UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 1, 2018
Hickok Incorporated
(Exact Name of Registrant as Specified in Charter)
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Ohio |
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000-00147 |
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34-0288470 |
(State or Other Jurisdiction of Incorporation) |
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(Commission File Number) |
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(IRS Employer Identification No.) |
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10514 Dupont Avenue Cleveland, Ohio |
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44108 |
(Address of Principal Executive Offices) |
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(Zip Code) |
(216) 541-8060
(Registrant’s telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Explanatory Note
As previously reported, effective July 1, 2018, Hickok Incorporated, an Ohio corporation (the “Company”), completed the acquisition of all of the issued and outstanding shares of capital stock of CAD Enterprises, Inc., an Arizona corporation, pursuant to a Share Purchase Agreement entered into as of July 5, 2018 by and among the Company, the sellers named therein and the Sellers’ representative named therein.
This Form 8-K/A is being filed by the Company to amend the Current Report on Form 8-K filed on July 6, 2018 (the “Original Report”) solely to include the financial statements and pro forma financial information required by Items 9.01(a) and 9.01(b) of Form 8-K and should be read in conjunction with the Original Report. Except as provided herein, the disclosures made in the Original Report remain unchanged.
Item 9.01. Financial Statements and Exhibits.
(a) |
Financial statements of businesses acquired. |
The audited balance sheets of CAD Enterprises, Inc. as of March 31, 2018 and 2017, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements are included as Exhibit 99.1 to this Form 8-K/A and incorporated herein by reference.
(b) |
Pro forma financial information. |
The unaudited pro forma condensed combined financial statements of Hickok Incorporated giving effect to the acquisition of CAD Enterprises, Inc. are included as Exhibit 99.2 to this Form 8-K/A.
(d) | Exhibits. |
Exhibit No. |
Description of Exhibit |
23 |
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99.1 |
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99.2 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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HICKOK INCORPORATED |
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Date: September 13, 2018 |
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/s/ Kelly J. Marek |
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Name: Kelly J. Marek |
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Its: Vice President and Chief Financial Officer |
Exhibit Index
Exhibit No. |
Description of Exhibit |
23 |
Consent of Meaden & Moore, Ltd. |
99.1 |
Audited balance sheets of CAD Enterprises, Inc. as of March 31, 2018 and 2017, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements. |
99.2 |
Unaudited pro forma condensed combined financial statements of Hickok Incorporated for the period ended June 30, 2018. |
4
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-63597, 333-62400, 333-125672, 33-68196 and 333-215433) of Hickok Incorporated of our report dated September 10, 2018, relating to the balance sheets as of March 31, 2018 and 2017, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements of CAD Enterprises, Inc., which appears in the Current Report on Form 8-K of Hickok Incorporated dated July 6, 2018, as amended.
/s/ MEADEN & MOORE, LTD
Cleveland, Ohio
September 13, 2018
Exhibit 99.1
CAD ENTERPRISES, INC.
FINANCIAL STATEMENTS
WITH
INDEPENDENT AUDITOR’S REPORT
For the Years Ended March 31, 2018 and 2017
INDEX
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Page |
Independent Auditor’s Report |
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Balance Sheet |
2 - 3 |
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Statement of Income |
4 |
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Statement of Comprehensive Income |
5 |
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Statement of Stockholders’ Equity |
6 |
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Statement of Cash Flows |
7 |
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Notes to Financial Statements |
8 - 19 |
INDEPENDENT AUDITOR’S REPORT
To the Management of Hickok, Inc.
Cleveland, Ohio
We have audited the accompanying financial statements of CAD Enterprises, Inc., which comprise the balance sheets as of March 31, 2018 and 2017, and the related statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.
Management's Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CAD Enterprises, Inc. as of March 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
MEADEN & MOORE, LTD.
Cleveland, Ohio
September 10, 2018
BALANCE SHEET |
CAD Enterprises, Inc. |
March 31 |
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2018 |
2017 |
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ASSETS |
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CURRENT ASSETS: |
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Cash |
$ | 1,282,308 | $ | 1,509,785 | ||||
Trade receivables |
1,897,086 | 2,479,240 | ||||||
Inventories |
2,262,198 | 1,607,539 | ||||||
Due from officers |
4,887 | 4,152 | ||||||
Prepaid pension |
- | 238,622 | ||||||
Prepaid expense |
45,204 | 131,440 | ||||||
Total Current Assets |
5,491,683 | 5,970,778 | ||||||
PROPERTY AND EQUIPMENT - AT COST: |
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Machinery and equipment |
15,310,089 | 15,141,718 | ||||||
Furniture and fixtures |
84,817 | 84,817 | ||||||
Automotive equipment |
119,438 | 159,293 | ||||||
Leasehold improvements |
174,282 | 174,282 | ||||||
Total Property and Equipment |
15,688,626 | 15,560,110 | ||||||
Less: Accumulated depreciation |
(10,744,597 | ) | (9,734,591 | ) | ||||
Net Property and Equipment |
4,944,029 | 5,825,519 | ||||||
OTHER ASSETS: |
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Deposits |
25,263 | 25,263 | ||||||
Total Assets |
$ | 10,460,975 | $ | 11,821,560 |
See accompanying notes.
March 31 |
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2018 |
2017 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
$ | 1,909,212 | $ | 1,651,768 | ||||
Accrued liabilities |
170,198 | 1,369,733 | ||||||
Current portion of deferred tax |
- | 43,237 | ||||||
Current maturities of related party debt |
134,059 | 144,292 | ||||||
Current maturities of long-term debt |
512,820 | 548,033 | ||||||
Total Current Liabilities |
2,726,289 | 3,757,063 | ||||||
LONG-TERM LIABILITIES: |
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Related party debt net of current portion |
74,903 | 311,719 | ||||||
Long-term debt net of current portion |
227,454 | 740,123 | ||||||
Deferred income taxes |
486,615 | 957,709 | ||||||
Total Long-Term Liabilities |
788,972 | 2,009,551 | ||||||
Total Liabilities |
3,515,261 | 5,766,614 | ||||||
STOCKHOLDERS' EQUITY: |
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Common stock, $1 par value, 1,000,000 shares authorized, 30,000 shares issued and outstanding |
30,000 | 30,000 | ||||||
Minimum pension liability adjustment (net of tax) |
- | (1,402,909 | ) | |||||
Retained earnings |
6,915,714 | 7,427,855 | ||||||
Total Stockholders' Equity |
6,945,714 | 6,054,946 | ||||||
Total Liabilities and Stockholders' Equity |
$ | 10,460,975 | $ | 11,821,560 |
STATEMENT OF INCOME |
CAD Enterprises, Inc. |
Year Ended March 31 |
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2018 |
2017 |
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Sales |
$ | 30,196,920 | $ | 33,550,252 | ||||
Cost of goods sold |
26,463,788 | 28,844,808 | ||||||
Gross profit |
3,733,132 | 4,705,444 | ||||||
Selling and administrative expenses |
2,670,058 | 3,946,387 | ||||||
Income from operations |
1,063,074 | 759,057 | ||||||
Other Income (Expense): |
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Interest expense |
(46,834 | ) | (53,138 | ) | ||||
Loss on disposal of equipment |
(4,650 | ) | (9,734 | ) | ||||
Interest income |
2,227 | 10,331 | ||||||
Cash balance plan termination |
(2,364,241 | ) | - | |||||
Other income |
- | 31,669 | ||||||
Other (Expense) - Net |
(2,413,498 | ) | (20,872 | ) | ||||
Income (Loss) before income taxes |
(1,350,424 | ) | 738,185 | |||||
(Provision for)/Recovery of income taxes |
1,025,783 | (243,006 | ) | |||||
Net Income (Loss) |
$ | (324,641 | ) | $ | 495,179 |
See accompanying notes.
STATEMENT OF COMPREHENSIVE INCOME |
CAD Enterprises, Inc. |
Year Ended March 31 |
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2018 |
2017 |
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Net Income (Loss) |
$ | (324,641 | ) | $ | 495,179 | |||
Other Comprehensive Income (Loss) - Net of Tax: |
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Minimum pension liability adjustment |
1,402,909 | (436,670 | ) | |||||
Comprehensive Income |
$ | 1,078,268 | $ | 58,509 |
See accompanying notes.
STATEMENT OF STOCKHOLDERS' EQUITY |
CAD Enterprises, Inc. |
Year Ended March 31, 2018 and 2017 |
Common |
Retained Earnings |
Minimum |
Total |
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Balance - April 1, 2016 |
$ | 30,000 | $ | 7,045,176 | $ | (966,239 | ) | $ | 6,108,937 | |||||||
Net income |
- | 495,179 | - | 495,179 | ||||||||||||
Minimum pension liability adjustment (net of tax) |
- | - | (436,670 | ) | (436,670 | ) | ||||||||||
Dividends declared and paid |
- | (112,500 | ) | - | (112,500 | ) | ||||||||||
Balance - March 31, 2017 |
30,000 | 7,427,855 | (1,402,909 | ) | 6,054,946 | |||||||||||
Net loss |
- | (324,641 | ) | - | (324,641 | ) | ||||||||||
Minimum pension liability adjustment (net of tax) |
- | - | 1,402,909 | 1,402,909 | ||||||||||||
Dividends declared and paid |
- | (187,500 | ) | - | (187,500 | ) | ||||||||||
Balance - March 31, 2018 |
$ | 30,000 | $ | 6,915,714 | $ | - | $ | 6,945,714 |
See accompanying notes.
STATEMENT OF CASH FLOWS |
CAD Enterprises, Inc. |
Year Ended March 31 |
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2018 |
2017 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net Income (Loss) |
$ | (324,641 | ) | $ | 495,179 | |||
Adjustments to reconcile Net Income (Net Loss) to Net Cash Provided by Operating Activities: |
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Depreciation |
1,039,899 | 1,069,363 | ||||||
Cash balance plan termination |
1,402,909 | - | ||||||
Change in deferred income taxes |
(514,331 | ) | 133,454 | |||||
Loss on disposal of equipment |
4,650 | 9,734 | ||||||
(Increase) Decrease in Assets: |
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Trade receivables |
582,154 | (446,531 | ) | |||||
Inventories |
(654,659 | ) | (431,302 | ) | ||||
Prepaid benefit cost |
238,622 | (31,624 | ) | |||||
Prepaid expenses |
86,236 | (74,569 | ) | |||||
Other current assets and other assets |
- | 57,824 | ||||||
Increase (Decrease) in Liabilities: |
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Account payable |
257,444 | (184,213 | ) | |||||
Accrued liabilities |
(1,199,535 | ) | (217,288 | ) | ||||
Net Cash Provided by Operating Activities |
918,748 | 380,027 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of equipment |
(168,373 | ) | (1,387,594 | ) | ||||
Proceeds from sale of equipment |
5,314 | 8,500 | ||||||
Officer advances |
(735 | ) | (4,152 | ) | ||||
Net Cash Used in Investing Activities |
(163,794 | ) | (1,383,246 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payments on long-term debt |
(547,882 | ) | (738,661 | ) | ||||
Proceeds from long-term debt |
- | 1,207,100 | ||||||
Payments on related party notes |
(247,049 | ) | (467,841 | ) | ||||
Dividends paid |
(187,500 | ) | (112,500 | ) | ||||
Net Cash Used in Financing Activities |
(982,431 | ) | (111,902 | ) | ||||
Net Decrease in Cash |
(227,477 | ) | (1,115,121 | ) | ||||
Cash - Beginning of the Year |
1,509,785 | 2,624,906 | ||||||
Cash - End of the Year |
$ | 1,282,308 | $ | 1,509,785 | ||||
Supplemental Disclosure of Cash Flow Information: |
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Interest paid |
$ | 48,579 | $ | 53,138 | ||||
Income taxes paid |
$ | 137,000 | $ | 184,000 |
See accompanying notes.
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
1 |
Summary of Significant Accounting Policies |
Description of Business
The Company is incorporated in the State of Arizona and is engaged in the business of precision machining of aerospace and military hardware. The customers of the Company are primarily in North America.
Effective July 1, 2018, Hickok Incorporated, an Ohio corporation completed the acquisition of all of the issued and outstanding shares of capital stock of CAD Enterprises, Inc., pursuant to a Share Purchase Agreement entered into as of July 5, 2018. Upon closing of the transaction, the shares were transferred and assigned to Hickok Incorporated in consideration of the payment by Hickok Incorporated of an aggregate purchase price of $21 million.
Revenue Recognition
Revenue consists of sales of aerospace and military hardware. Revenue is recognized when goods are shipped to the customer.
Cash and Cash Equivalents
For the purposes of the Statement of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
At times during the year, the Company maintained funds on deposit at its banks in excess of FDIC insurance limits.
Accounts Receivable
Trade accounts receivable are stated at the amount management expects to collect. Management provides for uncollectible amounts based on its assessment of the current status of individual accounts. No allowance was deemed necessary for 2018 or 2017.
Inventories
Inventories consist of forgings, raw materials and supplies, parts in progress and finished parts. Inventory is stated at the lower of cost or market (2017) or lower of cost or net realizable value (2018) using the first-in, first-out (“FIFO”) method. Inventory for work in progress was calculated at March 31, 2018 and 2017 using management’s estimate of costs incurred for items in progress. Inventory is fully collateralized by a bank. Inventories consist of the following:
2018 |
2017 |
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Raw materials |
$ | 353,099 | $ | 282,640 | ||||
Finished goods |
882,604 | 179,478 | ||||||
Work in progress |
966,540 | 1,117,619 | ||||||
Tooling |
59,955 | 27,802 | ||||||
$ | 2,262,198 | $ | 1,607,539 |
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
1 |
Summary of Significant Accounting Policies, Continued |
Property and Equipment
Property and equipment are carried at cost. Expenditures for maintenance and repairs are charged to income as incurred. Additions and betterments are capitalized. The cost and related accumulated depreciation of properties sold or otherwise disposed of are removed from the accounts and any gain or loss is reflected in the current year’s earnings.
The Company provides for depreciation of property and equipment generally using straight-line and accelerated methods for both financial reporting and federal income tax purposes over the estimated useful lives of the assets as follows:
Class | Years | ||||
Leasehold improvements |
7 | - | 15 | ||
Machinery and equipment | 10 | ||||
Vehicles | 5 | ||||
Furniture and fixtures | 10 | ||||
Office equipment | 10 |
The property and equipment owned by the Company is fully collateralized by a bank. The total amount of depreciation expense charged to operations for March 31, 2018 and 2017 was $1,039,899 and $1,069,363, respectively.
Shipping and Handling Costs
The Company charges its customers shipping and handling fees at the time the products are shipped. The cost of shipping products to the customer is recognized at the time the products are shipped to the customer and is included in cost of sales.
Income Taxes
The provision for income taxes is computed on financial statement income. Where transactions are included in the determination of taxable income in a different year, deferred income tax accounting is used. See Note 11 for the details of deferred income taxes.
In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes which requires the deferred tax assets and liabilities be reported together as a single noncurrent item on the classified balance sheet. For financial reporting simplification purposes, the Company elected to early adopt ASU 2015-17 as of April 1, 2017 and applied it prospectively as allowed by the standard. Accordingly, the prior periods have not been retrospectively adjusted for the new standard.
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
1 |
Summary of Significant Accounting Policies, Continued |
Accounting for Uncertainty in Income Taxes
The provisions of "Accounting for Uncertainty in Income Taxes" prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties accrued related to unrecognized tax uncertainties in income tax expense, if any. The Company has determined that there are no material uncertain tax positions.
Freight Costs
It is the Company’s policy to classify freight costs as part of cost of goods sold in the Statement of Income. Total freight costs for the years ended March 31, 2018 and 2017 was $87,120 and $95,573, respectively.
Warranty Costs
Warranty costs are charged to operations when incurred. There were immaterial costs related to warranties for the period ended March 31, 2018 and 2017.
Research and Development
Research and development costs for new products or improvements of existing products are expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Fair Value Measurements
As defined in FASB ASC 820, Fair Value Measurements, fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. In determining fair value, the Company utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable firm inputs.
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
1 |
Summary of Significant Accounting Policies, Continued |
Fair Value Measurements, Continued
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the examination of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.
Level 2: Inputs to the valuation methodology include:
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Quoted prices for similar assets or liabilities in active markets; |
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Quoted prices for identical or similar assets or liabilities in inactive markets; |
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Inputs other than quoted prices that are observable for the asset or liability; |
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Inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
2 |
Major Customers |
The Company generated a significant portion of its income from one customer during the years ended March 31, 2018 and 2017. During 2018 and 2017, the Company reported revenues of $30,196,920 and $33,550,252 and receivables of $1,897,086 and $2,479,240. Of these amounts, $28,932,665 (95%) and $32,179,713 (96%) of revenues and $1,751,700 (92%) and $2,307,418 (93%) of receivables were from this major customer.
3 |
Due from Officers |
During the years ended March 31, 2018 and 2017, the Company advanced the officers $46,055 and $40,033, leaving a remaining balance due to the Company of $4,887 and $4,152. The amount was unsecured with interest accruing at 3.0%. In 2018 and 2017, respectively, $735 and $468 in interest was paid on the advance.
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
4 |
Revolving Line-of-Credit - Bank |
The Company has a $2,300,000 revolving line-of-credit agreement with a bank with interest payable monthly at 2.17% over the one month LIBOR index (3.856% at March 31, 2018). The line expired on August 19, 2018 and was secured by all of the Company’s receivables, inventory, business assets and a combined $3 million personal guarantee from the officers of the Company.
The line-of-credit agreement also contains requirements relating to maintenance of financial ratios, financial reporting requirements and additional information and conditions. At March 31, 2018, the Company was in compliance with all debt covenant requirements. The unused balance of the line-of-credit as of March 31, 2018 and 2017 was $2,300,000.
5 |
Revolving Line-of-Credit - Related Party |
The Company had a $1,000,000 revolving line-of-credit with Loudermilk Inc., an entity owned by the officers of the Company, with interest payable monthly at 4.0%. The line expired on August 1, 2017 and was unsecured. There were no outstanding balances or interest paid in 2018 or 2017.
6 |
Accrued Liabilities |
Accrued liabilities consist of the following:
2018 |
2017 |
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Accrued payroll and payroll taxes |
$ | 137,850 | $ | 150,872 | ||||
Accrued retirement plan contributions |
- | 1,187,326 | ||||||
Accrued property taxes |
30,866 | 28,308 | ||||||
Accrued interest |
1,482 | 3,227 | ||||||
Total Accrued Liabilities |
$ | 170,198 | $ | 1,369,733 |
7 |
Long-Term Debt |
2018 |
2017 |
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Long-term debt consists of the following: |
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Note payable dated July 2016, in the amount of $698,600, payable in 36 monthly installments of $20,386, which includes interest at 3.225%; secured by all the Company’s receivables, inventory, and business assets. |
$ | 318,057 | $ | 548,368 | ||||
Note payable dated January 2017, in the amount of $508,500, payable in 36 monthly installments of $14,994, which includes interest at 3.914%; secured by all the Company’s receivables, inventory, and business assets. |
317,757 | 481,695 |
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
7 |
Long-Term Debt, Continued |
2018 |
2017 |
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Note payable dated November 2015, in the amount of $456,168, payable in 36 monthly installments of $13,305, which includes interest at 3.15%; secured by all the Company’s receivables, inventory, and business assets. |
104,460 | 258,093 | ||||||
Total debt |
740,274 | 1,288,156 | ||||||
Less: Current maturities |
(512,820 | ) | (548,033 | ) | ||||
Total Long-Term Debt |
$ | 227,454 | $ | 740,123 |
Maturities of long-term debt are as follows:
Years Ending March 31 |
Amount |
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2019 |
$ | 512,820 | ||
2020 |
227,454 | |||
Total |
$ | 740,274 |
Subsequent to year-end, the loans were paid off pursuant to a stock sale agreement (see Note 1).
8 |
Notes Payable – Related Party |
In April 2014, the Company signed a promissory note with Loudermilk, Inc., a related party through common ownership, totaling $870,572. The loan is unsecured with a fixed interest rate of 3%. The loan is payable in 84 monthly installments of principal and interest of $11,500. The balance of the loan as of March 31, 2018 and 2017 was $208,962 and $438,301 and the total interest paid was $12,161 and $15,154, respectively.
In May 2015, the Company signed a promissory note with Loudermilk, Inc. totaling $204,930. The loan is unsecured with a fixed interest rate of 4%. The loan is payable in 24 monthly installments of principal and interest of $8,899. The balance of the loan as of March 31, 2017 was $17,710 and the total interest paid during the fiscal year was $2,971. The loan was paid in full as of March 31, 2018 and the total interest paid during the fiscal year was $89.
Maturities of related party long-term debt are as follows:
Years Ending March 31 |
Related Party |
|||
2019 |
$ | 134,059 | ||
2021 |
74,903 | |||
Total Debt |
208,962 | |||
Less: Current maturities |
(134,059 | ) | ||
Total Long-Term Debt |
$ | 74,903 |
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
9 |
Commitments and Related Party Transactions |
The Company leases three buildings from Loudermilk, Inc. One building is located at 302 North 52nd Avenue, Lot 18 in Phoenix. The building is leased for $24,000 a month and expires on June 1, 2022. The second building is located at 303 North 52nd Avenue, Lot 17 in Phoenix and is leased for $21,000 a month and expires on June 1, 2022. The third building is located at 340 North 52nd Avenue in Phoenix and is leased for $22,000 per month plus CAM charges and expires May 1, 2027.
Rent in the amount of $909,448 and $902,898 was expensed for the years ended March 31, 2018 and 2017, respectively. These amounts include $105,448 and $98,898 in property tax payments for the years ended March 31, 2018 and 2017, respectively.
In February 2016, the Company signed a triple net lease for a building located at 420 North 52nd Avenue, Suite 4 in Phoenix from a third party. The base rent for the building is $6,605 a month plus CAM charges beginning in July 2016 and expires on June 30, 2019. Rent increases annually to $6,803 in May 2017, $7,007 in May 2018 and $7,217 in May 2019. Rent in the amount of $81,438 and $97,899 was expensed for the years ended March 31, 2018 and 2017, respectively.
In October 2014, the Company signed an operating lease for multiple copiers. The copiers are leased for $2,533 a month and the lease expires September 1, 2018. Total rent expense for the years ended March 31, 2018 and 2017 was $30,396 and $25,896, respectively.
Future minimum lease payments for the Company’s operating leases are as follows:
Years Ending March 31 |
Related Party |
Third Party |
Copiers |
|||||||||
2019 |
$ | 804,000 | $ | 83,880 | $ | 15,198 | ||||||
2020 |
804,000 | 21,441 | - | |||||||||
2021 |
804,000 | - | - | |||||||||
2022 |
804,000 | - | - | |||||||||
2023 |
354,000 | - | - | |||||||||
Thereafter |
1,078,000 | - | - | |||||||||
Total |
$ | 4,648,000 | $ | 105,321 | $ | 15,198 |
The Company is party to a procurement agreement with their largest customer. The agreement was extended for five years, October 1, 2015 through September 30, 2020 and states that the customer will purchase specific products and services from the Company at set prices provided the Company remains in compliance with its contractual obligations.
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
10 |
Retirement Plans |
Profit Sharing Plan
The Company has adopted a 401(k) profit sharing plan and trust for its employees who meet the plan’s service requirements. There were no contributions made to the plan during the year ended March 31, 2018. The required contribution to the plan was $521,124, less forfeitures of $33,798, for a total of $487,326 for 2017.
Cash Balance Pension Plan
The cash balance pension plan is a defined benefit pension plan covering substantiality all employees. Employees with five or more years of service are entitled to annual pension benefits beginning at normal retirement age, as defined in the Plan document. The annual benefit is derived from a formula based upon final average earnings and years of credited service. The plan does not permit for early retirement benefits to be distributed to employees. All participants are eligible to retire with their full retirement benefit on the later of attaining the age of 62 or completing 5 years of active participation. Upon normal retirement, each participant will be entitled to a benefit payable based on the following:
● |
Group 1 (Shareholders): 10% of average monthly compensation for each year of participation. |
● |
Group 2 (All other participants): 0.5% of average monthly compensation for each year of participation. |
In addition, interest is credited each year using the applicable interest rate based on short term interest rates in effect the prior year. The accumulated plan benefits for active employees are based on their average annual compensation during the highest fifty consecutive calendar years of employment.
The Trustees of the Plan elected to terminate the Plan as of December 31, 2016. As such, participants have become 100% vested in their accounts. The accrued benefit of each participant is 100% vested to the extent of funding at date of termination. The net assets of the plan are allocated, as prescribed by ERISA and its related regulations, providing the following benefits in the order indicated:
1. |
Annuity benefits that former employees or their beneficiaries have been receiving for the last three years, or that employees eligible to retire for that three-year period would have been receiving if they had retired with benefits in the normal form of annuity under the Plan. The priority amount is limited to the lowest benefit that was payable (or would have been payable) during those three years. The amount is further limited to the lowest benefit that would be payable under the Plan provisions in effect at any time during the five years preceding Plan termination. |
2. |
Other vested benefits insured by the Pension Benefit Guaranty Corporation (PBGC) (a U.S. government agency) up to the applicable limitations (discussed subsequently). |
3. |
All other vested benefits (that is, vested benefits not insured by the PBGC). |
4. |
All nonvested benefits. |
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
10 |
Pension Plans, Continued |
Certain benefits under the Plan are insured by the PBGC upon Plan termination. The PBGC had selected the Plan for a termination audit; the Company has received notice from the PBGC that the audit of the Plan has been completed and no violations were disclosed.
The Plan’s assets were invested in 100% cash and cash equivalents (Level 1) at March 31, 2017. All assets of the Plan were distributed to participants, and liabilities settled, by December 14, 2017. The following is a statement of the funded status as of March 31:
2018 |
2017 |
|||||||
Projected benefit obligation |
$ | - | $ | 6,326,822 | ||||
Accumulated benefit obligation |
$ | - | $ | 6,326,822 | ||||
Fair value of plan assets |
- | 6,565,444 | ||||||
Net minimum pension asset |
$ | - | $ | (238,622 | ) | |||
Prepaid benefit cost |
$ | - | $ | 2,364,241 | ||||
Minimum pension liability |
- | (2,125,619 | ) | |||||
Net minimum pension asset |
$ | - | $ | 238,622 | ||||
Minimum pension liability |
$ | - | $ | 2,125,619 | ||||
Tax effect |
- | (722,710 | ) | |||||
$ | - | $ | 1,402,909 |
2018 |
2017 |
|||||||
Adjustment required to recognize minimum pension liability: |
||||||||
Net periodic pension cost |
$ | 2,364,241 | $ | 668,376 | ||||
Employer contributions |
- | (700,000 | ) | |||||
Funded status as of prior year-end |
(238,622 | ) | (868,619 | ) | ||||
Funded status as of current year-end |
- | 238,622 | ||||||
Gain/(loss) |
2,125,619 | (661,621 | ) | |||||
Tax effect |
(722,710 | ) | 224,951 | |||||
Net adjustment recorded in Other Comprehensive Income |
$ | 1,402,909 | $ | (436,670 | ) |
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
10 |
Pension Plans, Continued |
2018 |
2017 |
|||||||
Fiscal activity: |
||||||||
Benefit cost |
$ | 2,364,241 | $ | 668,376 | ||||
Employer contributions |
$ | - | $ | 700,000 | ||||
Benefits paid |
$ | 6,645,344 | $ | 408,605 |
2018 |
2017 |
|||||
Weighted average assumptions as of March 31: |
||||||
Discount rate |
N/A | 5.67% | ||||
Expected return on plan assets |
N/A | 1.70% |
11 |
Income Taxes |
The income tax provision for the year ended March 31, 2018 consists of the following:
Federal |
State |
Total |
||||||||||
Current Provision |
$ | 2,140,435 | $ | - | $ | 2,140,435 | ||||||
Deferred (tax rate change effect) |
(573,836 | ) | (26,485 | ) | (600,321 | ) | ||||||
Deferred - current year |
(544,037 | ) | 29,706 | (514,331 | ) | |||||||
Recovery of income taxes |
$ | 1,022,562 | $ | 3,221 | $ | 1,025,783 |
The income tax provision for the year ended March 31, 2017 consists of the following:
Federal |
State |
Total |
||||||||||
Current Provision |
$ | 109,552 | $ | - | $ | 109,552 | ||||||
Deferred |
128,754 | 4,700 | 133,454 | |||||||||
Provision for income taxes |
$ | 238,306 | $ | 4,700 | $ | 243,006 |
The Company’s total deferred tax assets and deferred tax liabilities at March 31, 2018 are as follows:
Federal |
State |
Total |
||||||||||
Deferred tax assets: |
||||||||||||
Section 1231 loss carryover |
$ | 7,952 | $ | 1,856 | $ | 9,808 | ||||||
Inventory section 263A |
29,541 | 6,8933 | 6,434 | |||||||||
Research credits |
- | 509,068 | 509,068 | |||||||||
Total deferred tax assets |
37,493 | 517,817 | 555,310 | |||||||||
Deferred tax liabilities: |
||||||||||||
Fixed assets/accumulated depreciation |
(844,804 | ) | (197,121 | ) | (1,041,925 | ) | ||||||
Net deferred tax (liabilities) benefit |
$ | (807,311 | ) | $ | 320,696 | $ | (486,615 | ) |
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
11 |
Income Taxes, Continued |
The Company’s total deferred tax assets and deferred tax liabilities at March 31, 2017 are as follows:
Federal |
State |
Total |
||||||||||
Deferred tax assets: |
||||||||||||
Section 1231 loss carryover |
$ | 12,874 | $ | 2,083 | $ | 14,957 | ||||||
Inventory section 263A |
38,595 | 6,2434 | 4,838 | |||||||||
Research credits |
246,319 | 566,694 | 813,013 | |||||||||
Total deferred tax assets |
297,788 | 575,020 | 872,808 | |||||||||
Deferred tax liabilities: |
||||||||||||
Minimum pension liability |
(70,380 | ) | - | (70,380 | ) | |||||||
Fixed assets/accumulated depreciation |
(1,552,271 | ) | (251,103 | ) | (1,803,374 | ) | ||||||
Net deferred tax (liabilities) benefit |
$ | (1,324,863 | ) | $ | 323,917 | $ | (1,000,946 | ) |
The expected federal and state income tax rates used to compute the deferred income taxes was reduced during the fiscal year ended March 31, 2018 due to the newly enacted tax law. Federal income tax rates were reduced from 34% to 21% and state income tax rates were reduced from 5.5% to 4.9%. Total benefit from the change in tax law included in the provision from income taxes for the fiscal year ended March 31, 2018 was $600,321.
The Company has a state carryforward for unused credit for increasing research activities totaling $509,068. The state unused research credit can be carried forward 15 years and will expire between 2027 and 2030. The federal return has a carryforward of a section 1231 loss carryover of $37,867. There are no expiration dates on the section 1231 loss. For the years ended March 31, 2018 and 2017, there was no valuation allowance used on the deduction carryforwards since the Company is expecting an increase in taxable income that will utilize these items before they expire.
12 |
Variable Interest Entities |
Pursuant to FASB ASC 810-10 a variable interest entity (VIE) must be consolidated when financial statements are presented in accordance with generally accepted accounting principles. In March 2014, FASB issued ASU No. 2014-07, Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements which was adopted by the Company. Under this accounting alternative, a private company, at its option, would be exempt from applying the VIE model when certain criteria are met. Loudermilk, Inc.’s primary purpose is to house the Company’s assets and the Company’s have a leasing arrangement, as described in Note 9. Management has therefore elected the alternative to not consolidate the VIE.
The officers have personally guaranteed debt for both entities. The amount of Loudermilk, Inc.’s indebtedness guaranteed by the stockholders as of December 31, 2017 and 2016 was $1,429,183 and $1,623,230.
NOTES TO FINANCIAL STATEMENTS
CAD Enterprises, Inc.
13 |
Dividends Paid |
During the years ended March 31, 2018 and 2017, management approved the payment of dividends to the stockholder on a quarterly basis. Cash dividends were paid during the year equaling $1.25 per share ($37,500) for five quarters in 2018, which includes the first quarter payment for the fiscal year March 31, 2019, and three quarters in 2017. There were no declared dividends that were unpaid as of March 31, 2018 and 2017.
14 |
Subsequent Events |
Management evaluates events occurring subsequent to the date of the financial statements in determining the accounting for and disclosure of transactions and events that affect the financial statements.
Subsequent events have been evaluated for recognition and disclosure through September 10, 2018, the date the financial statements were available to be issued. There have been no subsequent events requiring disclosure other than the acquisition discussed in Note 1.
- 19 -
Exhibit 99.2
HICKOK INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED COMBINED FINANCIAL INFORMATION
INDEX
Page | |
Unaudited Pro Forma Consolidated Combined Balance Sheet as of June 30, 2018 | 1 |
Unaudited Pro Forma Consolidated Combined Statement of Income for the Six Months June 30, 2018 | 3 |
Unaudited Pro Forma Consolidated Combined Statement of Income for the Year Ended September 30, 2017 | 5 |
Effective July 1, 2018, Hickok Incorporated, an Ohio corporation (the “Company”), completed the acquisition of all of the issued and outstanding shares of capital stock of CAD Enterprises, Inc., an Arizona corporation (“CAD”), pursuant to a Share Purchase Agreement entered into as of July 5, 2018 by and among the Company, the sellers named therein and the Sellers’ representative named therein. The following unaudited pro forma consolidated combined financial statements give effect to the acquisition of CAD.
The acquisition will be a business combination accounted for in accordance with Accounting Standards Codification (ASC) 805, Business Combinations. Accordingly, for accounting purposes, the fair value of the assets acquired and liabilities assumed will be recorded on the balance sheet. The difference between the purchase price and fair value of the assets acquired, net of liabilities assumed, will be recorded as goodwill and other intangible assets. The intangible assets, other than goodwill, will be amortized to expense over the estimated useful lives. Goodwill is of an indefinite life and will not be amortized but will be tested at least annually for impairment.
Acquisition-related transaction costs (i.e. advisory, legal, accounting, valuation and other professional or accounting fees) are not included as a component of consideration transferred but are accounted for as expense in the periods in which the costs are incurred and the services are received.
The unaudited pro forma consolidated combined financial statements are based on the Company’s historical financial statements and CAD’s historical financial statements.
The unaudited pro forma consolidated combined balance sheet as of June 30, 2018 and unaudited pro forma consolidated combined statements of income for the six months ended June 30, 2018 give effect to the transaction as if the acquisition was consummated January 1, 2018. The unaudited pro forma consolidated combined statements of income for the year ended September 30, 2017 gives effect to the transaction as if the acquisition was consummated October 1, 2016.
The unaudited pro forma consolidated combined financial information should be read together with the Company’s historical financial statements, which are included in the Company’s latest annual report on Form 10-K and Form 10-KT and quarterly report on Form 10-Q, and CAD Enterprises Inc. historical information, included herein.
HICKOK INCORPORATED AND SUBSIDIARIES |
UNAUDITED PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET |
ASSETS |
Hickok |
CAD |
Hickok |
|||||||||||||||
Incorporated |
Enterprises, Inc. |
Incorporated |
|||||||||||||||
6/30/2018 |
3/31/2018 |
Pro Forma |
6/30/2018 |
||||||||||||||
Unaudited |
Audited |
Adjustments |
Combined |
||||||||||||||
CURRENT ASSETS: |
|||||||||||||||||
Cash and Cash Equivalents |
$ | 2,663,566 | $ | 1,282,308 | $ | (949,236 | ) |
(e) |
$ | 2,996,638 | |||||||
Accounts receivable-less allowance for doubtful accounts |
7,351,867 | 1,897,086 | - | 9,248,953 | |||||||||||||
Costs in Excess of Billings and estimated costs |
2,217,344 | - | - | 2,217,344 | |||||||||||||
Inventories-less allowance for obsolete inventory |
1,980,496 | 2,262,198 | - | 4,242,694 | |||||||||||||
Prepaid Expenses and other current assets |
398,477 | 50,091 | - | 448,568 | |||||||||||||
Total Current Assets |
14,611,750 | 5,491,683 | (949,236 | ) | 19,154,197 | ||||||||||||
PROPERTY, PLANT AND EQUIPMENT |
4,110,252 | 15,688,626 | (4,658,626 | ) |
(a) |
15,140,252 | |||||||||||
Less accumulated depreciation |
1,239,029 | 10,744,597 | (10,744,597 | ) |
(a) |
1,239,029 | |||||||||||
Property, Plant and Equipment, Net |
2,871,223 | 4,944,029 | 6,085,971 | 13,901,223 | |||||||||||||
OTHER ASSETS: |
|||||||||||||||||
Goodwill |
2,255,912 | - | 4,968,315 |
(c) |
7,224,227 | ||||||||||||
Intangibles, net of accumulated amortization |
1,519,384 | - | 3,000,000 |
(b) |
4,519,384 | ||||||||||||
Deferred income taxes-less valuation allowance |
2,173,892 | - | - | 2,173,892 | |||||||||||||
Other non-current assets |
- | 25,263 | - | 25,263 | |||||||||||||
Total Non-Current Other Assets |
5,949,188 | 25,263 | 7,968,315 | 13,942,766 | |||||||||||||
Total Assets |
$ | 23,432,161 | $ | 10,460,975 | $ | 13,105,050 | $ | 46,998,186 |
See accompanying notes to unaudited pro forma consolidated combined financial statements.
HICKOK INCORPORATED AND SUBSIDIARIES |
UNAUDITED PRO FORMA CONSOLIDATED COMBINED BALANCE SHEET |
LIABILITIES AND STOCKHOLDERS EQUITY |
Hickok |
CAD |
Hickok |
|||||||||||||||
Incorporated |
Enterprises, Inc. |
Incorporated |
|||||||||||||||
6/30/2018 |
3/31/2018 |
Pro Forma |
6/30/2018 |
||||||||||||||
Unaudited |
Audited |
Adjustments |
Combined |
||||||||||||||
CURRENT LIABILITIES: |
|||||||||||||||||
Convertible notes payable - related party |
$ | 200,000 | $ | - | $ | - | 200,000 | ||||||||||
Notes payable - related party |
432,910 | 134,059 | (134,059 | ) |
(e) |
432,910 | |||||||||||
Bank Debt - Current |
500,000 | 512,820 | (512,820 | ) |
(e) |
500,000 | |||||||||||
Leases payable |
16,944 | - | - | 16,944 | |||||||||||||
Accounts payable |
2,462,941 | 1,909,212 | - | 4,372,153 | |||||||||||||
Unearned revenue |
3,182,213 | - | - | 3,182,213 | |||||||||||||
Accrued payroll and related expenses |
828,118 | - | - | 828,118 | |||||||||||||
Accrued expenses |
1,296,444 | 170,198 | - | 1,466,642 | |||||||||||||
Accrued Income Taxes |
227,595 | - | - | 227,595 | |||||||||||||
Total Current Liabilities |
9,147,165 | 2,726,289 | (646,879 | ) | 11,226,575 | ||||||||||||
LONG-TERM LIABILITIES: |
|||||||||||||||||
Notes payable - related party |
3,428,586 | 74,903 | (74,903 | ) |
(e) |
3,428,586 | |||||||||||
Sellers Note |
- | - | 9,000,000 |
(d) |
9,000,000 | ||||||||||||
Bank Debt |
1,074,235 | 227,454 | 11,772,546 |
(d), (e) |
13,074,235 | ||||||||||||
Leases payable |
7,789 | - | - | 7,789 | |||||||||||||
Deferred income taxes |
- | 486,615 | - | 486,615 | |||||||||||||
Total Long-Term Liabilities |
4,510,610 | 788,972 | 20,697,643 | 25,997,225 | |||||||||||||
TOTAL LIABILITIES |
13,657,775 | 3,515,261 | 20,050,764 | 37,223,800 | |||||||||||||
STOCKHOLDERS' EQUITY |
|||||||||||||||||
Common shares - no par value |
|||||||||||||||||
Class A 10,000,000 shares authorized, 2,123,806 shares issued and outstanding |
2,495,534 | 30,000 | (30,000 | ) |
(f) |
2,495,534 | |||||||||||
Class B 2,500,000 convertible shares authorized, 596,848 shares issued and outstanding |
710,272 | - | - | 710,272 | |||||||||||||
Preferred 1,000,000 shares authorized, no shares outstanding |
- | - | - | - | |||||||||||||
Contributed capital |
1,741,901 | - | - | 1,741,901 | |||||||||||||
Treasury shares |
(1,905,780 | ) | (1,905,780 | ) | |||||||||||||
Class A - 37,208 shares |
- | - | - | - | |||||||||||||
Class B - 182,435 shares |
- | - | - | - | |||||||||||||
Retained earnings |
6,732,459 | 6,915,714 | (6,915,714 | ) |
(f) |
6,732,459 | |||||||||||
Total Stockholders' Equity |
9,774,386 | 6,945,714 | (6,945,714 | ) | 9,774,386 | ||||||||||||
Total Liabilities and Stockholders' Equity |
$ | 23,432,161 | $ | 10,460,975 | $ | 13,105,050 | $ | 46,998,186 |
See accompanying notes to unaudited pro forma consolidated combined financial statements.
HICKOK INCORPORATED AND SUBSIDIARIES |
||||||||||
UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENT OF INCOME |
||||||||||
FOR THE SIX MONTHS ENDED |
Hickok |
CAD |
Hickok |
|||||||||||||||
Incorporated |
Enterprises, Inc. |
Incorporated |
|||||||||||||||
6/30/2018 |
3/31/2018 |
Pro Forma |
6/30/2018 |
||||||||||||||
Unaudited |
Unaudited |
Adjustments |
Combined |
||||||||||||||
Total Sales |
$ | 25,471,892 | $ | 14,127,927 | $ | - | $ | 39,599,819 | |||||||||
Cost of Sales |
18,966,873 | 12,310,603 | $ | 31,277,476 | |||||||||||||
Gross Profit |
6,505,019 | 1,817,324 | $ | 8,322,343 | |||||||||||||
Operating Expenses: |
|||||||||||||||||
Product Development |
220,418 | - | - | 220,418 | |||||||||||||
Selling, General and Administrative Expenses |
3,824,571 | 1,577,068 | 100,000 |
(b) |
5,501,639 | ||||||||||||
2,460,030 | 240,256 | 2,600,286 | |||||||||||||||
Other (Income) and Expenses: |
|||||||||||||||||
Interest Charges |
166,688 | 19,735 | 400,265 |
(d), (e) |
586,688 | ||||||||||||
Loss on sale of business |
1,160,574 | - | - | 1,160,574 | |||||||||||||
Cash balance plan termination |
- | 2,364,241 | - | 2,364,241 | |||||||||||||
Other (income) expense, net |
108,266 | 3,756 | - | 112,022 | |||||||||||||
Total Other (Income) and Expenses |
1,435,528 | 2,387,732 | 400,265 | 4,223,525 | |||||||||||||
Income before Provision for Income Taxes |
1,024,502 | (2,147,476 | ) | (400,265 | ) | (1,623,239 | ) | ||||||||||
Provision for Income Taxes |
256,125 | (911,947 | ) | - | (655,822 | ) | |||||||||||
Net Income (Loss) |
$ | 768,377 | $ | (1,235,529 | ) | $ | (400,265 | ) | $ | (967,417 | ) | ||||||
Earnings (Loss) Per Common Share - Basic |
$ | 0.27 | $ | (0.34 | ) | ||||||||||||
Earnings (Loss) Per Common Share - Diluted |
$ | 0.24 | $ | (0.30 | ) | ||||||||||||
Weighted Average Shares of Common Stock Outstanding - Basic |
2,880,070 | - | 2,880,070 | ||||||||||||||
Weighted Average Shares of Common Stock Outstanding - Diluted |
3,236,590 | - | 3,236,590 |
See accompanying notes to unaudited pro forma consolidated combined financial statements.
HICKOK INCORPORATED AND SUBSIDIARIES |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMTION |
JUNE 30, 2018 PRO FORMA ADJUSTMENTS |
(a) |
Reflects the adjustment to increase the basis in the acquired property plant and equipment to the estimated fair value. |
Book value of Fixed Assets - Gross |
$ | 15,688,626 | |||
Accumulated Depreciation |
10,744,597 | ||||
Net Book Value - Fixed |
4,944,029 | ||||
Fair Market Value of Fixed Assets |
11,030,000 | ||||
Adjustment to Increase Fixed Assets |
$ | 6,085,971 |
(b) |
Reflects the adjustment of intangible assets acquired by the Company to their estimated fair values, and related amortization expense for the period. The following table summarized the estimated fair values of CAD Enterprises, Inc. identifiable intangible assets and their estimated useful lives. |
Useful Life |
Amortization |
|||||||||||
Fair Value |
in Years |
Expense |
||||||||||
Customer List |
$ | 3,000,000 | 15 | $ | 100,000 | |||||||
Other Identifiable Intangibles |
- | 15 | - | |||||||||
Total Intangibles, Other than Goodwill |
$ | 3,000,000 | $ | 100,000 |
(c) |
Reflects adjustment to record goodwill associated with the acquisition of CAD Enterprises, Inc. as shown below: |
Assets Acquired: |
|||||
Current Assets |
$ | 4,542,447 | |||
Net Property and Equipment |
11,030,000 | ||||
Intangible Assets |
3,000,000 | ||||
Goodwill |
4,968,315 | ||||
Non-Current Assets |
25,263 | ||||
Total Assets Acquired |
$ | 23,566,025 | |||
Liabilities Assumed |
2,566,025 | ||||
Net Assets Acquired |
$ | 21,000,000 |
(d) |
Reflects the new debt incurred to finance the acquisition of CAD Enterprises, Inc. and related interest expense as shown below: |
Interest |
Interest |
|||||||||||
Debt |
Rate |
Expense |
||||||||||
Sellers Note |
$ | 9,000,000 | 4.0 | % | $ | 180,000 | ||||||
Term Loan A Debt |
4,500,000 | 4.0 | % | 90,000 | ||||||||
Revolving Credit Facility |
7,500,000 | 4.0 | % | 150,000 | ||||||||
Total Debt |
$ | 21,000,000 | $ | 420,000 | ||||||||
Cash used |
- | |||||||||||
Debt incurred |
21,000,000 | |||||||||||
Total purchase price |
$ | 21,000,000 |
(e) |
Represents the elimination of the historical debt and related interest expense of CAD Enterprises, Inc. not included in purchase. |
Interest |
||||||||||||
Debt |
Expense |
|||||||||||
Notes Payable - Related Party, Short Term |
$ | 134,059 | ||||||||||
Notes Payable - Related Party, Long Term |
74,903 | |||||||||||
Bank Debt - Current |
512,820 | |||||||||||
Bank Debt - Non Current |
227,454 | |||||||||||
Total Debt |
$ | 949,236 | 19,735 | |||||||||
Cash used to extinguish debt |
$ | 949,236 |
(f) |
Represents the elimination of the historical equity of CAD Enterprises, Inc. |
HICKOK INCORPORATED AND SUBSIDIARIES |
||||||||||
UNAUDITED PRO FORMA CONSOLIDATED COMBINED STATEMENT OF INCOME |
||||||||||
FOR THE YEAR ENDED SEPTEMBER 30, 2017 |
Hickok |
CAD |
Hickok |
|||||||||||||||
Incorporated |
Enterprises, Inc. |
Incorporated |
|||||||||||||||
9/30/2017 |
3/31/2018 |
Pro Forma |
9/30/2017 |
||||||||||||||
Audited |
Audited |
Adjustments |
Combined |
||||||||||||||
Total Sales |
$ | 23,816,735 | $ | 30,196,920 | $ | - | $ | 54,013,655 | |||||||||
Cost of Sales |
15,792,458 | 26,463,788 | $ | 42,256,246 | |||||||||||||
Gross Profit |
8,024,277 | 3,733,132 | $ | 11,757,409 | |||||||||||||
Operating Expenses: |
|||||||||||||||||
Product Development |
795,957 | - | - | 795,957 | |||||||||||||
Selling, General and Administrative Expenses |
4,546,383 | 2,670,058 | 200,000 |
(a) |
7,416,441 | ||||||||||||
2,681,937 | 1,063,074 | 3,545,011 | |||||||||||||||
Other (Income) and Expenses: |
|||||||||||||||||
Interest Charges |
282,648 | 46,834 | 793,166 |
(b), (c) |
1,122,648 | ||||||||||||
Legal Matter |
(50,000 | ) | - | - | (50,000 | ) | |||||||||||
Cash balance plan termination |
- | 2,364,241 | - | 2,364,241 | |||||||||||||
Other (income) expense, net |
260,529 | 2,423 | - | 262,952 | |||||||||||||
Total Other (Income) and Expenses |
493,177 | 2,413,498 | 793,166 | 3,699,841 | |||||||||||||
Income before Provision for Income Taxes |
2,188,760 | (1,350,424 | ) | (793,166 | ) | (154,830 | ) | ||||||||||
Provision for Income Taxes |
780,364 | (1,025,783 | ) | - | (245,419 | ) | |||||||||||
Net Income (Loss) |
$ | 1,408,396 | $ | (324,641 | ) | $ | (793,166 | ) | $ | 90,589 | |||||||
Earnings (Loss) Per Common Share - Basic |
$ | 0.49 | $ | 0.03 | |||||||||||||
Earnings (Loss) Per Common Share - Diluted |
$ | 0.46 | $ | 0.03 | |||||||||||||
Weighted Average Shares of Common Stock Outstanding - Basic |
2,874,926 | - | 2,874,926 | ||||||||||||||
Weighted Average Shares of Common Stock Outstanding - Diluted |
3,069,077 | - | 3,069,077 |
See accompanying notes to unaudited pro forma consolidated combined financial statements.
HICKOK INCORPORATED AND SUBSIDIARIES |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMTION |
SEPTEMBER 30, 2017 PRO FORMA ADJUSTMENTS |
(a) |
Reflects the adjustment of intangible assets acquired by the Company to their estimated fair values, and related amortization expense for the period. The following table summarized the estimated fair values of CAD Enterprises, Inc. identifiable intangible assets and their estimated useful lives. |
Useful Life |
Amortization |
|||||||||||
Fair Value |
in Years |
Expense |
||||||||||
Customer List |
$ | 3,000,000 | 15 | $ | 200,000 | |||||||
Other Identifiable Intangibles | - | 15 | - | |||||||||
Total Intangibles, Other than Goodwill |
$ | 3,000,000 | $ | 200,000 |
(b) |
Reflects the new debt incurred to finance the acquisition of CAD Enterprises, Inc. and related interest expense as shown below: |
Interest |
Interest |
|||||||||||
Rate |
Expense |
|||||||||||
Sellers Note |
$ | 9,000,000 | 4.0 | % | $ | 360,000 | ||||||
Term Loan A Debt |
4,500,000 | 4.0 | % | 180,000 | ||||||||
Revolving Credit Facility |
7,500,000 | 4.0 | % | 300,000 | ||||||||
Total Debt |
$ | 21,000,000 | $ | 840,000 | ||||||||
Cash used |
- | |||||||||||
Debt incurred |
21,000,000 | |||||||||||
Total purchase price |
21,000,000 |
(c) |
Represents the elimination of the historical debt and related interest of CAD Enterprises, Inc. not included in purchase. |
Notes & |
Interest |
|||||||||||
Bank Debt |
Expense |
|||||||||||
Notes Payable - Related Party, Short Term |
$ | 134,059 | ||||||||||
Notes Payable - Related Party, Long Term |
74,903 | |||||||||||
Bank Debt - Current |
512,820 | |||||||||||
Bank Debt - Non Current |
227,454 | |||||||||||
Total Debt |
$ | 949,236 | $ | 46,834 |
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