payments
are $11,255. The Company has the option to renew the two leases
for an additional five-year period ending May 31, 2011.

The Company also leases approximately 800 square feet of
office space and approximately 6,000 square feet of hangar space
at the Ford Airport in Iron Mountain, Michigan. CSA's operations
are headquartered at these facilities. These facilities are
leased, from a third party, under an annually renewable agreement
with a monthly rental payment, as of March 31, 2004, of
approximately $1,761.

On November 16, 1995, the Company entered into a twenty-one
and one-half year premises and facilities lease with Global
TransPark Foundation, Inc. to lease approximately 53,000 square
feet of a 66,000 square foot aircraft hangar shop and office
facility at the North Carolina Global TransPark in Kinston, North
Carolina. In August 1996, the maintenance, repair and parts
brokerage operation of MAC and MAS were relocated to this
facility. Rent under this lease increases over time as follows:
the first 18 months, no rent; the next 5-year period, $2.25 per
square foot; the next 5-year period, $3.50 per square foot; the
next 5-year period, $4.50 per square foot; and the final 5-year
period, $5.90 per square foot. This lease is cancelable under
certain conditions at the Company's option. The Company currently
considers the lease to be non-cancelable for eight and one-half
years and has calculated rent expense on a straight-line basis
over this portion of the lease term. The Company began
operations at this facility in August 1996.

Global leases a 112,500 square foot production facility in
Olathe, Kansas. The facility is leased, from a third party,
under a five-year lease agreement, which expires in August 2006.
The monthly rental payment, as of March 31, 2004, was $30,279 and
the monthly rental will increase to no more than $30,842 over the
life of the lease, based on increases in the Consumer Price
Index.

As of March 31, 2004, the Company leased hangar space from
third parties at 35 other locations for aircraft storage. Such
hangar space is leased, from third parties, at prevailing market
terms.

The table of aircraft presented in Item 1 lists the aircraft
operated by the Company's subsidiaries and the form of ownership.

Item 3. Legal Proceedings.

Global and one of its employees are defendants in a lawsuit
filed in March 2002 in the United States District Court for the
District of Columbia, Catalyst & Chemical Services et al v.
Terex, et al. In this action, the plaintiffs allege that they
provided to Global and the employee certain trade secrets
regarding aircraft de/anti-icing systems that were then disclosed
by Global and the employee to third parties. The plaintiffs
allege misappropriation of trade secrets, breach of contract and
violation of the federal Racketeer Influenced and Corrupt
Organizations Act and seek monetary damages. The Company and its
employee have filed an answer in this action denying all
liability. Upon Global's motion, the court has dismissed the
plaintiff's claims under the Racketeer Influenced and Corrupt
Organizations Act. The Company does not believe that the action
has any merit and intends to continue to defend the lawsuit
vigorously. In November 2002, Global and the Company filed suit
in North Carolina state court against affiliates of the
plaintiffs in the Catalyst & Chemical Services et al v. Terex, et
al action alleging defamation. This action has been removed to,
and is pending before, the United States District Court for the
Western District of North Carolina.

The Company currently has outstanding certain intellectual
property, personal injury and environmental matters, which
involve actual or pending lawsuits. Management believes the
results of these actual or pending lawsuits will not have a
material adverse effect on the Company.

Item 4. Submission of Matters to a Vote of Security Holders.

No matter was submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.

PART II

Item 5. Registrant's Common Equity and Related Stockholder
Matters.

The Company's common stock is publicly traded in the over-
the-counter market under the NASDAQ symbol "AIRT."

As of May 20, 2004 the number of holders of record of the
Company's Common Stock was approximately 351. Over-the-counter
market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commissions and may not necessarily
represent actual transactions. The range of high and low bid
quotations per share for the Company's common stock from April
2002 through March 2004 is as follows:
Common Stock
Quarter Ended High Low

June 30, 2002 $3.97 $2.99
September 30, 2002 3.46 2.94
December 31, 2002 3.00 1.90
March 31, 2003 2.20 1.41

June 30, 2003 $2.50 $1.41
September 30, 2003 5.20 2.05
December 31, 2003 6.19 4.12
March 31, 2004 6.65 4.72

The Company's Board of Directors has adopted a policy to pay
a regularly scheduled annual cash dividend in the first quarter
of each fiscal year. On May 4, 2004, the Company declared a
fiscal 2005 cash dividend of $0.20 per common share payable on
June 25, 2004 to stockholders of record on June 11, 2004. Due to
losses sustained in fiscal 2003, the Company did not declare or
pay a common share dividend in fiscal 2004.

The following table sets forth certain information with respect
to purchases by the Company of shares of its Common Stock in the
quarter ended March 31, 2004.

Total Number Maximum number
of Shares of shares that
Purchased as May yet be
Total number Average Part of Pubilicly Purchased under
of Shares Price Paid Announced plans the Plans
Period Purchased per Share or programs or programs

01/01/04 to 01/31/04 39,493 $ 4.54 39,493 118,480
02/01/04 to 02/29/04 - - - -
03/01/04 to 03/31/04 - - - -
total 39,493 $ 4.54 39,493 118,480

In conjunction with the resignation of an executive officer the
Company, on January 12, 2004, agreed to repurchase 118,480 shares
of the Company's common stock, at $4.54 per share, 80% of the
fair value of the stock on the date of the agreement. The stock
repurchase will take place in three installments over a one-year
period, this table reflects the first installment.

Item 6. Selected Financial Data

The operations of MAS have been reclassified as discontinued
operations for all years presented below.

(In thousands except per share data)
Year Ended March 31,

2004 2003 2002 2001 2000

Operating Revenues $55,997 $42,872 $59,603 $61,668 $49,546

Earnings from continuing
operations 2,164 366 2,016 1,418 102
(Loss) earnings
from discontinued operations (426) (1,590) (738) (129) 260

Net (loss) earnings 1,738 (1,224) 1,278 1,289 362

Basis (loss) earnings per share
Continuing operations 0.80 0.13 0.74 0.52 0.04
Discontinued operations (0.16) (0.58) (0.27) (0.05) 0.09
Total basic net (loss) earnings per
share 0.64 (0.45) 0.47 0.47 0.13

Diluted (loss) earnings per share:
Continuing operations 0.80 0.13 0.72 0.51 0.04
Discontinued operations (0.16) (0.58) (0.26) (0.05) 0.09
Total diluted net (loss) earnings
per share 0.64 (0.45) 0.46 0.46 0.13

Total assets 19,574 21,328 22,903 28,533 23,936

Long-term obligations, including
current portion 279 2,509 4,158 5,969 1,486

Stockholders' equity 11,677 9,611 11,100 10,170 9,383

Average common shares outstanding-
Basic 2,716 2,726 2,717 2,733 2,758

Average common shares outstanding-
Diluted 2,728 2,726 2,789 2,781 2,837

Dividend declared per common
share (1) $ - $ 0.12 $ 0.15 $ 0.10 $ 0.08

Dividend paid per common
share (1) $ - $ 0.12 $ 0.15 $ 0.10 $ 0.08

(1) )n May 11, 2003, the company declared a fiscal 2005 cash dividend of $0.20
per common share, payable on June 25, 2004 to stockholders' of record on June
11, 2004. Due to losses sustained in fiscal 2003 no common share dividend
was paid in fiscal 2004.

Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations

Overview

The Company's most significant component of revenue, which
accounted for 64.5% of revenue in fiscal 2004, was generated
through its air cargo subsidiaries, Mountain Air Cargo, Inc.
(MAC) and CSA Air, Inc. (CSA).

MAC and CSA are short-haul express air freight carriers.
MAC and CSA's revenue contributed approximately $36,168,000 and
$29,899,000 to the Company's revenues in fiscal 2004 and 2003,
respectively, a current year increase of 21.0%. Approximately
$4,456,000 (or 71.9%) of the increase in revenue in fiscal 2004
was related to maintenance services, which were primarily
attributed to customer fleet modernization, associated with
conversion of ATR aircraft from passenger to cargo configuration,
and route expansion. The remainder of the increase was
attributable to administration and other direct operating revenue
associated with route expansion.

Under the terms of the dry-lease service agreements, which
currently cover approximately 98% of the revenue aircraft
operated, the Company passes through to its customer certain cost
components of its operations without markup. The cost of fuel,
flight crews, landing fees, outside maintenance, parts and
certain other direct operating costs are included in operating
expenses and billed to the customer as cargo and maintenance
revenue, at cost.

Separate agreements cover the four types of aircraft
operated by MAC and CSA for their customer-Cessna Caravan, ATR-
42, Fokker F-27, and Short Brothers SD3-30. Cessna Caravan, ATR-
42 and Fokker F-27 aircraft (a total of 92 aircraft at March 31,
2004) are owned by and dry-leased from Customer, and Short
Brothers SD3-30 and King Air aircraft (respectively, two and one
aircraft at March 31, 2004) are owned by the Company. The SD3-
30's are operated periodically under wet-lease arrangements with
the Customer. Pursuant to such agreements, the Customer
determines the type of aircraft and schedule of routes to be
flown by MAC and CSA, with all other operational decisions made
by the Company.

Agreements are renewable annually and may be terminated by
the Customer at any time upon 15 to 30 days' notice. The Company
believes that the short term and other provisions of its
agreements with the Customer are standard within the air freight
contract delivery service industry. The Company is not
contractually precluded from providing such services to other
firms, and has done so in the past. Loss of its contracts with
the Customer would have a material adverse effect on the Company.

Global manufactures, services and supports aircraft deicers
and ground support equipment on a worldwide basis. Global's
revenue contributed approximately $19,829,000 and $12,973,000 to
the Company's revenues in fiscal 2004 and 2003, respectively.
The increase in revenues in 2004 was primarily due to increased
commercial and military equipment orders and the near completion
of a large scale airport deicer system contract by March 2004.

During fiscal 2003, the Company decided to discontinue and
dispose of its aircraft component parts brokerage and repair
services business operated by its Mountain Aircraft Services, LLC
(MAS) subsidiary and accordingly, the Company's financial
statements have been reclassified to reflect the results of MAS
as a discontinued operation. See Note 10 of notes to
consolidated financial statements.

The Company's continuing operations operate in two business
segments, providing overnight air cargo services to the express
delivery services industry and aviation ground support equipment
products to passenger and cargo airlines and airports. Each
business segment has separate management teams and
infrastructures that offer different products and services. The
subsidiaries make up the following reportable segments: air cargo
and ground equipment in the accompanying consolidated financial
statements.

The following table summarizes the changes and trends in the
Company's operating expenses for continuing operations as a
percentage of revenue:

Fiscal Year Ended March 31,
2004 2003 2002
Operating revenue (in thousands) $ 55,997 $ 42,872 $ 59,603
Expense as a percentage of revenue:
Flight operations 27.62% 33.67% 24.19%
Maintenance 24.76 24.09 16.74
Ground equipment 26.44 23.62 39.41
General and administrative 14.11 15.70 12.91
Depreciation and amortization 1.00 1.46 0.96

Total costs and expenses 93.93% 98.54% 94.21%

As indicated in Item 14. Principal Accountants and
Accounting fees, the Company incurred greater professional fees
in fiscal 2004 than in fiscal 2003. The Company anticipates that
as additional requirements of the Sarbanes-Oxley Act of 2002
become effective, in particular the requirements under Section
404(b) of that act with respect to auditor attestation with
respect to internal controls which will apply to the Company in
fiscal 2006, professional fees will continue to increase and may
materially reduce the Company's net income. Under applicable
federal law, Section 404(b) and certain other requirements of the
Sarbanes-Oxley Act and other federal regulations would not apply
to the Company if the number of stockholders is reduced below 300
and, upon application to the Securities and Exchange Commission,
the Company elects to cease filing annual and quarterly reports
with the SEC. The Board of Directors has considered, and may
likely consider in the future, corporate transactions that would
have the effect of reducing the number of stockholders below 300,
including a reverse split of the Company's common stock in which
holders of fewer than a specified number of shares would receive
cash for their shares, while holders of greater amounts of shares
would continue to hold equity interests in the Company in the
same approximate relative proportion. If the number of
stockholders is reduced below 300 and the Company elects to cease
filing periodic reports with the SEC, the Company's common stock
would no longer be eligible for listing on the Nasdaq Small Cap
Market and any alternative trading system for the common stock
may not provide the same liquidity as the Nasdaq Small Cap
Market. The Board of Directors has not approved, and may not in
the future approve, any such corporate transaction to effect a
reduction in the number of stockholders below 300.

Outlook

The Company's current forecast for fiscal 2005 suggests
that, due to higher fuel cost and losses sustained since
September 11, 2001, the commercial aviation market will grow at a
rate that is substantially less than the rest of the economy.
Increased military and Homeland Security budgets, pending funding
approvals, may help offset the expected lower than normal order
levels from commercial customers. Company management currently
anticipates that its air cargo segment will continue to benefit
from its customer's aircraft fleet modernization and route
expansion through fiscal 2005, however, future terrorist attacks,
competition or inflation may cause delays or termination of the
certain projects. Given the uncertainties associated with the
above factors, the Company continues to operate in a highly
unpredictable environment.

As stated above, during the third quarter of fiscal 2004,
Company management closed on its agreement to sell MAS assets and
to discontinue the operations of the Company's aviation service
sector business. The completion of this sale and resulting
decrease in losses experienced by this business segment is
expected to substantially improve the Company's future operating
results and financial position. However, there is no guarantee
that this improvement can be sustained due to the other external
factors described above.

Based on the current general economic and industry outlook
and cost cutting measures implemented over the past twenty four
months, the Company believes its existing cash and cash
equivalents, cash flow from operations, and funds available from
current and renewed credit facilities will be adequate to meet
its current and anticipated working capital requirements through
2005. If these sources are inadequate or become unavailable, then
the Company may pursue additional funds through the financing of
unencumbered assets, although there is no assurance these
additional funds will be sufficient to replace the sources that
are inadequate or become unavailable.

Actual results for fiscal 2005 will depend upon a number of
factors beyond the Company's control, including, in part, future
significant increases in rate of inflation, including fuel
prices, the timing, speed and magnitude of the economic recovery,
military funding of pending future equipment orders, future
levels of commercial aviation capital spending, future terrorists
acts and weather patterns.

Critical Accounting Policies and Estimates

The preparation of the Company's financial statements in
conformity with accounting principles generally accepted in the
U.S. requires the use of estimates and assumptions to determine
certain assets, liabilities, revenues and expenses. Management
bases these estimates and assumptions upon the best information
available at the time of the estimates or assumptions. The
Company's estimates and assumptions could change materially as
conditions within and beyond our control change. Accordingly,
actual results could differ materially from estimates. The most
significant estimates made by management include allowance for
doubtful accounts receivable, reserves for excess and obsolete
inventories, deferred tax asset valuation, retirement benefit
obligations, valuation of revenue recognized under the percentage
of completion method and valuation of long-lived assets.

During the fourth quarter of fiscal 2003, Company management
agreed to a plan to sell MAS assets and to discontinue the
operations of the Company's aviation service sector business. In
August 2003, the Company completed the sale of certain assets of
MAS totaling $3,006,000 for consideration of $1,885,000. The
loss associated with this disposition is reflected in
discontinued operations. The operations of MAS have been
reclassified as discontinued operations and, therefore, are not
included in the Results of Continuing Operations discussed below.

Following is a discussion of critical accounting policies
and related management estimates and assumptions. A full
description of all significant accounting policies is included in
Note 1 to our consolidated financial statements included
elsewhere in this report.

Allowance for Doubtful Accounts. An allowance for doubtful
accounts receivable in the amount of $368,000 and $449,000,
respectively, in fiscal 2004 and 2003, was established based on
management's estimates of the collectability of accounts
receivable. The required allowance is determined using
information such as customer credit history, industry
information, credit reports and customer financial condition.
The estimates can be affected by changes in the financial
strength of the aviation industry, customer credit issues or
general economic conditions.

Inventories. The Company's parts inventories are valued at
the lower of cost or market. Provisions for excess and obsolete
inventories in the amount of $1,425,000 and $1,094,000,
respectively, in fiscal 2004 and 2003, are based on assessment of
slow-moving and obsolete inventories. Historical part usage,
current period sales, estimated future demand and anticipated
transactions between willing buyers and sellers provide the basis
for estimates. Estimates are subject to volatility and can be
affected by reduced equipment utilization, existing supplies of
used inventory available for sale, the retirement of aircraft or
ground equipment and changes in the financial strength of the
aviation industry.

Deferred Taxes. Deferred tax assets and liabilities, net of
valuation allowance in the amount of $83,000 in fiscal 2004 and
2003, reflect the likelihood of the recoverability of these
assets. Company judgment of the recoverability of these assets
is based primarily on estimates of current and expected future
earnings and tax planning.

Retirement Benefits Obligation. The Company currently
determines the value of retirement benefits assets and
liabilities on an actuarial basis using a 5.75% discount rate.
Long-term deferred retirement benefit obligations amounted to
$1,624,000 and $2,139,000, respectively, in fiscal 2004 and 2003.
Values are affected by current independent indices, which
estimate the expected return on insurance policies and the
discount rates used. Changes in the discount rate used will
affect the amount of pension liability as well as pension gain or
loss recognized in other comprehensive income.

Revenue Recognition. Cargo revenue is recognized upon
completion of contract terms and maintenance revenue is
recognized when the service has been performed. Revenue from
product sales is recognized when contract terms are completed and
title has passed to customers. Revenues from overhaul contracts
on customer owned parts, certain labor service contracts and long
term fixed price manufacturing projects are recognized on the
percentage-of-completion method. Billings in excess of cost and
estimated earnings for contracts under percentage of completion
in the amount of $80,000 and $761,000, respectively, in fiscal
2004 and 2003. Revenues are measured by the percentage of cost
incurred to date, to estimated total cost for each contract or
work order; unanticipated changes in job performance, job
conditions and estimated profitability may result in revisions to
costs and income, and are recognized in the period in which the
revisions are determined.

Valuation of Long-Lived Assets. 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 fair value of those assets, the Company then will
write-down the value of the assets to fair value. The Company
has applied the discontinued operations provisions of SFAS No.
144 for the MAS operations and has reflected any remaining long-
lived assets associated with the discontinued MAS subsidiary at
zero fair market value at March 31, 2004.

Resignation of Executive Officer

Effective December 31, 2003, an executive officer and
director of the Company resigned his employment with AirT.

In consideration of approximately $300,000, payable in three
installments over a one-year period starting January 12, 2004,
the executive agreed to forgo certain retirement and other
contractual benefits for which the Company had previously accrued
aggregate liabilities of $715,000. The Company has accounted
for the resignation as a settlement under the provisions of SFAS
No. 88 "Employers Accounting for Settlements and Curtailments of
Defined Benefit Plans and for Termination Benefits."

The above-mentioned cancellation of contractual retirement
benefits reduced recorded liabilities by $715,000. The
difference between the recorded liability and ultimate cash
payment of $300,000 resulted in the recording of a $305,000
reduction in actuarial losses, recorded in other comprehensive
loss, a $90,000 reduction in intangible assets and a net $12,000
reduction in executive compensation charges included in the
accompanying consolidated statement of operations.

The Company also agreed to purchase from the former
executive officer 118,480 shares of AirT common stock held by him
(representing approximately 4.3% of the outstanding shares of
common stock at December 31, 2003) for $4.54 per share (80% of
the January 5, 2004 closing price). The stock repurchase will
take place in three installments over a one-year period, starting
January 12, 2004, and will total approximately $538,000. The
repurchase of the former executive's stock will be recorded in
the period that the repurchase occurs as treasury stock
transactions. All installment payments required to be made on
January 12, 2004, have been made.

Seasonality

Global's business has historically been highly seasonal.
Due to the nature of its product line, the bulk of Global's
revenues and earnings have typically occurred during the second
and third fiscal quarters in anticipation of the winter season,
and comparatively little has occurred during the first and fourth
fiscal quarters. The Company has continued its efforts to reduce
Global's seasonal fluctuation in revenues and earnings by
broadening its product line to increase revenues and earnings in
the first and fourth fiscal quarters. In June 1999, Global was
awarded a four-year contract to supply deicing equipment to the
United States Air Force, and in June 2003 Global was awarded a
three-year extension on the contract. In January 2001 and March
2003 Global received two large scale, fixed-stand deicer
contracts, which the Company believes contributed to management's
plan to reduce seasonal fluctuation in revenues during fiscal
2004 and 2002. However, as these contracts are completed,
seasonal trends for Global's business may resume. The remainder
of the Company's business is not materially seasonal.

Fiscal 2004 vs. 2003

Consolidated revenue from continuing operations increased
$13,125,000 (30.6%) to $55,997,000 for the fiscal year ended
March 31, 2004 compared to the prior fiscal year. The increase
in 2004 revenue primarily resulted from an increase in Global
revenue of $6,856,000 (52.9%) to $19,829,000, combined with a
$6,269,000 (21.0%) increase in air cargo revenue to $36,168,000
in fiscal 2004, as described in the Overview section of Item 7.

Operating expenses from continuing operations increased
$10,352,000 (24.5%) to $52,595,000 for fiscal 2004 compared to
fiscal 2003. The net increase in operating expenses consisted of
the following changes: cost of flight operations increased
$1,033,000 (7.2%) as a result of customer schedule changes and
route expansion which increased pilot cost and costs associated
with pilot travel, and increases in landing fees; maintenance
expenses increased $3,534,000 (34.2%) primarily as a result of
increases associated with additional maintenance personnel and
the cost of travel, contract service cost, and cost of parts and
supplies related to customer fleet modernization and route
expansion; ground equipment costs increased $4,679,000 (46.2%),
as a result of higher cost of parts and labor associated with
increased sales at Global; depreciation and amortization
decreased $69,000 (11.0%) as a result of purchases of capital
assets; general and administrative expense increased $1,174,000
(17.5%) primarily as a result of increased profit sharing
accruals, settlement of an executive employment contract (as
discussed above), staffing, facilities cost and professional
fees.

On a continuing operations segment basis, significant
impacts on the Company's operating results comparing the fiscal
year ended March 31, 2004 to its prior fiscal year resulted from
changes in both the ground equipment and air cargo sectors. In
the fiscal year ended March 31, 2004, Global had operating income
of $2,040,000 compared to prior period income of $205,000.
Several factors contributed to the increases in Global's
operating results. Global's current fiscal year operating income
increased compared to its prior fiscal year primarily due to
progress on a large-scale airport contract, higher sales volume
due to increased delivery of units on its U.S. Air Force contract
and a 22.2% increase in increased commercial equipment orders.
Unless replaced by an additional large-scale airport contract or
increased commercial equipment orders, the pending completion of
Global's current large-scale airport contract would result in
decreased revenues in fiscal 2005. Operating income for the
Company's overnight air cargo operations was $3,989,000 in the
fiscal year ended March 31, 2004, an increase of 52.2% from
$2,621,000 in the prior fiscal year. The increase primarily
resulted from increased levels of aircraft maintenance revenue
and administrative fees related to the customer's ATR aircraft
fleet modernization program and route expansion, which is
expected to continue through fiscal 2005, as, described in the
Overview Section of Item 7.

Non-operating income increased a net $109,000 due to current
year gain on sale of marketable securities and decreased interest
expense as a result of the pay-down of approximately $2,198,000
in debt from the proceeds from the sale of MAS assets and
increased cash flow from operations.

Provision for income taxes increased $1,085,000 (391.4%)
primarily due to increased earnings. The provision for income
taxes for the fiscal years ended March 31, 2004, 2003 and 2002
were different from the Federal statutory rates primarily due to
state tax provisions.

Fiscal 2003 vs. 2002

Consolidated revenue from continuing operations decreased
$16,731,000 (28.1%) to $42,872,000 for the fiscal year ended
March 31, 2003 compared to the prior fiscal year. The decrease
in 2003 revenue primarily resulted from a decrease in Global
revenue of $17,372,000 (57.3%) to $12,973,000, associated with
the completion of a large-scale airport contract and decreased
deicer orders partially offset by a $641,000 (2.2%) increase in
air cargo revenue to $29,899,000 related to increased maintenance
billings in fiscal 2003.

The business of Global has been adversely affected by
reduced orders from commercial airlines and aviation related
companies, due principally to the continued severe downturn in
the commercial aviation industry, which started in early 2001 and
significantly increased after September 11, 2001. Although this
business also derives a significant portion of its revenue from
sale of products for military applications, certain military
programs that use the Company's products were not fully funded in
2003.

Operating expenses from continuing operations decreased
$13,915,000 (24.8%) to $42,243,000 for fiscal 2003 compared to
fiscal 2002. The net decrease in operating expenses consisted of
the following changes: cost of flight operations increased
$15,000 (0.1%) as a result of decreases in personnel cost and
costs associated with pilot travel partially offset by increases
in fuel and landing fees; maintenance expenses increased $350,000
(3.5%) primarily as a result of increases associated with
contract service costs, partially offset by decreases in contract
services related to the operations of MAC; ground equipment costs
decreased $13,366,000 (56.9%), as a result of decreased sales at
Global; depreciation and amortization increased $54,000 (9.4%) as
a result of purchases of certain assets; general and administra
tive expense decrease of $968,000 (12.6%) primarily as a result
of decreased profit sharing expense, staffing, contract labor,
rent and related facilities cost, partially offset by increases
in professional fees.

On a continuing operations segment basis, the most
significant impact on the Company's operating results comparing
the fiscal year ended March 31, 2003 to the prior period resulted
from changes in the ground equipment operation at Global. In the
fiscal year ended March 31, 2003, Global had operating income of
$205,000 compared to prior period income of $3,335,000. Several
factors contributed to the changes in Global's operating results.
Global's 2003 fiscal year operating income decreased compared to
its prior fiscal year primarily due to completion of a large
scale airport contract, lower sales volume on its U.S. Air Force
contract and declines in commercial equipment orders. Operating
income for the Company's overnight air cargo operations was
$2,621,000 in the fiscal year ended March 31, 2003, an increase
of 18.3% from $2,216,000 in the prior fiscal year. The majority
of the increase resulted from increased levels of aircraft
maintenance revenue.

Non-operating expense decreased a net $160,000 due to
decreased current year interest expense related to decreased
borrowing on the Company's line of credit, partially offset by an
other than temporary impairment charge on marketable securities
totaling $161,000.

Provision for income taxes decreased $1,006,000 (78.4%)
primarily due to decreased earnings at Global. The provision for
income taxes for the fiscal years ended March 31, 2003, 2002 and
2001 were different from the Federal statutory rates primarily
due to state tax provisions and a reduction in the Company's
excise tax accrual due to a favorable tax ruling.

Liquidity and Capital Resources

As of March 31, 2004 the Company's working capital amounted
to $8,328,000, a decrease of $1,186,000 compared to March 31,
2003. The net decrease primarily resulted from a $1,137,000
decrease in accounts receivable due to increased collections, a
$1,950,000 decrease in assets held for sale associated with the
discontinued operations of MAS, partially offset by an
$1,154,000 decrease in accounts payable, resulting from increased
cash flow from operations.

On August 31, 2003 the Company amended its $7,000,000
secured bank financing line to extend its expiration date to
August 31, 2005. During fiscal 2004, the Company reduced the
line of credit balance by $2,197,880 primarily with proceeds from
the sale of MAS.

The credit facility contains customary events of default, a
subjective clause and restrictive covenants that, among other
matters, require the Company to maintain certain financial
ratios. There is no requirement for the Company to maintain a
lock-box arrangement under this agreement. Under the provisions
of the revolving credit line, the sale of MAS, as described in
Note 10, would be considered an event of default. However, the
Company has obtained a waiver under the revolving credit line for
the sale of MAS. As of March 31, 2004, the Company was in
compliance with all of the restrictive covenants under the
revolving credit line.

The amount of credit available to the Company under the
agreement at any given time is determined by an availability
calculation, based on the eligible borrowing base, as defined in
the credit agreement, which includes the Company's outstanding
receivables, inventories and equipment, with certain exclusions.
The credit facility is secured by substantially all of the
Company's assets. At March 31, 2004 and 2003, the amounts
outstanding against the line were $132,000 and $2,217,000,
respectively. At March 31, 2004, an additional $3,175,000 was
available under the terms of the credit facility. The Company has
classified the $132,000 outstanding balance on its credit line as
of March 31, 2004 as long-term to reflect the terms included
under the amendment signed on August 31, 2003.

Amounts advanced under the credit facility bear interest at
the 30-day "LIBOR" rate plus 137 basis points. The LIBOR rate at
March 31, 2004 was 1.10%.

The following table of material contractual commitments at
March 31, 2004 summarizes the effect these obligations are
expected to have on the Company's cash flow in the future
periods, which includes the Company's obligation to purchase
shares of its Common Stock from its former executive officer, as
discussed above.

Contractual Obligations

Less than 1 More than
Total Year 1-3 Years 3-5 Years 5 Years

Long-term bank debt $ 132,000 $ - $ 132,000 $ - $ -
Operating leases 2,280,000 705,000 1,314,000 261,000 -
Capital leases 97,000 38,000 52,000 7,000 -
Purchase obligations 359,000 359,000 - - -
Deferred retirement
obligation 225,000 75,000 150,000 - -
Total $3,093,000 $1,177,000 $1,648,000 $ 268,000 $ -

The respective years ended March 31, 2004, 2003 and 2002
resulted in the following changes in cash flow: operating
activities provided $2,205,000, $2,366,000 and $2,946,000
respectively in fiscal 2004, 2003 and 2002. Investing activities
provided $652,000 in fiscal 2004 and used $327,000 and $713,000,
respectively, in fiscal 2003 and 2002 and financing activities
used $2,477,000, $1,991,000 and $2,300,000 respectively, in
fiscal 2004, 2003 and 2002. Net cash increased $380,000, $48,000
in fiscal 2004 and 2003, respectively, and decreased $66,000 in
fiscal 2002.

Cash provided by operating activities was $160,000 more for
the year ended March 31, 2004, compared to fiscal 2003
principally due to increased inventory associated with equipment
production and decreased accounts payable associated with,
increased cash flow, partially offset by fiscal 2004 increases in
earnings from continuing operations of $2,962,000 and decreased
accounts receivable associated with increased collections
efforts. Cash used in investing activities for the year ended
March 31, 2004 was approximately $979,000 less than fiscal 2003,
principally due to proceeds from sale of assets associated with
discontinued operations of $1,550,000, offset by increased
capital expenditures relating to the $1,000,000 purchase of an
airplane. Cash used in financing activities was $486,000 more in
fiscal 2004 compared to fiscal 2003 principally due to increased
repayment of borrowings under the line of credit, and no payment
of dividends in the current year.

During the fiscal year ended March 31, 2004 the Company
repurchased 39,493 of its common stock for $179,427, as described
above.

There are currently no commitments for significant capital
expenditures. The Company's Board of Directors, on August 7,
1997, adopted the policy to pay an annual cash dividend in the
first quarter of each fiscal year, in an amount to be determined
by the board. On May 27, 2003, the Company declared that, due to
losses sustained in fiscal 2003, no common share dividend would
be paid in fiscal 2004. On May 4, 2004, the Company declared a
$0.20 per share cash dividend, to be paid on June 25, 2004 to
shareholders of record June 11, 2004.

Derivative Financial Instruments

As required by SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", the Company recognizes all
derivatives as either assets or liabilities in the statement of
financial position and measures those instruments at fair value.

The Company is exposed to market risk, such as changes in
interest rates. To manage the volatility relating to interest
rate risk, the Company may enter into interest rate hedging
arrangements from time to time. The Company does not utilize
derivative financial instruments for trading or speculative
purposes.

In May 2001, the Company entered into two interest rate
swaps with notional amounts of $2.4 million, and $2 million
respectively. These agreements were originally entered into at
respective interest rates of 6.97% and 6.5%. On July 31, 2002
the Company elected to unwind its $2,000,000 (6.5%) revolving
credit line swap in consideration for $58,750, the fair-market-
value termination fee as of that date. On October 30, 2003, the
Company terminated its remaining credit line swap for $97,500,
the fair-market-value termination fee as of that date, the
$75,000 balance included in accumulated other comprehensive
income (loss) as of March 31, 2004 will be ratably amortized into
interest expense over the remaining term of the Company's credit
line.

The Company does not hold or issue derivative financial
instruments for trading purposes. As of March 31, 2004 the
Company had no derivative financial instruments outstanding. The
Company is exposed to changes in interest rates on certain
portions of its line of credit, which bears interest based on the
30-day LIBOR rate plus 137 basis points. If the LIBOR interest
rate had been increased by one percentage point, based on the
balance of the line of credit at March 31, 2004, annual interest
expense would have increased by approximately $1,300.

Deferred Retirement Obligation

Contractual death benefits for the Company's former Chairman and
Chief Executive Officer who passed away on April 18, 1997 are
payable by the Company in the amount of $75,000 per year for 10
years. As of March 31, 2004 $74,000 has been reflected as
current liability and $152,000 has been reflected as long-term
liability associated with this death benefit.

Off-Balance Sheet Arrangements

The Company defines an off-balance sheet arrangement as any
transaction, agreement or other contractual arrangement involving
an unconsolidated entity under which a company has (1) made
guarantees, (2) a retained or a contingent interest in
transferred assets, (3) an obligation under derivative
instruments classified as equity, or (4) any obligation arising
out of a material variable interest in an unconsolidated entity
that provides financing, liquidity, market risk or credit risk
support to the Company, or that engages in leasing, hedging, or
research and development arrangements with the company.

The Company is not currently engaged in the use of any of
the arrangements defined above.

Impact of Inflation

The Company believes that, due to the currently low levels
of inflation, the impact of inflation and changing prices on its
revenues and net earnings will not have a material effect on its
manufacturing operations, because increased costs can be passed
on to its customers, or on its air cargo business since the major
cost components of its operations, consisting principally of
fuel, crew and other direct operating costs, and certain
maintenance costs are reimbursed, without markup, under current
contract terms. Significant increases in inflation rates could,
however, have a material impact on future revenue and operating
income.

Forward Looking Statements

Certain statements in this Report, including those contained
in "Outlook," are "forward-looking" statements within the meaning
of the Private Securities Litigation Reform Act of 1995 with
respect to the Company's financial condition, results of
operations, plans, objectives, future performance and business.
Forward-looking statements include those preceded by, followed by
or that include the words "believes", "pending", "future",
"expects," "anticipates," "estimates," "depends" or similar
expressions. These forward-looking statements involve risks and
uncertainties. Actual results may differ materially from those
contemplated by such forward-looking statements, because of,
among other things, potential risks and uncertainties, such as:

Economic conditions in the Company's markets;
The continuing impact of the events of September 11, 2001,
or any subsequent terrorist activities on United States soil or
abroad;
The Company's ability to manage its cost structure for
operating expenses, or unanticipated capital requirements, and
match them to shifting customer service requirements and
production volume levels;
Market acceptance of the Company's new commercial and
military equipment and services;
Competition from other providers of similar equipment and
services;
Changes in government regulation and technology;
Mild winter weather conditions reducing the demand for
deicing equipment.

A forward-looking statement is neither a prediction nor a
guarantee of future events or circumstances, and those future
events or circumstances may not occur. We are under no
obligation, and we expressly disclaim any obligation, to update
or alter any forward-looking statements, whether as a result of
new information, future events or otherwise.

Recent Accounting Pronouncements

The FASB has issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" and SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets". SFAS No. 143
addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It requires that the fair
value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount
of the long-lived asset. SFAS No. 143 was adopted by the Company
in fiscal 2004 and did not have a material effect on the
Company's financial position and results of operations. SFAS No.
144 supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of"
and amends Accounting Principles Bulletin (APB) No. 30 "Reporting
the Results of Operations-Discontinued Events and Extraordinary
Items". Along with establishing a single accounting model, based
on the framework established in SFAS No. 121, for long-lived
assets to be disposed of by sale, this standard retains the basic
provisions of APB No. 30 for the presentation of discontinued
operations in the income statement but broadens that presentation
to include a component of an entity. SFAS No. 144 is effective
for fiscal 2003. The effect of the adoption of SFAS No. 144 on
management's plan to discontinue the operations of MAS is
reflected in the Company's consolidated statements of financial
position and results of operations and is detailed in Note 10
Discontinued Operations.

In November 2002, the FASB issued FASB Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others". This Interpretation elaborates on the disclosures to be
made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it
has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the
guarantee. The disclosure requirements of this Interpretation
are currently effective and did not affect the Company's
financial position and results of operations. The initial
recognition and initial measurement provisions of this
Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002. The
Company has evaluated all of its guarantees under the provisions
of FIN 45 and does not believe the effect of its adoption on its
financial position and results of operations will be material.

The Company warranties its ground equipment products for up
to a two-year period from date of sale. 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. As of March 31, 2004 the Company's warranty
reserve amounted to $147,000.

Product warranty reserve activity during fiscal 2004 and
fiscal 2003 is as follows:

Balance at 3/31/02 $119,000
Additions to reserve 199,000
Use of reserve (202,000)
Balance at 3/31/03 116,000
Additions to reserve 217,000
Use of reserve (186,000)
Balance at 3/31/04 $147,000

In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure". This
Statement amends FASB Statement No. 123, "Accounting for Stock-
Based Compensation", to provide alternative methods of transition
for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition,
this Statement amends the disclosure requirements of Statement
123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-
based employee compensation and the effect of the method used on
reported results. Because the Company has elected to continue to
account for its stock-based compensation under the provisions of
Accounting Principles bulletin No. 25, SFAS No. 148 has no impact
on the Company's consolidated statement of operations for 2004.
However, the disclosure provisions of SFAS No. 148 are reflected
in the accompanying notes to the Company's consolidated financial
statements.
In January 2003, the FASB issued FIN 46 "Consolidation of
Variable Interest Entities" which requires the primary
beneficiary of a variable interest entity's activities to
consolidate the variable interest entity. In December 2003, the
FASB issued FIN 46 (Revised December 2003) (FIN 46R),
"Consolidation of Variable Interest Entities - An Interpretation
of ARB No. 51," which supercedes and amends certain provisions of
FIN 46. While FIN 46R retains many of the concepts and provisions
of FIN 46, it also provides additional guidance related to the
application of FIN 46 and certain additional scope exceptions,
and incorporates several FASB Staff Positions issued related to
the application of FIN 46. The provisions of FIN 46 are
immediately applicable to variable interest entities created, or
interests in variable interest entities obtained, after January
31, 2003 and the provisions of FIN 46R are required to be applied
to such entities, except for special purpose entities, by the end
of the first reporting period ending after March 15, 2004 (March
31, 2004 for the Company). For variable interest entities
created, or interests in variable interest entities obtained, on
or before January 31, 2003, FIN 46 or FIN 46R was required to be
applied to special-purpose entities by the end of the first
reporting period ending after December 15, 2003 (December 31,
2003 for the Company), and was required to be applied to all
other non-special purpose entities by the end of the first
reporting period ending after March 15, 2004 (March 31, 2004 for
the Company). Adoption of FIN 46 did not have an impact on the
Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity". SFAS No. 150 is effective for the
Company July 1, 2003, although the FASB has recently proposed
that implementation of certain provisions of SFAS No. 150 be
postponed indefinitely. The Company has determined that the
adoption of SFAS No. 150 did not have an impact on the
financial position or results of operations.

Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.

Quantitative and Qualitative Disclosures About Market Risk is
included in Item 7.

Item 8. Financial Statements and Supplementary Data.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Air T, Inc.
Maiden, North Carolina

We have audited the accompanying consolidated balance sheets of
Air T, Inc. and subsidiaries (the "Company") as of March 31, 2004
and 2003, and the related consolidated statements of operations,
stockholders' equity and comprehensive income (loss), and cash
flows for each of the three years in the period ended March 31,
2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of March 31, 2004 and 2003, and the results of its
operations and its cash flows for each of the three years in the
period ended March 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Deloitte & Touche LLP
Charlotte, North Carolina
June 21, 2004

AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

AIR T, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(CONTINUED)

AIR T, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

AIR T, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND
OTHER COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

See notes to consolidated financial statements.

AIR T, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2004, 2003, AND 2002

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principal Business Activities - Air T, Inc. (the Company),
through its operating subsidiaries, is an air cargo carrier
specializing in the overnight delivery of small package air
freight and a manufacturer of aircraft ground service
equipment. In the fourth quarter of fiscal 2003, management
committed to a plan to discontinue the operations of the
aviation services sector of its business. The Company
finalized the sale of certain assets of this business and
discontinued its aviation services operations in fiscal
2004. See Note 10 "Discontinued Operations".

Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and its
wholly-owned subsidiaries, Mountain Air Cargo, Inc., CSA
Air, Inc., MAC Aviation Services, LLC (MACAS), formerly
known as Mountain Aircraft Services, LLC (MAS) and Global
Ground Support, LLC (Global). All significant intercompany
transactions and balances have been eliminated.

Concentration of Credit Risk - The Company's potential
exposure to concentrations of credit risk consists of trade
accounts and notes receivable. Accounts receivable are
normally due within 30 days and the Company performs
periodic credit evaluations of its customers' financial
condition. Notes receivable payments are normally due
monthly.

Substantially all of the Company's customers are
concentrated in the aviation industry and revenue 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 customer. The Company has customer
concentrations in two areas of operations, air cargo which
provides service to one major customer and ground support
equipment which provides equipment and services to
approximately 90 customers, one of which is considered a
major customer. The loss of a major customer would have a
material impact on the Company's results of operations. See
Note 11. "Revenues From Major Customer".

Cash Equivalents - Cash equivalents consist of liquid
investments with maturities of three months or less when
purchased.

Marketable Securities - Marketable securities consists
primarily of investments in mutual funds and preferred
stocks. The Company has classified marketable securities as
available-for-sale and they are carried at fair value in the
accompanying consolidated balance sheets. Unrealized gains
and losses on such securities are excluded from earnings and
reported as a separate component of accumulated other
comprehensive income (loss) until realized. Realized gains
and losses on marketable securities are determined by
calculating the difference between the basis of each
specifically identified marketable security sold and its
sales price.

Inventories - Inventories related to the Company's
manufacturing operations are carried at the lower of cost
(first in, first out) or market. Aviation parts and
supplies inventories are carried at the lower of average
cost or market. Consistent with industry practice, the
Company includes 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. Rotables inventory
represents 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 shorter of the asset's service life or
related lease term, as follows:

Flight equipment and intellectual property 7 years
Other equipment and furniture 3 to 7 years

Revenue Recognition - Cargo revenue is recognized upon
completion of contract terms and maintenance revenue is
recognized when the service has been performed. Revenue
from product sales is recognized when contract terms are
completed and title has passed to customers. Revenues from
overhaul contracts on customer owned parts and long term
fixed price construction projects are recognized on the
percentage-of-completion method, in accordance with AICPA
Statement of Position No. 81-1, "Accounting for Performance
of Construction Type and Certain Production Type Contracts".
Revenues for contracts under percentage of completion are
measured by the percentage of cost incurred to date to
estimated total cost for each contract or workorder.
Contract costs include all direct material and labor costs
and overhead costs related to contract performance.
Unanticipated changes in job performance, job conditions and
estimated profitability may result in revisions to costs and
income, and are recognized in the period in which the
revisions are determined. Such contracts generally have a
customer retainage provision. Except for a construction
contract at Global, which is billed on a progress billing
basis, the Company generally bills its customer at the time
of completion of the contract or workorder.

Operating Expenses Reimbursed by Customer - The Company,
under the terms of its air cargo dry-lease service
contracts, passes through to its major customer certain cost
components of its operations without markup. The cost of
flight crews, fuel, landing fees, outside maintenance 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 operations.

Stock Based Compensation - The Company measures employee
stock compensation plans using the intrinsic value method
with pro-forma disclosure of net earnings and earnings per
share determined as if the fair value based method had been
applied in measuring compensation cost.

As the Company uses the intrinsic value method, and all
stock-based compensation has an exercise price equal to the
market price at the date of grant, no compensation cost has
been included in the accompanying financial statements. The
following table sets forth compensation costs net of taxes,
and proforma net income (loss) if compensation cost for the
Company's stock-based compensation awards had been recorded
at the grant dates based on the fair market value method
described in FASB Statement No. 123, "Accounting for Stock-
Based Compensation":

Stock based compensation 2004 2003 2002
Net income as reported $ 1,738,000 (1,224,000) 1,278,000
Compensation costs, net of taxes $ - - 46,000
Proforma net income $ 1,738,000 (1,224,000) 1,232,000
Proforma net income per diluted share $ 0.64 (0.45) 0.44

Financial Instruments - The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents,
accounts receivable, notes receivable, accrued expenses, and
long-term debt approximate their fair value at March 31,
2004 and 2003 because of their relatively short maturity or
their variable interest nature.

Income Taxes - Deferred income taxes are provided for
temporary differences between the tax and financial
accounting bases of assets and liabilities using the asset
and liability method. Deferred income taxes are recognized
for the tax consequence of such temporary differences at the
enacted tax rate expected to be in effect when the
differences reverse.

Accounting Estimates - The preparation of consolidated
financial statements in conformity with accounting
principles generally accepted in the United States requires
management to make estimates and assumptions that affect the
amounts reported and disclosed. Actual results could differ
from those estimates. Significant estimates include the
allowance for doubtful accounts, inventory reserves,
intangible pension asset, deferred retirement obligations,
revenue recognized under the percentage of completion method
and valuation of long-lived assets.

Derivative Financial Instruments -As required by SFAS No.
133, "Accounting for Derivative Instruments and Hedging
Activities", the Company recognizes all derivatives as
either assets or liabilities in the consolidated balance
sheets and measures those instruments at fair value.

The Company is exposed to market risk, such as changes in
interest rates. To manage the volatility relating to
interest rate risk, the Company may enter into interest rate
hedging arrangements from time to time. The Company does
not utilize derivative financial instruments for trading or
speculative purposes.

Recent Accounting Pronouncements - The FASB has issued SFAS
No. 143, "Accounting for Asset Retirement Obligations" and
SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-lived Assets". SFAS No. 143 addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. It requires that the fair value of
a liability for an asset retirement obligation be recognized
in the period in which it is incurred if a reasonable
estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying
amount of the long-lived asset. SFAS No. 143 was adopted by
the Company in fiscal 2004 and did not have a material
effect on the Company's financial position and results of
operations.

SFAS No. 144 supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" and amends Accounting Principles Bulletin
(APB) No. 30 "Reporting the Results of Operations-
Discontinued Events and Extraordinary Items". Along with
establishing a single accounting model, based on the
framework established in SFAS No. 121, for long-lived assets
to be disposed of by sale, this standard retains the basic
provisions of APB No. 30 for the presentation of
discontinued operations in the income statement but broadens
that presentation to include a component of an entity. SFAS
No. 144 is effective for fiscal 2003. The effect of the
adoption of SFAS No. 144 on management's plan to discontinue
the operations of MAS is reflected in the Company's
consolidated statements of financial position and results of
operations and is detailed in Note 10 Discontinued
Operations.

In November 2002, the FASB issued FASB Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others". This Interpretation elaborates on the disclosures
to be made by a guarantor in its interim and annual
financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The disclosure
requirements of this Interpretation are currently effective
and did not affect the Company's financial position and
results of operations. The initial recognition and initial
measurement provisions of this Interpretation are applicable
on a prospective basis to guarantees issued or modified
after December 31, 2002. The Company has evaluated all of
its guarantees under the provisions of FIN 45 and does not
believe the effect of its adoption on its financial position
and results of operations was not material.

The Company warranties its ground equipment products for up
to a two-year period from date of sale. 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. As of March 31, 2004 the
Company's warranty reserve amounted to $147,000.

Product warranty reserve activity during fiscal 2004 and
fiscal 2003 is as follows:

Balance at 3/31/02 $119,000
Additions to reserve 199,000
Use of reserve (202,000)
Balance at 3/31/03 116,000
Additions to reserve 217,000
Use of reserve (186,000)
Balance at 3/31/04 $147,000

In December 2002, the FASB issued SFAS No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure".
This Statement amends FASB Statement No. 123, "Accounting
for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the
disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. Because the Company has elected to
continue to account for its stock-based compensation under
the provisions of Accounting Principles bulletin No. 25,
SFAS No. 148 has no impact on the Company's consolidated
statement of operations for 2004. However, the disclosure
provisions of SFAS No. 148 are reflected in the accompanying
notes to the Company's consolidated financial statements.

In January 2003, the FASB issued FIN 46 "Consolidation of
Variable Interest Entities" which requires the primary
beneficiary of a variable interest entity's activities to
consolidate the variable interest entity. In December 2003,
the FASB issued FIN 46 (Revised December 2003) (FIN 46R),
"Consolidation of Variable Interest Entities - An
Interpretation of ARB No. 51," which supercedes and amends
certain provisions of FIN 46. While FIN 46R retains many of
the concepts and provisions of FIN 46, it also provides
additional guidance related to the application of FIN 46 and
certain additional scope exceptions, and incorporates
several FASB Staff Positions issued related to the
application of FIN 46. The provisions of FIN 46 are
immediately applicable to variable interest entities
created, or interests in variable interest entities
obtained, after January 31, 2003 and the provisions of FIN
46R are required to be applied to such entities, except for
special purpose entities, by the end of the first reporting
period ending after March 15, 2004 (March 31, 2004 for the
Company). For variable interest entities created, or
interests in variable interest entities obtained, on or
before January 31, 2003, FIN 46 or FIN 46R was required to
be applied to special-purpose entities by the end of the
first reporting period ending after December 15, 2003
(December 31, 2003 for the Company), and was required to be
applied to all other non-special purpose entities by the end
of the first reporting period ending after March 15, 2004
(March 31, 2004 for the Company). Adoption of FIN 46 did not
have an impact on the Company's consolidated financial
statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity". SFAS No. 150 is effective for the
Company July 1, 2003, although the FASB has recently
proposed that implementation of certain provisions of SFAS
No. 150 be postponed indefinitely. The Company has
determined that the adoption of SFAS No. 150 will not have
an impact on the financial position or results of
operations.

Reclassifications - Certain reclassifications have been made
to fiscal 2003 and 2002 amounts to conform to the current
year presentation.

2. MARKETABLE SECURITIES

Marketable securities consist of the following investment
types:
Fair value at
March 31,

2004 2003

Preferred Stocks $ $ 313,600
Mutual Funds 849,018 743,442

Total $ 849,018 $ 1,057,042

The Company did not realize any gains or losses on sales of
marketable securities in fiscal 2004, 2003 or 2002.
Unrealized gains reflected in other comprehensive income
totaled $159,000, $74,000 and $120,000 in fiscal 2004, 2003
and 2002. As of March 31, 2004 $119,000 in unrealized gains
and an unrealized loss of $40,000 for 2003 are included in
accumulated other comprehensive income (loss).

An other-than-temporary impairment charge of $161,000 was
recorded in the consolidated statement of operations in the
year ended March, 31, 2003.

3. INVENTORIES

Inventories consist of the following:
March 31,

2004 2003

Aircraft parts and supplies $ 1,892,916 $ 2,088,315
Aircraft equipment manufacturing:
Raw materials 3,508,363 2,595,448
Work in process 1,563,259 745,409
Finished goods 920,149 1,940,077

Total Inventory 7,884,687 7,369,249
Reserves (1,424,615) (1,093,961)

Total, net of reserves $ 6,460,072 $ 6,275,288

4. UNCOMPLETED CONTRACTS

Construction and overhaul contracts in process accounted for
under the percentage of completion method are summarized as
follows:
March 31,

2004 2003

Costs incurred and estimated earnings
on uncompleted contracts $ 2,860,483 $ 803,605
Less billings to date 2,940,612 1,564,584

Billings in excess of costs
and estimated earnings $ (80,129) $ (760,979)

5. ACCRUED EXPENSES

Accrued expenses consist of the following:
March 31,

2004 2003

Salaries, wages and
related items $ 1,040,224 $ 819,848
Profit Sharing 486,879 81,000
Health Insurance 266,905 305,834
Professional fees 204,236 223,922
Warranty reserves 147,287 116,000
54,678 144,737

Total $ 2,200,209 $ 1,691,341

6. FINANCING ARRANGEMENTS

On August 31, 2003 the Company amended its $7,000,000
secured bank financing line to extend its expiration date to
August 31, 2005.

The credit facility contains customary events of default, a
subjective clause and restrictive covenants that, among
other matters, require the Company to maintain certain
financial ratios. There is no requirement for the Company to
maintain a lock-box arrangement under this agreement. Under
the provisions of the revolving credit line, the sale of
certain assets of its aviation services business as
described in Note 10. would be considered an event of
default. The Company has obtained a waiver for this
covenant. As of March 31, 2004, the Company was in
compliance with all of the restrictive covenants.

The amount of credit available to the Company under the
agreement at any given time is determined by an availability
calculation, based on the eligible borrowing base, as
defined in the credit agreement, which includes the
Company's outstanding receivables, inventories and
equipment, with certain exclusions. The credit facility is
secured by substantially all of the Company's assets.

Amounts advanced under the credit facility bear interest at
the 30-day "LIBOR" rate plus 137 basis points. The LIBOR
rate at March 31, 2004 was 1.11%. At March 31, 2004 and
2003, the amounts outstanding against the line were $132,000
and $2,217,000, respectively. At March 31, 2004, an
additional $3,175,000 was available under the terms of the
credit facility.

The Company has classified the $132,000 outstanding balance
on its credit line as of March 31, 2004 as long-term to
reflect the terms included under the amendment signed on
August 31, 2003.

7. LEASE COMMITMENTS

The Company has operating lease commitments for office
equipment and its office and maintenance facilities, as well
as capital leases for certain office and other equipment.
The Company leases its corporate offices from a company
controlled by certain Company officers for $11,255 per month
under two five-year leases which expire in May 2006.

In August 1996, the Company relocated certain portions of
its maintenance operations to a new maintenance facility
located at the Global TransPark in Kinston, N. C. Under the
terms of the long-term facility lease, after an 18 month
grace period (from date of occupancy), rent will escalate
from $2.25 per square foot to $5.90 per square foot, per
year, over the 21.5 year life of the lease. However, based
on the occurrence of certain events related to the
composition of aircraft fleet, the lease may be canceled by
the Company. The Company currently considers the lease to
be non-cancelable for eight and one-half years and has
calculated rent expense on a straight-line basis over this
portion of the lease term.

In August 1997 Global, located in Olathe, Kansas, leased
approximately 57,000 square feet of manufacturing space for
$17,030 per month, under a two-year operating lease. In
September 1998, the lease was expanded to 112,500 square
feet of manufacturing and office space for $35,903 per month
and the term extended to August 2001. In April 2001 the
lease was renewed through August 2006; monthly rental will
increase over the life of the lease, based on increases in
the Consumer Price Index.

At March 31, 2004, future minimum annual lease payments
under capital and non-cancellable operating leases with
initial or remaining terms of more than one year are as
follows:

Capital Operating
Leases Leases

2005 $ 37,547 $ 705,476
2006 26,318 710,632
2007 13,203 386,399
2008 13,203 216,699
2009 6,602 261,147

Total minimum lease payments 96,873 $ 2,280,353
Less amount representing interest 13,728

Present value of lease payments 83,145
Less current maturities 30,486

Long-term maturities $ 52,659

Rent expense for operating leases totaled approximately
$704,000, $713,000, and $759,000 for fiscal 2004, 2003 and
2002, respectively, and includes amounts to related parties
of $132,260 in fiscal 2004 and $109,860 in fiscal 2003 and
2002.

8. DERIVATIVE FINANCIAL INSTRUMENTS

In May 2001, the Company entered into two interest-rate
swaps with notional amounts of $2.4 million, and $2 million
respectively. These agreements were originally entered into
at respective interest rates of 6.97% and 6.5%. On July 31,
2002 the Company elected to unwind its $2,000,000 (6.5%)
revolving credit line swap in consideration for $58,750, the
fair-market-value termination fee as of that date. On
October 30, 2003, the Company terminated its remaining<