STAR EQUITY HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On May 20, 2024, Star Equity Holdings, Inc. (“Star” or the “Company”) announced it completed the acquisition of Timber Technologies, Inc. (“TT”) for consideration of up to $24.1 million subject to certain post-closing adjustments, including an earn-out provision and a hold back to satisfy certain indemnification obligations under the Purchase Agreement. The earn-out provision is based on Adjusted EBITDA thresholds for two successive measurement periods of twelve months, with the first measurement period ending one year after the closing date.
The acquisition constitutes a significant acquisition for the purposes of Item 2.01 of Current Report on Form 8-K. The unaudited pro forma condensed combined balance sheet as of March 31, 2024 gives effect to the transaction as if it had occurred on December 31, 2022. The adjustments included consist of transaction accounting adjustments necessary to reconcile the impacts of the acquisition to the unaudited pro forma condensed combined financial statements.The adjustments included consist of transaction accounting adjustments necessary to reconcile the impacts of the acquisition to the unaudited pro forma condensed combined financial statements.In addition, we have included unaudited pro forma condensed combined statements of operations for the three months ended March 31, 2024 and the year ended December 31, 2023.
The unaudited pro forma condensed combined balance sheet has been derived from the historical consolidated balance sheet prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) and is presented based on information currently available. The unaudited pro forma condensed combined balance sheet is intended for informational purposes only and is not intended to represent the Company’s financial position had the acquisition and related events occurred on the date indicated. Our actual financial condition may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
STAR EQUITY HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1. Basis of Pro Forma Presentation
The unaudited pro forma condensed combined balance sheet as of March 31, 2024, and the unaudited pro forma condensed combined statements of operations for the year ended December 31, 2023 and for the three months ended March 31, 2024, are based on the historical financial statements of the Company and Timber Technologies, Inc. (“TT”) after giving effect to the Company’s acquisition of TT on May 17, 2024 (the “Acquisition Date”) and its subsequent acquisition of TT’s owned real property on June 28, 2024. Certain reclassification and adjustments are described in the accompanying notes to the unaudited pro forma condensed combined financial information.
We account for our acquisition transactions in accordance with ASC 805, Business Combinations. Under ASC 805 we record the assets acquired and liabilities assumed of the acquiree at fair value. Transaction costs directly attributable to the acquisition are expensed as incurred. The excess of (i) the total costs of acquisition over (ii) the fair value of the identifiable net assets of the acquiree is recorded as identifiable intangible assets and goodwill. Conversely, if the fair value of the net assets acquired are in excess of the amount for which we acquired such assets, we would record a “bargain purchase” gain upon acquisition.
The fair values assigned to TT’s assets acquired and liabilities assumed are based on management’s estimates and assumptions. The estimated fair values of these assets acquired and liabilities assumed are considered preliminary and are based on the information that was available as of the date of acquisition. We believe that the information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but we will adjust such fair values as needed. We expect to finalize the valuation of the assets and liabilities as of the Acquisition Date as soon as practicable, but not later than one year from the acquisition date.
The unaudited pro forma condensed combined financial information is not intended to represent or be indicative of our consolidated results of operations or financial position that we would have reported had the acquisition of TT been completed as of the dates presented and should not be taken as a representation of our future consolidated results of operations or financial position.
The unaudited pro forma condensed combined financial information should be read in conjunction with the historical consolidated financial statements and accompanying notes we included in the annual report on Form 10-K for the year ended December 31, 2023. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.
Note 2. Pro forma Adjustments
The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
(1) Pro forma adjustment represents cash paid for acquisition of approximately $13.4 million and $7.0 million Bridgewater Bank (“Bridgewater”) facility entered into in connection with the acquisition with related interest applied. The difference between the amounts paid for the acquisition and the current value of assets acquired is reflected in Goodwill of approximately $13.9 million. Pro forma adjustments also include expenses related to acquisition of approximately $12 thousand and prepaid fees of approximately $86 thousand.
(2) Pro forma adjustment reflects $3.0 million in real property purchased from acquiree on June 28, 2024, which is secured by a $3.0 million mortgage related to TT’s owned real property acquired with related interest applied.
(3) Pro forma adjustments reflect interest applied on the Bridgewater loan and the mortgage on the real property acquired for each period presented. Such amounts are assumed to be paid in cash and are reflected as a reduction in cash balance on the condensed combined balance sheet.
(4) Prior to Star's acquisition, Timber Technologies was not a taxpaying entity for federal income tax purposes and, accordingly, it did not recognize any expense for such taxes. The federal income tax liability resulting from Timber Technologies' activities were the responsibility of Timber Technologies' members. The income tax adjustment recorded, for the period ended December 31, 2023, relates to the income that would have been allocated to Star at the Corporate Statutory Income Tax Rate. The income tax adjustment recorded, for the period ended March 31, 2024, relates to recomputing the Combined Company's Estimate Annual Effective Tax Rate including the estimated forecast of Timber Technologies including valuation allowance changes and applying the Estimate Annual Effective Tax Rate to year to date earnings of the updated combined group.
STAR EQUITY HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of March 31, 2024 (unaudited) |
| | Star Equity Holdings, Inc. Historical | | Timber Technologies, Inc. Historical | | Adjustments | | | | Star Equity Holdings, Inc. Proforma |
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| Assets: | | | | | | | | | | |
| Current assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 14,662 | | | $ | 3,251 | | | $ | (13,376) | | | (1), (3) | | $ | 4,538 | |
| Restricted cash | | 615 | | | — | | | — | | | | | 615 | |
| Investment in equity securities | | 5,575 | | | — | | | — | | | | | 5,575 | |
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| Accounts receivable, net | | 4,584 | | | 870 | | | — | | | | | 5,454 | |
| Note receivable, current portion | | 399 | | | — | | | — | | | | | 399 | |
| Inventories, net | | 4,720 | | | 1,788 | | | — | | | | | 6,508 | |
| Other current assets | | 829 | | | (11) | | | 86 | | | (1) | | | 903 | |
| Assets held for sale | | 4,295 | | | — | | | — | | | | | 4,295 | |
| Total current assets | | 35,679 | | | 5,898 | | | (13,290) | | | | | 28,287 | |
| Property and equipment, net | | 3,537 | | | 2,145 | | | 3,000 | | | (2) | | | 8,682 | |
| Operating lease right-of-use assets | | 1,371 | | | — | | | — | | | | | 1,371 | |
| Intangible assets, net | | 12,067 | | | — | | | — | | | | | 12,067 | |
| Goodwill | | 4,438 | | | — | | | 13,903 | | | (1) | | | 18,341 | |
| Cost method investment | | 6,000 | | | — | | | — | | | | | 6,000 | |
| Notes receivable | | 8,528 | | | — | | | — | | | | | 8,528 | |
| Other assets | | 29 | | | — | | | — | | | | | 29 | |
| Total assets | | $ | 71,649 | | | $ | 8,043 | | | $ | 3,613 | | | | | $ | 83,305 | |
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| Liabilities and Stockholders’ Equity: | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | |
| Accounts payable | | $ | 1,503 | | | $ | 550 | | | $ | — | | | | | $ | 2,053 | |
| Accrued liabilities | | 1,028 | | | 20 | | | 81 | | | (4) | | | 1,130 | |
| Accrued compensation | | 1,018 | | | — | | | — | | | | | 1,018 | |
| Accrued warranty | | 45 | | | — | | | — | | | | | 45 | |
| Lumber derivative contracts | | 1 | | | — | | | — | | | | | 1 | |
| Deferred revenue | | 1,696 | | | — | | | — | | | | | 1,696 | |
| Short-term debt and current portion of long-term debt | | 1,924 | | | — | | | 10,000 | | | (1), (2) | | 11,924 | |
| Operating lease liabilities | | 411 | | | — | | | — | | | | | 411 | |
| Finance lease liabilities | | 35 | | | — | | | — | | | | | 35 | |
| Total current liabilities | | 7,661 | | | 570 | | | 10,081 | | | | | 18,313 | |
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| Long-term debt, net of current portion | | — | | | — | | | — | | | | | — | |
| Deferred tax liabilities | | 320 | | | — | | | (161) | | | (4) | | | 160 | |
| Operating lease liabilities, net of current portion | | 995 | | | — | | | — | | | | | 995 | |
| Finance lease liabilities, net of current portion | | 34 | | | — | | | — | | | | | 34 | |
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| Total liabilities | | 9,010 | | | 570 | | | 9,920 | | | | | 19,502 | |
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| Stockholders’ Equity: | | | | | | | | | | |
| Preferred stock, 0.0001 par value: 10,000,000 shares authorized: Series A Preferred Stock, 8,000,000 shares authorized, liquidation preference ($10 per share), 1915637 shares issued and outstanding at March 31, 2024 | | 18,988 | | | — | | | — | | | | | 18,988 | |
| Series C Preferred stock, 0.0001 par value: 25000 shares authorized; no shares issued or outstanding | | — | | | — | | | — | | | | | — | |
| Common stock, 0.0001 par value: 10000000 shares authorized; 3169641 shares issued and outstanding (net of treasury shares) at March 31, 2024 | | 2 | | | — | | | — | | | | | 2 | |
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| Treasury stock, at cost; 51770 shares at March 31, 2024 | | (5,728) | | | | | | | | | (5,728) | |
| Additional paid-in capital | | 159,690 | | | (140) | | | 140 | | | (3) | | | 159,690 | |
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| Accumulated deficit | | (110,313) | | | 7,613 | | | (6,447) | | | (3) | | | (109,149) | |
| Total stockholders’ equity | | 62,639 | | | 7,473 | | | (6,307) | | | | | 63,803 | |
| Total liabilities and stockholders’ equity | | $ | 71,649 | | | $ | 8,043 | | | $ | 3,613 | | | | | $ | 83,305 | |
See notes to unaudited pro forma condensed combined financial information.
STAR EQUITY HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except for per share amounts) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For The Three Months Ended March 31, 2024 (unaudited) |
| | Star Equity Holdings, Inc. Historical | | Timber Technologies, Inc. Historical | | Adjustments | | | | Star Equity Holdings, Inc. Proforma |
| Revenues: | | | | | | | | | | |
| Building Solutions | | $ | 9,118 | | | $ | 4,085 | | | $ | — | | | | | $ | 13,203 | |
| Total revenues | | 9,118 | | | 4,085 | | | — | | | | | 13,203 | |
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| Cost of revenues: | | | | | | | | | | |
| Building Solutions | | 7,440 | | | 1,683 | | | — | | | | | 9,123 | |
| Investments | | 104 | | | — | | | — | | | | | 104 | |
| Total cost of revenues | | 7,544 | | | 1,683 | | | — | | | | | 9,227 | |
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| Gross profit | | 1,574 | | | 2,402 | | | — | | | | | 3,976 | |
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| Operating expenses: | | | | | | | | | | |
| Selling, general and administrative expenses | | 4,094 | | | 1,151 | | | (12) | | | (1) | | | 5,233 | |
| Amortization of intangible assets | | 442 | | | — | | | — | | | | | 442 | |
| Total operating expenses | | 4,536 | | | 1,151 | | | (12) | | | | | 5,675 | |
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| Income (loss) from continuing operations | | (2,962) | | | 1,251 | | | 12 | | | | | (1,699) | |
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| Other income (expense): | | | | | | | | | | |
| Other income (expense), net | | 399 | | | 1 | | | — | | | | | 400 | |
| Interest income (expense), net | | 374 | | | 23 | | | (202) | | | (3) | | | 194 | |
| Total other income (expense) | | 773 | | | 24 | | | (202) | | | | | 594 | |
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| Loss from continuing operations before income taxes | | (2,189) | | | 1,275 | | | (190) | | | | | (1,105) | |
| Income taxes benefit (provision) from continuing operations | | (35) | | | — | | | 80 | | | (4) | | | 45 | |
| Net (loss) income from continuing operations | | $ | (2,224) | | | $ | 1,275 | | | $ | (110) | | | | | $ | (1,060) | |
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| Net income (loss) per share | | | | | | | | | | |
| Continuing operations | | | | | | | | | | |
| Basic | | $ | (0.70) | | | $ | 0.40 | | | $ | (0.03) | | | | | $ | (0.33) | |
| Diluted | | $ | (0.70) | | | $ | 0.40 | | | $ | (0.03) | | | | | $ | (0.33) | |
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| Weighted average shares outstanding | | | | | | | | | | |
| Basic | | 3,169 | | | 3,169 | | | 3,169 | | | | | 3,169 | |
| Diluted | | 3,183 | | | 3,183 | | | 3,183 | | | | | 3,183 | |
| Dividends declared per share of Series A perpetual preferred stock | | $ | 0.25 | | | $ | 0.25 | | | $ | 0.25 | | | | | $ | 0.25 | |
See notes to unaudited pro forma condensed combined financial information.
STAR EQUITY HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except for per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For The Year Ended December 31, 2023 (unaudited) |
| | Star Equity Holdings, Inc. Historical | | Timber Technologies, Inc. Historical | | Adjustments | | | | Star Equity Holdings, Inc. Proforma |
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| Revenues: | | | | | | | | | | |
| Building Solutions | | $ | 45,785 | | | $ | 18,686 | | | $ | — | | | | | $ | 64,471 | |
| Total revenues | | 45,785 | | | 18,686 | | | — | | | | | 64,471 | |
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| Cost of revenues: | | | | | | | | | | |
| Building Solutions | | 33,631 | | | 11,739 | | | — | | | | | 45,370 | |
| Investments | | 228 | | | — | | | — | | | | | 228 | |
| Total cost of revenues | | 33,859 | | | 11,739 | | | — | | | | | 45,598 | |
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| Gross profit | | 11,926 | | | 6,947 | | | — | | | | | 18,873 | |
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| Operating expenses: | | | | | | | | | | |
| Selling, general and administrative expenses | | 14,538 | | | 1,419 | | | (12) | | | (1) | | | 15,946 | |
| Amortization of intangible assets | | 1,734 | | | — | | | — | | | | | 1,734 | |
| Total operating expenses | | 16,272 | | | 1,419 | | | (12) | | | | | 17,680 | |
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| Net Income (loss) from continuing operations | | (4,346) | | | 5,528 | | | 12 | | | | | 1,193 | |
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| Other income (expense): | | | | | | | | | | |
| Other income (expense), net | | 852 | | | 40 | | | — | | | | | 892 | |
| Interest income (expense), net | | 973 | | | 59 | | | (649) | | | (3) | | | 384 | |
| Total other income (expense) | | 1,825 | | | 99 | | | (649) | | | | | 1,276 | |
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| Loss from continuing operations before income taxes | | (2,521) | | | 5,627 | | | (637) | | | | | 2,469 | |
| Income tax benefit (provision) | | 614 | | | — | | | (506) | | | (4) | | | 108 | |
| Income (loss) from continuing operations | | $ | (1,907) | | | $ | 5,627 | | | $ | (1,143) | | | | | $ | 2,577 | |
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| Net income (loss) per share | | | | | | | | | | |
| Continuing operations | | | | | | | | | | |
| Basic | | $ | (0.60) | | | $ | 1.78 | | | $ | (0.36) | | | | | $ | 0.81 | |
| Diluted | | $ | (0.60) | | | $ | 1.77 | | | $ | (0.36) | | | | | $ | 0.81 | |
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| Weighted average shares outstanding | | | | | | | | | | |
| Basic | | 3,166 | | | 3,166 | | | 3,166 | | | | | 3,166 | |
| Diluted | | 3,175 | | | 3,175 | | | 3,175 | | | | | 3,175 | |
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| Dividends declared per share of Series A perpetual preferred stock | | $ | 1.00 | | | $ | 1.00 | | | $ | 1.00 | | | | | $ | 1.00 | |
See notes to unaudited pro forma condensed combined financial information.
