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BUSINESS COMBINATION
 12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
BUSINESS COMBINATION

2.BUSINESS COMBINATION

 

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 recorded the estimated fair value of the 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 was to be released after the completion of the working capital adjustment and for the indemnification contingencies. The working capital adjustment is based on the historical values of components of working capital as defined in the SPA. The Company calculated a post-closing working capital adjustment. Air Industries formally objected to the calculation. The SPA provided the parties 30 days to come to an agreement on the working capital adjustment. The Company and Air Industries could not come to an agreement within the time specified and the issues were submitted to BDO USA, LLP (“BDO”) for a binding resolution. During the course of BDO’s work, Air Industries conceded on three of the four items of contention, leaving only the inventory valuation in dispute. In its report dated September 3, 2019, BDO found in favor of the Company that there should be no changes to the Closing Working Capital Statement as prepared by the Company. The result of the conceded items and BDO determination would decrease the purchase price of the acquisition by approximately $4.1 million. On September 16, 2019, the Company received a letter from Air Industries acknowledging the conceded items and, among other things, rejecting the determination by BDO. On September 27, 2019, the Company filed a notice of motion in the Supreme Court of the State of New York, County of New York, against Air Industries seeking, among other things, an order of specific performance requiring Air Industries to comply with its obligations under the SPA and Escrow Agreement and a judgment against Air Industries in the amount of approximately $4.1 million.

 

In October 2019, Air Industries and the Company jointly authorized the release of approximately $619,000 from escrow, which represents the value of the conceded items. The remaining escrowed amount of approximately $1,381,000 is shown as restricted cash on the consolidated balance sheet as of December 31, 2019. The additional disputed amount of approximately $2.1 million is not recorded on the Company’s balance sheet due to the uncertainty of collection.

 

In the fourth quarter of 2019, the Company recorded adjustments to the provisional estimates of the fair value of the assets acquired and liabilities assumed from WMI based on the BDO determination. Due to new information discovered during the measurement period adjustments were made to the current period. The Company has determined the fair values of the assets and liabilities acquired and has recorded the fair value of the assets acquired as of December 20, 2018, assuming only the collection of the remaining amount escrowed. Collection of the additional $2.1 million is uncertain.

 

The following table provides the allocation of the total purchase price of $5.9 million ($7.9 million less $2 million collected and to be collected from escrow) to the identifiable tangible and intangible assets and liabilities of WMI based on their respective fair values. The remaining useful lives represent the period over which acquired tangible and intangible assets with a finite life are being depreciated or amortized.

 

   Fair Values   Estimated Useful Lives 
Other current assets  $1,250,523    — 
Accounts receivable   1,670,931    — 
Inventory   4,726,110    — 
Property plant & equipment   901,000    5 to 7 Years 
Current liabilities   (4,932,818)   — 
Intangible   500,000    4 Years 
Goodwill   1,784,254    — 
Total  $5,900,000      

 

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, 2018:  

 

  

Year Ended December 31, 2018

Restated

 
Revenue  $84,217,706 
Net loss  $(6,567,859)

 

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