Exhibit 99.2
The following unaudited pro forma consolidated financial statements give effect to the merger as described in the proxy statement. 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 received and liabilities assumed will be recorded on our balance sheet. The difference between the purchase price and the net fair value of the acquired assets and liabilities will be recorded as goodwill or other intangible assets. The intangible assets, other than goodwill, will be amortized to expense over their estimated useful live. Goodwill, however, is of an indefinite life and will be tested at least annually for impairment.
Acquisition-related transaction costs (i.e., advisory, legal, accounting, valuation, and other professional or consulting fees) are not included as a component of consideration transferred but are accounted for as expenses in the periods in which the costs are incurred and the services are received. Costs incurred associated with the issuance of our common stock as the consideration for the acquisition will be accounted for as a reduction of additional paid in capital or retained earnings.
The unaudited pro forma consolidated financial statements are based on (1) the historical financial statements and related notes of Hickok Incorporated for the 9 months ended June 30, 2016 which were attached to Form 10-Q for the period ended June 30, 2016, and (2) the historical financial statements of the Operations of Federal Hose Business which are attached to this Form 8-K/A as Exhibit 99.1 and Exhibit 99.2. The unaudited pro forma consolidated financial statements should be read in conjunction with our historical financial statements and related notes and the historical financial statements of the Operations of Federal Hose Business.
The unaudited pro forma consolidated balance sheet reflects that the acquisition took place on July 1, 2016. The unaudited consolidated statement of income reflects that the acquisition took place as of October 1, 2015. The unaudited pro forma information is presented for illustration purposes only and in accordance with the assumptions set forth below. This information is not necessarily indicative of the operating results or the financial position that would have occurred if the acquisition had been consummated on the dates indicated nor is it necessarily indicative of future operating results or financial position of the combined company. The unaudited pro forma consolidated financial information does not reflect any adjustments to reflect any cost savings or other synergies as a result of the acquisition.
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HICKOK INCORPORATED and SUBSIDIARIES
UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
ASSETS
Hickok Incorporated 6/30/2016 Unaudited | Operations of Federal Hose Business 6/30/2016 Actual | Pro Forma Adjustments | Combined | |||||||
CURRENT ASSETS: | ||||||||||
Cash and cash equivalents | $256,051 | $30,097 | $- | $286,148 | ||||||
Accounts receivable-less allowance for | 793,935 | 834,720 | ||||||||
doubtful accounts of $11,640 (Hickok) | - | 1,628,655 | ||||||||
Inventories-less allowance for obsolete | 1,948,674 | 1,755,879 | ||||||||
inventory of $199,987 (Hickok) | - | 3,704,553 | ||||||||
Deferred income taxes-less valuation | ||||||||||
allowance of $142,100 | - | - | - | (d) | - | |||||
Prepaid expenses | 53,163 | 9,909 | - | 63,072 | ||||||
Total Current Assets | 3,051,823 | 2,630,605 | - | 5,682,428 | ||||||
PROPERTY, PLANT AND EQUIPMENT: | ||||||||||
Land | 233,479 | - | - | 233,479 | ||||||
Buildings | 1,440,138 | 309,221 | (309,221) | (a) | 1,440,138 | |||||
Machinery and equipment | 2,608,104 | 470,451 | 298,549 | (a) | 3,377,104 | |||||
4,281,721 | 779,672 | (10,672) | 5,050,721 | |||||||
3,741,437 | 471,471 | (471,471) | (a) | 3,741,437 | ||||||
540,284 | 308,201 | 460,799 | 1,309,284 | |||||||
OTHER ASSETS: | ||||||||||
Deferred income taxes-less valuation | ||||||||||
allowance of $4,106,800 | - | - | - | (d) | - | |||||
Notes receivable-long-term | 4,100 | - | - | 4,100 | ||||||
Customer list | - | - | 1,280,000 | (a) | 1,280,000 | |||||
Goodwill | - | - | 1,777,656 | (a) | 1,777,656 | |||||
Deposits | 750 | - | - | 750 | ||||||
4,850 | - | 3,057,656 | 3,062,506 | |||||||
Total Assets | $3,596,957 | $2,938,806 | $3,518,455 | $10,054,218 | ||||||
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Hickok Incorporated 6/30/2016 Unaudited | Operations of Federal Hose Business 6/30/2016 Actual | Pro Forma Adjustments | Combined | ||||
CURRENT LIABILITIES: | |||||||
Short-term financing - related party | $250,000 | $- | $- | $250,000 | |||
Convertible notes payable - related party | 200,000 | - | - | 200,000 | |||
Lease payable | 54,627 | - | - | 54,627 | |||
Accounts payable | 190,718 | 475,513 | - | 666,231 | |||
Note payable - related party | - | - | 229,959 | (a) | 229,959 | ||
Note payable - related party | - | - | 166,116 | (a) | 166,116 | ||
Accrued payroll and related expenses | 132,707 | - | - | 132,707 | |||
Accrued expenses | 472,268 | 130,217 | - | 602,485 | |||
Accrued taxes other than income | 27,211 | - | - | 27,211 | |||
Total Current Liabilities | 1,327,531 | 605,730 | 396,075 | 2,329,336 | |||
LONG-TERM LIABILITIES: | |||||||
Lease payable | 151,964 | - | - | 151,964 | |||
Note payable - related party | - | - | 2,538,703 | (a) | 2,538,703 | ||
Note payable - related party | - | - | 1,833,884 | (a) | 1,833,884 | ||
Total Long-term Liabilities | 151,964 | - | 4,372,587 | 4,524,551 | |||
STOCKHOLDERS' EQUITY: | |||||||
Common shares - no par value | |||||||
Class A 10,000,000 share authorized, 1,179,144 shares issued (Hickok); 911,250 shares issued (Pro forma) | 1,261,188 | - | 847,463 | (a) (f) | 2,108,651 | ||
Class B 2,500,000 convertible shares authorized, 475,533 shares issued (Hickok);303,750 shares issued (Pro forma) | 474,866 | - | 235,406 | (a) (f) | 710,272 | ||
Preferred 1,000,000 shares authorized, no shares outstanding | - | - | - | - | |||
Contributed capital | 1,741,901 | - | - | 1,741,901 | |||
Treasury shares - 15,795 | |||||||
Class A shares and 667 | |||||||
Class B shares | (253,341) | - | - | (253,341) | |||
Retained earnings | (1,107,152) | 2,333,076 | (2,333,076) | (i) | (1,107,152) | ||
Total Stockholders' Equity | 2,117,462 | 2,333,076 | (1,250,207) | 3,200,331 | |||
Total Liabilities and Stockholders' Equity | $3,596,957 | $2,938,806 | $3,518,455 | $10,054,218 | |||
(a)Record the purchase of assets and liabilities assumed from the Operations of Federal Hose Business along with the issuance of notes payable and Class A and Class B common shares per the merger agreement. Difference recorded as goodwill and other intangibles. | < | ||||||
Federal Hose: | |||||||
Consideration | Shares | Price | |||||
Common stock Class A | 911,250 | $0.93 | $847,463 | ||||
Common stock Class B | 303,750 | $0.78 | 235,406 | ||||
Note payable | 2,768,662 | ||||||
Note payable - working capital | 2,000,000 | ||||||
Total "Cash Equivalent" Equity & debt | 5,851,531 | ||||||
Assumed liabilities | 605,730 | ||||||
Total Consideration | 6,457,261 | ||||||
Assets | |||||||
Current assets | $2,630,605 | ||||||
Fixed assets | 769,000 | ||||||
Customer list | 1,280,000 | ||||||
Goodwill | 1,777,656 | ||||||
Liabilities | |||||||
Current liabilities | (605,730) | ||||||
$5,851,531 | |||||||
(b)To eliminate management fee - not part of purchase. | (180,000) | ||||||
(c)To eliminate acquisition costs of transaction. | (225,000) | ||||||
(d)Hickok Incorporated has historically had a 100% tax valuation allowance. The pro forma information does not reanalyze the valuation allowance. Assumes no provision for income taxes, as the net operating losses are assumed to be utilized. | - | ||||||
(e)These pro forma financial statements do not include interest expense on notes payable issued as part of the transaction. Principal and interest payments will not begin until 2017. Both notes are at a 4% interest rate. | - | ||||||
(f)Based on the share price per valuation report obtained from third party valuation specialist dated July 1, 2016. | - | ||||||
(g)To amortize the Customer list intangible over 11 years straight-line. | 87,000 | ||||||
(h)To record depreciation based on step-up basis of fixed assets acquired. | 69,000 | ||||||
(i)Eliminate retained earnings from the Operations of Federal Hose Business. | (2,333,076) | ||||||
(1)Represents financial information for the Operations of Federal Hose Business for the nine months ended June 30, 2016. Note their year-end is December 31.
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HICKOK INCORPORATED and SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT of INCOME
For the Nine Months Ended June 30, 2016
Hickok Incorporated Unaudited | Operations of Federal Hose Business Actual (1) | Pro Forma Adjustments | Combined | |||||
NET SALES: | ||||||||
Product sales | $3,770,950 | $5,984,808 | $- | $9,755,758 | ||||
Service sales | 182,790 | - | - | 182,790 | ||||
Total Net Sales | 3,953,740 | 5,984,808 | - | 9,938,548 | ||||
COSTS AND EXPENSES: | ||||||||
Cost of product sold | 2,081,508 | 4,339,093 | - | 6,420,601 | ||||
Cost of services sold | 122,987 | - | - | 122,987 | ||||
Product development | 777,889 | - | - | 777,889 | ||||
Marketing and administrative expenses | 1,488,461 | 818,976 | (180,000) (225,000) 87,000 69,000 | (b) (c) (g) (h) | 2,058,437 | |||
Interest charges | 8,179 | - | - | (e) | 8,179 | |||
Other income | (5,556) | - | - | (5,556) | ||||
Total Costs and Expenses | 4,473,468 | 5,158,069 | (249,000) | 9,382,537 | ||||
Income (Loss) before Provision for Income Taxes | (519,728) | 826,739 | 249,000 | 556,011 | ||||
Provision For Income Taxes: | ||||||||
Current | - | - | - | - | ||||
Deferred | - | - | - | - | ||||
- | - | - | (f) | - | ||||
Net Income (Loss) | $(519,728) | $826,739 | $249,000 | $556,011 | ||||
NET Income (LOSS) PER COMMON SHARE - BASIC | $(.32) | $- | $- | $.19 | ||||
NET Income (LOSS) PER COMMON SHARE - DILUTED | $(.32) | $- | $- | $.19 | ||||
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING | 1,638,215 | - | 1,215,000 | 2,853,215 | ||||
(1)Represents financial information for the Operations of Federal Hose Business for the nine months ended June 30, 2016. Note their year-end was December 31.
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