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BUSINESS COMBINATIONS

12 Months Ended

Dec. 31, 2018

2.	BUSINESS COMBINATIONS

As discussed in Note 1, the Company completed the WMI Acquisition on December 20, 2018. The acquisition was accounted for as a business combination in accordance with ASC Topic 805. Accordingly, the Company is required to determine and record the fair value of the assets acquired, including any potential intangible assets, and liabilities assumed at the date of acquisition. The acquisition was considered a stock purchase for tax purposes.

The purchase price for the acquisition was $7.9 million, which is subject to a post-closing working capital adjustment. As such, $2 million of the purchase price was held in escrow at closing subject to the completion of the working capital adjustment and in the event of other contingencies. The escrowed amount is shown as restricted cash on the consolidated balance sheet as of December 31, 2018. The working capital adjustment is based on the historical values of components of working capital as defined in the Agreement. Based on the working capital statement prepared by the Company and delivered to Air Industries on March 20, 2019, the Company has concluded that it is more likely than not, that the purchase price will be reduced sufficiently such that at a minimum, the full amount in escrow will be retained by the Company. The final working capital statement presented to Air Industries is expected to be reviewed and the purchase price adjustment finalized not later than the third quarter of 2019.

The Company is in process of determining the acquisition date fair values of the assets and liabilities acquired and has recorded provisional estimates as of the acquisition date. As the Company completes this process and additional information becomes known concerning the acquired assets and assumed liabilities, management will likely make adjustments to the fair value of the amounts provisionally recorded in the opening balance sheet of WMI during the measurement period, which is no longer than a one-year period following the acquisition date. The determination of the fair values of the acquired assets and liabilities assumed (and the related determination of estimated lives of depreciable tangible and identifiable intangible assets) requires significant judgment. If the final aggregate fair value of the net assets acquired is less than the final purchase price paid then the Company may be required to record goodwill. Conversely, if the final aggregate fair value of the net assets acquired is in excess of the final purchase price paid then the Company may potentially conclude that the purchase of WMI was a “bargain purchase.”

As stated above, the Company has determined the following provisional estimates of the fair value of the assets acquired and liabilities assumed from WMI:

	Provisional Fair Values
Other current assets	$	1,274,000
Accounts receivable		1,522,000
Inventory		7,969,000
Current liabilities		4,813,000
Total	$	5,952,000

The following table presents the unaudited pro forma revenue and net income for the period presented as if the WMI Acquisition had occurred on January 1, 2017 based on the provisional estimates of the fair value of the net assets acquired:

	Year Ended December 31,
	2018		2017
Revenue	$	97,780,960	$	94,412,148
Net income (loss)	$	3,190,457	$	(1,330,366)

The pro forma results presented above include the impact of eliminating parent company charges from Air Industries for general expenses and interest, net of tax.