Introduction to the Unaudited Pro Forma Combined Balance Sheet and Combined Statements of Operations
On August 31, 2023, Solitron Devices, Inc. (the “Company” or “Solitron”) acquired all of the outstanding common stock of Micro Engineering, Inc. (“MEI”), pursuant to a Stock Purchase Agreement (the “Purchase Agreement”), effective September 1, 2023, by and between the Company and the selling stockholders.
MEI specializes in solving design layout and manufacturing challenges while maximizing efficiency and keeping flexibility to meet unique customer needs. Since 1980, the MEI team has been dedicated to overcoming obstacles to provide cost efficient and rapid results. MEI specializes in low to mid volume projects that require engineering dedication, quality systems and efficient manufacturing.
The purchase price consisted of $3.0 million cash paid at closing. Additional earnout payments of up to 7.5% of annual revenue, or approximately $450,000 annually, would be payable over each of the next three years.
The Purchase Agreement contains a provision for an adjustment to the purchase price for acquired working capital in excess of, or below, $3.25 million within 180 days after the closing date.
The Unaudited Pro Forma Combined Balance Sheet represents the historical balance sheet of Solitron giving effect to the stock purchase agreement as if it had been consummated on August 31, 2023. The Unaudited Pro Forma Combined Statements of Operations for the fiscal period then ended represents the historical statement of operations as if the acquisition had been consummated the beginning of Solitron's fiscal 2023 year and six-month fiscal period ended August 31, 2023.
You should read this information in conjunction with the:
·
Accompanying notes to the Unaudited Pro Forma Combined Balance Sheet and Unaudited Pro Forma Combined Statements of Operations.
·
Separate historical financial statements and footnotes of Solitron, included in Solitron’s annual report on Form 10-K for the fiscal year ended February 28, 2023, as filed on June 23, 2023.
·
Separate historical financial statements and footnotes of Solitron, included in Solitron’s quarterly report on Form 10-Q for the fiscal quarter ended August 31, 2023, as filed on October 12, 2023.
·
Separate historical financial statements and footnotes of MEI, included in this Current Report on Form 8- K/A as of and for the years ended December 31, 2021 and December 31, 2022, and unaudited financial statements as of and for the six-months ended June 30, 2023.
We present the unaudited pro forma combined financial information for informational purposes only. The pro forma information is not necessarily indicative of what our financial position would have been had we completed the acquisition on the dates indicated nor is it necessarily indicative of what our operating results actually would have been had we completed the acquisition on any future date or for any future period. In addition, the unaudited pro forma combined and combining financial information does not purport to project the future financial position or operating results of Solitron.
SOLITRON DEVICES, INC. UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 2023
(in thousands, except for share and per share amounts)
Solitron Devices
Micro Engineering
Pro forma
Pro forma
August 31, 2023
June 30, 2023
Note
Adjustments
Consolidated
(unaudited)
(unaudited)
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
4,098
$
338
(a)(f)
$
(2,803
)
$
1,633
Marketable securities
751
-
-
751
Accounts receivable
952
987
(f)
(214
)
1,725
Inventories, net
2,076
2,164
(b)(f)
498
4,738
Prepaid expenses and other current assets
285
448
(f)
(149
)
584
TOTAL CURRENT ASSETS
8,162
3,937
(2,668
)
9,431
Property, plant and equipment, net
7,218
110
(f)
37
7,365
Intangibles
-
-
(c)
298
298
Other assets
14
-
-
14
TOTAL ASSETS
$
15,394
$
4,047
$
(2,333
)
$
17,108
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable
$
373
$
125
(d)(f)
$
106
$
604
Customer deposits
77
-
-
77
Mortgage loan, current portion
109
-
-
109
Accrued contingent consideration, current
-
-
(e)
413
413
Accrued expenses and other current liabilities
946
115
(f)
(45
)
1,016
TOTAL CURRENT LIABILITIES
1,505
240
474
2,219
Accrued contingent consideration
-
-
(e)
750
750
Deferred tax liability
-
103
(f)
147
250
Mortgage loan, net of current portion
2,593
-
-
2,593
TOTAL LIABILITIES
4,098
343
1,371
5,812
STOCKHOLDERS’ EQUITY
Preferred stock
-
-
-
-
Common stock
21
-
-
21
Additional paid-in capital
1,834
1
(1
)
1,834
Retained Earnings
10,853
3,703
(3,703
)
10,853
Less treasury stock
(1,412
)
-
-
(1,412
)
TOTAL STOCKHOLDERS’ EQUITY
11,296
3,704
(3,704
)
11,296
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
15,394
$
4,047
$
(2,333
)
$
17,108
The accompanying notes are an integral part of these unaudited proforma financial statements.
2
SOLITRON DEVICES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR FISCAL YEAR ENDED FEBRUARY 28, 2023
(Unaudited, in thousands except for share and per share amounts)
Solitron Devices
Micro Engineering
For The Fiscal
Year ended
For The Calendar Year ended
note
Pro forma Adjustments
Pro forma Consolidated
February 28,
2023
December 31,
2022
(unaudited)
Net sales
$
6,406
$
5,930
$
12,336
Cost of sales
5,005
2,704
7,709
Gross profit
1,401
3,226
4,627
Selling, general and administrative expenses
2,052
1,828
(a)
99
3,979
Operating income
(651
)
1,398
(a)
(99
)
648
Other income (loss)
Interest income
36
3
39
Interest expense
(108
)
-
(b)
(105
)
(213
)
Dividend income
31
-
31
Realized (loss) on investments
(18
)
-
(18
)
Unrealized gain on investments
886
-
886
Scrap income
650
-
650
PPP loan forgiveness
-
365
365
Total other income
1,477
368
(b)
(105
)
1,740
Net income before taxes
826
1,766
(a)(b)
(204
)
2,388
Income taxes
-
361
(c)
(361
)
-
Net income
$
826
$
1,405
$
2,388
Net income per common share - basic and diluted
$
0.40
$
16.53
$
1.15
Weighted average shares outstanding - basic and diluted
2,083,436
85,000
2,083,436
The accompanying notes are an integral part of these unaudited proforma financial statements.
3
SOLITRON DEVICES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR SIX MONTHS ENDED AUGUST 31, 2023
(Unaudited, in thousands except for share and per share amounts)
Solitron Devices
Micro Engineering
For The Six
Months ended
For The Six
Months ended
note
Pro forma Adjustments
Pro forma Consolidated
August 31, 2023
June 30, 2023
Net sales
$
4,617
$
2,795
$
7,412
Cost of sales
3,113
1,463
4,576
Gross profit
1,504
1,332
2,836
Selling, general and administrative expenses
1,156
825
(a)
50
2,031
Operating income
348
507
(a)
(50
)
805
Other income (loss)
Interest income
20
2
22
Interest expense
(53
)
-
(b)
(52
)
(105
)
Dividend income
19
-
19
Realized gain on investments
332
-
332
Unrealized (loss) on investments
(637
)
-
(637
)
Total other income
(319
)
2
(b)
(52
)
(369
)
Net income before taxes
29
509
(a)(b)
(102
)
436
Income taxes
-
127
(c)
(127
)
-
Net income
$
29
$
382
$
436
Net income per common share - basic and diluted
$
0.01
$
4.49
$
0.21
Weighted average shares outstanding - basic and diluted
2,083,436
85,000
2,083,436
The accompanying notes are an integral part of these unaudited proforma financial statements.
4
NOTE 1 - DESCRIPTION OF TRANSACTION AND BASIS OF PRESENTATION
The Unaudited Pro Forma Combined Balance Sheet and Unaudited Pro Forma Combined Statements of Operations include the accounts of both companies. For the fiscal 2023 statement of income of Solitron, the historical amounts represent the fiscal year ended February 28, 2023. For the 2022 statement of income of Micro Engineering, the historical amounts represent the calendar year ended December 31, 2022. For the fiscal 2023 six-month statement of income of Solitron, the historical amounts represent the fiscal six-month period ended August 31, 2023. For the 2023 six-month statement of operations of Micro Engineering, the historical amounts represent the six-month period ended June 30, 2023.
NOTE 2 – PRO FORMA ADJUSTMENTS TO THE COMBINED BALANCE SHEET AT AUGUST 31, 2023
(a) to record purchase price of $3 million
(b) to record fair value adjustment of inventory acquired
(c) to record associated intangibles
(d) to record amount payable due to working capital adjustment
(e) to record accrued contingent consideration
(f) to record adjustments due to changes between June 30, 2023 and August 31, 2023.
NOTE 3 – PRO FORMA ADJUSTMENTS TO THE COMBINED STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2023 AND THE SIX MONTHS ENDED AUGUST 31, 2023
(a) to record amortization of intangibles
(b) to record interest expense on contingent purchase consideration
(c) to record the tax effect of Solitron's net operating loss carryforwards
NOTE 4 – PRELIMINARY PURCHASE PRICE ALLOCATION and INTANGIBLE ASSETS
A preliminary estimate of the fair value of the assets to be acquired and the liabilities to be assumed by Solitron in connection with the acquisition is as follows:
Micro Engineering
Fair value
Pro forma
August 31, 2023
Note
Adjustments
Consolidated
(unaudited)
(unaudited)
(unaudited)
Assets Acquired
Cash and cash equivalents
$
535
$
-
$
535
Accounts receivable
773
-
773
Inventories, net
1,944
(a)
718
2,662
Prepaid expenses and other current assets
299
-
299
Property, plant and equipment, net
147
-
147
Total assets acquired
$
3,698
$
718
$
4,416
Liabilities Assumed
Accounts payable
$
79
$
-
$
79
Accrued expenses and other current liabilities
70
-
70
Deferred tax liability
250
-
250
Total liabilities assumed
399
-
399
Intangibles
-
-
298
Total purchase price
4,315
5
The above estimate of the fair value of assets to be acquired and the liabilities to be assumed by Solitron could materially change.
The carrying values of all current assets and non-current assets acquired are assumed to be representative of their estimated fair values other than in the case of inventory.
The carrying values of current liabilities and non-current liabilities are assumed to be representative of their estimated fair values.
(a) to record adjustment of inventory to fair value net of selling costs.
6
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