8.	Acquisition of Management Company

In October 2017, AeroCentury, JHC and certain other parties entered into the Merger Agreement for the acquisition of JHC by AeroCentury for consideration of approximately $2.9 million in cash and 129,217 shares of common stock of AeroCentury, as determined pursuant to the Merger Agreement. JHC is the sole shareholder of JMC, which is the manager of the Company’s assets as described in Note 13 below. The Merger was consummated on October 1, 2018. AeroCentury’s common stock issued as consideration in the Merger was offered and sold pursuant to an exemption from registration under Section 3(a)(10) of the Securities Act of 1933, as the California Department of Business Oversight (the “DBO”) had issued a permit for the issuance of such securities to JHC’s shareholders on February 22, 2018 after a fairness hearing before the DBO.

As a subsidiary of the Company, JHC’s results are included in the Company’s consolidated financial statements beginning on October 1, 2018. In April 2018, subsequent to the execution of the Merger Agreement for the acquisition of JHC, which was signed in October 2017, the Company, JHC and JMC entered into a waiver and reimbursement agreement (the “Waiver/Reimbursement Agreement”), pursuant to which JHC and JMC agreed to waive their right to receive management and acquisition fees (“Contract Fees”) otherwise owed by the Company to JMC pursuant to the Management Agreement for all periods after March 31, 2018 and until the consummation of the Merger, and in return, the Company agreed to reimburse JMC for expenses incurred in providing management services set forth under the Management Agreement. As a result of the Waiver/Reimbursement Agreement, the Company became responsible for all expenses incurred by JMC in managing the Company as of April 1, 2018, including employee salaries, office rent and all other general and administrative expenses. As a result of the Merger, the Company assumed all of JHC’s assets, comprised primarily of securities, prepaid expenses and an office lease, as well as liabilities of approximately $0.9 million.

During the years ended December 31, 2018 and 2017, the Company accrued $485,000 and $619,400, respectively, of expenses related to the Merger transaction. Such expenses are included in professional fees, general and administrative and other in the Company’s consolidated statements of operations.

During the fourth quarter of 2018, the Company also recorded a settlement loss of $2,527,000 related to the Merger. The settlement loss amount was estimated using an income approach. The Company assessed the contractual terms and conditions of the previous management agreement between the company and JMC (the “Management Agreement”) as compared to current market conditions and the historical and expected financial performance of the Company and JMC. Based on the analysis performed, the Company determined that the contractual payment terms were above market rates. The present value of the expected differential between payments previously required by the Management Agreement and those that would be required if the contract reflected current market terms was calculated over the Management Agreement contractual term. As the management fee previously paid by the Company was deemed to be above market and the settlement of this pre-existing relationship resulted in a loss, the loss was recognized in the consolidated statement of operations at the acquisition date and reduced the estimated purchase consideration transferred.

The Company did not recognize any goodwill on its acquisition of JHC because the only customer relationship JHC had was through its contract with the Company for management of the Company's assets, and the Comapny cannot recognize goodwill attributable to its relationship with itself.

The following table shows the allocation of the purchase price paid by the Company for its acquisition of JHC, the assets and liabilities that were assumed as a result of the Merger and calculation of the settlement loss.

Consideration paid in the merger:
Cash consideration	$	2,915,000
ACY stock consideration		2,003,000
		4,918,000

Fair value of assets acquired/(liabilities assumed):
Cash		40,000
Securities		121,000
Accounts & note receivable		28,000
Prepaid expenses		157,000
Property, equipment and furnishings		79,000
Office leasehold		925,000
Accounts payable		(85,000	)
Accrued vacation		(93,000	)
Taxes payable		(722,000	)
Deferred taxes		(138,000	)
		312,000

Excess of consideration paid over net assets acquired		4,606,000

Waiver of JMC Margin payable		(1,517,000	)
Settlement of payable to JMC		(562,000	)
Settlement Loss on Management Agreement with JMC	$	2,527,000