Unaudited Pro Forma Condensed Combined Financial Information
Exhibit 99.3
Unaudited Pro Forma Condensed Combined Financial Information
On April 14, 2016, AG&E Holdings Inc., an Illinois corporation (the “Company”), entered into an Agreement and Plan of Merger (as amended to date, the “Merger Agreement”) with American Gaming & Electronics, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (“Merger Sub”), Advanced Gaming Associates LLC, a Pennsylvania limited liability company (“AGA”), and Xxxxxxx Xxxxxxxxx, as the sole member and representative of AGA (“Xx. Xxxxxxxxx”).
The consummation of the transactions contemplated by the Merger Agreement (the “Closing”) occurred on November 30, 2016 (the “Closing Date”). On the Closing Date, AGA was merged with and into Merger Sub, and the separate legal existence of AGA ceased, with Merger Sub continuing as the surviving entity of the Merger and remaining a wholly-owned subsidiary of the Company. In connection with the Closing, the Company issued to Xx. Xxxxxxxxx 5,303,816 shares of its common stock. The Company may issue to Xx. Xxxxxxxxx additional shares of common stock in the future depending on the Company’s performance and the achievement of certain earn-out thresholds.
Upon the Closing, the Company issued to Xx. Xxxxxxxxx a promissory note in the initial principal amount of $1,000,000 (the “Company Note”). The Company Note accrues interest at a rate of 5% per annum and matures on November 30, 2019. The Company Note may be adjusted upwards or downwards based upon the working capital delivered by XXX at the Closing. In addition, if certain service revenue targets are satisfied during either of two 12-month periods immediately following the Closing, the initial principal amount of the Company Note will be increased by an additional $1,000,000 at the end of each 12-month period, up to an aggregate additional amount of $2,000,000.
The following unaudited pro forma condensed consolidated combined financial statements are based on the Company’s historical consolidated financial statements and XXX’s historical financial statements as adjusted to give effect to the Company’s acquisition of AGA and the related financing transactions. The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2016 and the twelve months ended December 31, 2015 give effect to these transactions as if they had occurred on January 1, 2015. The unaudited pro forma condensed combined balance sheet as of September 30, 2016 gives effect to these transactions as if they had occurred on September 30, 2016.
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.
The pro forma statements have been prepared based on available information, using estimates and assumptions that the Company’s management believes are reasonable. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the pro forma statements. These estimates and assumptions are preliminary and have been made solely for purposes of developing these pro forma statements. The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the allocation of the purchase price to identifiable net assets acquired and of the excess purchase price to goodwill.
The unaudited pro forma condensed combined statement of operations does not purport to represent the actual results of operations that would have occurred if the acquisition had taken place on the date specified and are not necessarily indicative of the results of operations that may be achieved in the future. The unaudited pro forma condensed combined statement of operations does not reflect any adjustments for the effect of operating synergies that we may realize as a result of the acquisition.
The unaudited pro forma condensed combined financial statements 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 quarterly report on Form 10-Q and AGA’s historical information included herein.
AG&E HOLDINGS INC
Unaudited Pro Forma Condensed Combined Balance Sheets
As of September 30, 2016
|
AG&E Holdings Inc Historical |
Advanced Gaming Associates Historical |
Pro Forma Adjustments |
AG&E Holdings Inc Pro Forma Combined |
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|
Assets: |
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|
Current assets: |
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|
Cash |
$ | 2,579,000 | $ | 514,000 | $ | (1,026,000 | ) |
(a) |
$ | 2,067,000 | |||||||
|
Accounts receivable, net |
611,000 | 675,000 | (680,000 | ) |
(b) |
606,000 | |||||||||||
|
Inventory |
478,000 | 420,000 | 41,000 |
(c) |
939,000 | ||||||||||||
|
Prepaid expenses & other assets |
156,000 | 7,000 | (7,000 | ) |
(d) |
156,000 | |||||||||||
|
Total current assets |
$ | 3,824,000 | 1,616,000 | (1,672,000 | ) | $ | 3,768,000 | ||||||||||
|
Property, plant & equipment, net |
15,000 | 113,000 | (62,000 | ) |
(e) |
66,000 | |||||||||||
|
Intangible assets, net |
0 | 0 | 2,230,000 |
(f) |
2,230,000 | ||||||||||||
|
Goodwill |
0 | 0 | 392,000 |
(g) |
392,000 | ||||||||||||
|
Total assets |
$ | 3,839,000 | 1,729,000 | 888,000 | $ | 6,456,000 | |||||||||||
|
Liabilities: |
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Current liabilities: |
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|
Accounts payable |
$ | 440,000 | 437,000 | (470,000 | ) |
(h) |
$ | 407,000 | |||||||||
|
Note payable |
0 | 715,000 | (715,000 | ) |
(i) |
0 | |||||||||||
|
Contingent liability |
0 | 0 | 720,000 |
(j) |
720,000 | ||||||||||||
|
Accrued expenses |
163,000 | 11,000 | 183,000 |
(k) |
357,000 | ||||||||||||
|
Total current liabilities |
$ | 603,000 | 1,163,000 | (282,000 | ) | $ | 1,484,000 | ||||||||||
|
Long-term liabilities: |
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|
Note payable |
0 | 164,000 | 836,000 |
(l) |
1,000,000 | ||||||||||||
|
Total liabilities |
$ | 603,000 | 1,327,000 | 554,000 | $ | 2,484,000 | |||||||||||
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Shareholders' Equity: |
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Common stock: authorized 25,000,000 shares $1.00 par value; shares issued and outstanding: 11,649,360 shares as of September 30, 2016 |
$ | 11,649,000 | 0 | 5,304,000 |
(m) |
$ | 16,953,000 | ||||||||||
|
Additional paid-in capital |
5,090,000 | 0 | (4,402,000 | ) |
(m) |
688,000 | |||||||||||
|
Accumulated deficit |
(13,471,000 |
) |
402,000 | (568,000 | ) |
(n) |
(13,637,000 |
) | |||||||||
|
Unearned compensation |
(32,000 |
) |
0 | 0 | (32,000 |
) | |||||||||||
|
Total shareholders' equity |
3,236,000 | 402,000 | 334,000 | 3,972,000 | |||||||||||||
|
Total liabilities & shareholders' equity |
$ | 3,839,000 | 1,729,000 | 888,000 | $ | 6,456,000 | |||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements
AG&E HOLDINGS INC.
Unaudited Pro Forma Condensed Combined Statements of Earnings
Twelve Months Ended December 31, 2015
|
AG&E Holdings Inc Historical |
Advanced Gaming Associates Historical |
Pro Forma Adjustments |
AG&E Holdings Inc Pro Forma Combined |
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|
Net sales |
$ | 13,880,000 | $ | 6,707,000 | $ | (1,167,000 | ) |
(o) |
$ | 19,420,000 | |||||||
|
Cost of sales |
10,471,000 | 4,860,000 | (1,061,000 | ) |
(p) |
14,270,000 | |||||||||||
|
Gross margin |
3,409,000 | 1,847,000 | (106,000 | ) | 5,150,000 | ||||||||||||
|
Selling & administrative expenses |
3,991,000 | 1,444,000 | 249,000 |
(q) |
5,684,000 | ||||||||||||
|
Operating (loss) earnings |
(582,000 |
) |
403,000 | (355,000 | ) | (534,000 |
) | ||||||||||
|
Other income, net |
(3,000 |
) |
0 | 0 | (3,000 |
) | |||||||||||
|
Income tax expense |
8,000 | 0 | 0 | 8,000 | |||||||||||||
|
Net (loss) earnings from continuing operations |
$ | (587,000 |
) |
$ | 403,000 | $ | (355,000 | ) | $ | (539,000 |
) | ||||||
|
Basic and Diluted earnings per share: |
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|
Net loss per share |
$ | (0.05 |
) |
$ | (0.03 |
) | |||||||||||
|
Basic and diluted average common shares outstanding |
11,649,360 | 5,303,816 |
(m) |
16,953,176 | |||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements
AG&E HOLDINGS INC.
Unaudited Pro Forma Condensed Combined Statements of Earnings
Nine Months Ended September 30, 2016
|
AG&E Holdings Inc Historical |
Advanced Gaming Associates Historical |
Pro Forma Adjustments |
AG&E Holdings Inc Pro Forma Combined |
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|
Net sales |
$ | 4,618,000 | $ | 5,000,000 | $ | (805,000 | ) |
(o) |
$ | 8,813,000 | |||||||
|
Cost of sales |
3,363,000 | 3,665,000 | (724,000 | ) |
(p) |
6,305,000 | |||||||||||
|
Gross margin |
1,255,000 | 1,335,000 | (81,000 | ) | 2,508,000 | ||||||||||||
|
Selling & administrative expenses |
3,432,000 | 1,442,000 | (298,000 | ) |
(r) |
4,576,000 | |||||||||||
|
Operating loss |
(2,177,000 |
) |
(107,000 |
) |
217,000 | (2,068,000 |
) | ||||||||||
|
Other income, net |
(38,000 |
) |
(9,000 |
) |
0 | (47,000 |
) | ||||||||||
|
Income tax expense |
2,000 | 0 | 0 | 2,000 | |||||||||||||
|
Net loss |
$ | (2,141,000 |
) |
$ | (98,000 |
) |
$ | 217,000 | $ | (2,023,000 |
) | ||||||
|
Basic and Diluted earnings per share: |
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|
Net loss per share |
$ | (0.18 |
) |
$ | (0.12 |
) | |||||||||||
|
Basic and diluted average common shares outstanding |
11,649,360 | 5,303,816 |
(m) |
16,953,176 | |||||||||||||
See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Statements
Note 1. Basis of presentation
The Unaudited Pro Forma Condensed Combined Balance Sheet combines the Company’s and AGA’s historical Consolidated Balance Sheets as of September 30, 2016
The Unaudited Pro Forma Condensed Combined Statements of Earnings combines the Company’s and AGA’s historical earnings results for the twelve months ended December 31, 2015 and nine months ending September 30, 2016, respectively.
The Unaudited Pro Forma Condensed Combined Financial Statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the transactions occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
Note 2. Transaction consideration
The Company completed the merger of AGA with Merger Sub, the Company’s wholly owned subsidiary, on November 30, 2016. The following table summarizes the fair value of total consideration transferred to AGA shareholders at the closing date of November 30, 2016:
|
Cash |
$ | 512,000 | ||
|
Stock (5,303,816 shares @ fair value price of $0.17 per share) |
902,000 | |||
|
Promissory Note |
1,000,000 | |||
|
Contingent consideration (earnout) |
720,000 | |||
|
Total consideration |
$ | 3,134,000 |
Note 3. Preliminary purchase price allocation
The Company has performed a preliminary valuation analysis of the fair market value of AGA’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the acquisition date:
|
Inventory |
$ | 461,000 | ||
|
Fixed Assets |
51,000 | |||
|
Intangible Assets |
2,230,000 | |||
|
Goodwill |
392,000 | |||
|
Total consideration |
$ | 3,134,000 |
Note 4. Pro Forma adjustments
The pro forma adjustments are based on preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the Unaudited Pro Forma Condensed Combined Financial Statements:
|
a) |
Represents the ($512,000) payment at closing and a ($514,000) working capital adjustment based on the purchase price allocation shown in Note 3. |
|
b) |
Represents a working capital adjustment of ($675,000) based on the purchase price allocation shown in Note 3 as well as an intercompany adjustment of ($5,000). |
|
c) |
Adjustment is to record the fair value step up of the inventory based on the purchase price allocation shown in Note 3. |
|
d) |
Represents a working capital adjustment based on the purchase price allocation shown in Note 3. |
|
e) |
Reflects the adjustment of ($62,000) to reduce the basis in the acquired property, plant and equipment to an estimated fair value of $51,000. The estimated useful lives range from 1 to 5 years The following table summarizes the changes in the estimated depreciation expense: |
|
Year ending Dec 31, 2015 |
Nine Months ending Sept 30, 2016 |
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|
Estimated depreciation expense |
35,000 | 5,000 | ||||||
|
Historical depreciation expense |
(13,000 | ) | (12,000 | ) | ||||
|
Pro forma adjustments to depreciation expense |
22,000 | (7,000 | ) | |||||
|
f) |
Reflects the fair value of the intangible assets acquired. The following table summarizes the intangible assets acquired and their related amortization period: |
|
Amortization Period | |||||
|
Customer List |
$ | 2,100,000 |
13 years | ||
|
Gaming Licenses |
130,000 |
2 years | |||
|
Pro forma adjustment |
$ | 2,230,000 |
These preliminary estimates of fair value and estimated useful lives may differ from final amounts the Company will calculate after completing a detailed valuation analysis and the difference could have a material impact on the accompanying unaudited pro forma condensed combined financial statements.
|
g) |
Reflects the preliminary estimate of goodwill associated with the transaction as shown in Note 3. |
|
h) |
Represents a working capital adjustment of ($437,000) based on the purchase price allocation shown in Note 3 as well as an intercompany adjustment of ($33,000). |
|
i) |
Represents the elimination of XXX’s note payable based on the purchase price allocation shown in Note 3. |
|
j) |
The contingent consideration estimate is comprised of two different components – a stock component and a promissory note component. The Company may issue to Xx. Xxxxxxxxx additional shares of common stock in the future depending on the Company’s performance and the achievement of certain earn-out thresholds. If certain service revenue targets are satisfied during either of two 12-month periods immediately following the Closing, the initial principal amount of the Company Note will be increased by an additional $1,000,000 at the end of each 12-month period, up to an aggregate additional amount of $2,000,000. This adjustment represents the estimated fair value of the contingent consideration. |
|
k) |
Represents $192,000 of non-recurring transaction costs which were incurred between October 1, 2016 and December 31, 2016 and a working capital adjustment of ($11,000) based on the purchase price allocation shown in Note 3. |
|
l) |
Reflects the elimination of XXX’s note payable of ($164,000) based on the purchase price allocation shown in Note 3 as well as records the $1,000,000 promissory note related to the transaction as shown in Note 2. |
|
m) |
Records the issuance of 5,303,816 shares of common stock @ a fair value price of $0.17 per share as of the acquisition date as part of the transaction consideration as shown in Note 2. |
|
n) |
Represents an adjustment of ($402,000) to related to the elimination of XXX’s historical retained earnings, non-recurring transaction costs incurred after the balance sheet date of September 30, 2016 of ($192,000) and intercompany elimination of $26,000 |
|
o) |
Reflects the elimination of intercompany revenue recorded in the historical financial statements between Xxxxxx Sub and AGA. |
|
p) |
Reflects the elimination of intercompany cost of sales recorded in the historical financial statements between Xxxxxx Sub and AGA. |
|
q) |
Reflects the amortization expense of intangible assets related to the transaction of $227,000 and additional depreciation due to acquired assets of $22,000 for the twelve month period ending December 31, 2015. |
|
r) |
Reflects the amortization expense of intangible assets related to the transaction of $170,000, reduced depreciation of ($7,000) due to acquired assets and ($461,000) of non-recurring transaction costs recorded in the nine months ended September 30, 2016. |
