EX-99.2 4 ex_123887.htm EXHIBIT 99.2 ex_123887.htm

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.

 

1
 

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.

 

2
 

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.

 

3
 

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.

 

4
 

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.

 

5
 

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  

 

6