BUSINESS COMBINATIONS

3 Months Ended

Mar. 31, 2019

Business Combinations [Abstract]

Business Combinations

2.       Business Combinations

As discussed in Note 1, the Company acquired WMI and Compac from Air Industries Group (“Air Industries”) on December 20, 2018. The WMI Acquisition was accounted for as a business combination in accordance with ASC 805. Accordingly, the Company is required to determine and record the estimated 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 was subject to a post-closing working capital adjustment. $2 million dollars of the purchase price was placed in escrow at closing and may be released after the completion of the working capital adjustment and for the indemnification contingencies. The escrowed amount is shown as restricted cash on the consolidated balance sheet as of March 31, 2019. The working capital adjustment is based on the historical values of components of working capital as defined in the Stock Purchase Agreement (“SPA”). We calculated a post-closing working capital adjustment. Air Industries formally objected to our calculation. The SPA provided the parties 30 days to come to an agreement on the working capital adjustment, required that any areas of disagreement exceeding the 30 days must be submitted for a binding resolution to BDO USA, LLP (“BDO”) and provided that BDO would have a period of 30 days to resolve the disputes and determine the final working capital adjustment.

As of March 31, 2019, the Company was in process of determining the fair values of the assets and liabilities acquired and had 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, as of March 31, 2019, the Company determined the following provisional estimates of the fair value of the assets acquired and liabilities assumed from WMI:

	Provisional  Fair Values
Other current assets	$	1,049,000
Accounts receivable		1,522,000
Inventory		7,969,000
Property and equipment, net		586,000
Current liabilities		(5,174,000	)
Total	$	5,952,000

Please see Note 14, “Subsequent Events” for additional discussion and final fair value of assets and liabilities assumed from WMI and the working capital dispute between CPI and Air Industries.

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, 2018, based on the provisional estimates of the fair value of the net assets acquired:

	March 31, 2018 (restated)
Revenue	$	17,532,728
Net Loss	$	(1,859,365	)