8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549 

FORM8-K/A

(Amendment No. 1)

CURRENTREPORT

Pursuant to Section 13 or 15(d) ofthe

Securities Exchange Act of1934

Date of Report (Date of earliest event reported): June 15,2015

 

RICHARDSON ELECTRONICS, LTD.

(Exact name of registrant as specified incharter)

Delaware	0-12906	36-2096643
(State or otherjurisdiction of incorporation)	(Commission FileNumber)	(IRS Employer IdentificationNo.)
40W267 Keslinger Road, P.O. Box 393, LaFox,Illinois		60147-0393
(Address of principal executiveoffices)		(Zip Code)

Registrant’s telephone number, including area code: (630)208-2200

(Former name or former address, if changed since lastreport.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation ofthe registrant under any of the following provisions (see General Instruction A.2.below):

☐  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR240.14a-12)

☐  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))

☐  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR240.13e-4(c))

EXPLANATORY NOTE

Richardson Electronics, Ltd (the “Company”) filed a current report on Form 8-K on June 17, 2015 (the “Original Form 8-K”) to report, among other things, the completion of its acquisition of International Medical Equipment and Services, Inc. (“IMES’). This Current Report on Form 8-K/A amends and restates in its entirety Item 9.01 of the Original Form 8-K to include the required financial statements and to present certain unaudited pro forma financial information in connection with the acquisition, which are filed as exhibits 99.1 and 99.2 hereto, respectively. The information previously reported in the Original 8-K is not hereby amended and is hereby incorporated by reference into this Form 8-K/A.

Item 9.01 Financial Statements and Exhibits.

(a)

Financial statements of businesses acquired.

The audited financial statements of IMES as of and for the years ended December 31, 2014, and December 31, 2013, and the unaudited condensed financial statements of IMES as of and for the three-months ended March 31, 2015, and for the three months ended March 31, 2014, are being filed as Exhibit 99.1 to this Current Report on Form 8-K/A and are incorporated herein by reference.

(b)

Pro forma financial information.

The unaudited pro forma condensed combined financial information relating to the Company’s acquisition of IMES is filed as Exhibit 99.2 to this Current Report on Form 8-K/A and is incorporated herein by reference.

(d)

Exhibits.

Exhibit No.	Description
23.1	Consent of BDO USA, LLP, Independent Registered Public Accounting Firm.
99.1	Audited consolidated financial statements of IMES as of and for the years ended December 31, 2014 and December 31, 2013, and the unaudited condensed financial statements of IMES as of and for the three months ended March 31, 2015, and for the three months ended March 31, 2014.
99.2	Unaudited Pro Forma Condensed Combined Financial Information.

SIGNATURES

Pursuant totherequirementsoftheSecuritiesExchangeActof1934,theregistranthasdulycausedthisreporttobe signed on its behalf by the undersigned hereunto dulyauthorized.

	RICHARDSON ELECTRONICS,LTD.
Date: December 23, 2015	By:	/s/ Edward J. Richardson
	Name: Title:	Edward J. Richardson Chairman of the Board and Chief Executive Officer

EX-23.1

Richardson Electronics, Ltd. 8-K/A

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

Richardson Electronics, Ltd.

LaFox, Illinois

We hereby consent to the incorporation by reference in the Post Effective Amendment Number 1 to Registration Statement Number 2-89888 on Form S-8, Registration Statement Number 33-36475 on Form S-8, Registration Statement Number 33-54745 on Form S-8, Registration Statement Number 333-02865 on Form S-8, Registration Statement Number 333-03965 on Form S-8, Registration Statement Number 333-04071 on Form S-8, Registration Statement Number 333-04457 on Form S-8, Registration Statement Number 333-04767 on Form S-8, Registration Statement Number 333-49005 on Form S-2, Registration Statement Number 333-51513 on Form S-2, Registration Statement Number 333-66215 on Form S-8, Registration Statement Number 333-76897 on Form S-8, Registration Statement Number 333-70914 on Form S-8, Registration Statement Number 333-115955 on Form S-8, Registration Statement Number 333-120032 on Form S-8, Registration Statement Number 333-129828 on Form S-8, Registration Statement Number 333-60092 on Form S-8, Registration Statement Number 333-146878 on Form S-8, and Registration Statement Number 333-146879 on Form S-8 of Richardson Electronics, Ltd. of our report dated December 18, 2015, relating to the financial statements of International Medical Equipment & Services, Inc. appearing in Richardson Electronics, Ltd.’s Current Report on Form 8-K/A dated December 23, 2015.

/s/ BDO USA, LLP

Charlotte, North Carolina

December 23, 2015

EX-99.1

Richardson Electronics, Ltd. 8-K/A

EXHIBIT 99.1

International Medical Equipment &
Services, Inc.

Financial Statements

Years Ended December 31, 2014 and 2013 

International Medical Equipment & Services, Inc.

Financial Statements 

Years Ended December 31, 2014 and 2013

1

International Medical Equipment & Services, Inc.

Contents

Independent Auditor’s Report		3-4
Financial Statements
	Balance Sheets	5
	Statements of Operations	6
	Statements of Changes in Stockholders’ Equity	7
	Statements of Cash Flows	8
	Notes to Financial Statements	9-16

2

 

Independent Auditor’s Report

Board of Directors

International Medical Equipment & Services, Inc.

Fort Mill, South Carolina

We have audited the accompanying financial statements of International Medical Equipment & Services, Inc. (the “Company”), which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements. 

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

3

 

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the International Medical Equipment & Services, Inc. as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Other Matter

On June 15, 2015, certain of the Company’s assets were sold to Richardson Electronics, Ltd. Our opinion has not been modified with respect to this matter.

 

December 18, 2015

4

Financial Statements

5

International Medical Equipment & Services, Inc.

Balance Sheets

 

December 31,	2014		2013
Assets
Current assets:
Cash	$	647,938	$	184,153
Accounts receivable, net (Note 2)		628,492		426,377
Inventories, net (Note 3)		1,518,347		2,046,477
Prepaid expenses and other current assets		189,955		113,931
Total current assets		2,984,732		2,770,938
Property and equipment, net (Note 4)		401,548		499,944
Total assets	$	3,386,280	$	3,270,882

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	147,514	$	457,727
Current portion of notes payable (Note 5)		145,521		140,124
Customer deposits		872,190		291,076
Accrued liabilities		255,771		182,503
Total current liabilities		1,420,996		1,071,430
Revolving line of credit (Note 5)		—		400,000
Long term notes payable, less current portion (Note 5)		366,418		478,126
Total liabilities		1,787,414		1,949,556

Commitments (Note 6)
Stockholders' Equity:
Common stock, voting, no par, 100,000 shares authorized; 1,000 shares issued and outstanding at December 31, 2014 and 2013		400		400
Retained earnings		1,598,466		1,320,926
Total stockholders' equity		1,598,866		1,321,326
Total liabilities and stockholders' equity	$	3,386,280	$	3,270,882

See accompanying notes to financial statements.

6

International Medical Equipment & Services, Inc.

Statements of Operations

Years Ended December 31,	2014			2013
Net revenues	$	8,405,615		$	6,333,219
Cost of goods sold		4,704,322			3,911,855
Gross profit		3,701,293			2,421,364
Operating expenses:
Selling, general and administrative expenses		2,426,724			1,840,543
Depreciation expense		147,723			116,294
Total operating expenses		2,574,447			1,956,837
Operating income		1,126,846			464,527
Interest expense, net		(43,299	)		(54,931	)
Other income (expense), net		33,993			(4,817	)
Net income	$	1,117,540		$	404,779

See accompanying notes to financial statements.

7

International Medical Equipment & Services, Inc.

Statements of Changes in Stockholders’ Equity

	Common Stock				Retained
	Shares		Value		Earnings			Total
Balance, December 31, 2012		1,000	$	400	$	1,198,713		$	1,199,113
Net income		—		—		404,779			404,779
Stockholders' distributions		—		—		(282,566	)		(282,566	)
Balance, December 31, 2013		1,000		400		1,320,926			1,321,326
Net income		—		—		1,117,540			1,117,540
Stockholders' distributions		—		—		(840,000	)		(840,000	)
Balance, December 31, 2014		1,000	$	400	$	1,598,466		$	1,598,866

See accompanying notes to financial statements.

8

International Medical Equipment & Services, Inc.

Statements of Cash Flows

Years Ended December 31,	2014			2013
Operating activities:
Net income	$	1,117,540		$	404,779
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		147,723			116,294
Bad debt expense		100,307			34,697
Changes in:
Accounts receivable		(302,422	)		(68,398	)
Inventories		528,130			(340,807	)
Prepaid expenses and other assets		(76,023	)		25,400
Accounts payable		(310,214	)		458,600
Customer deposits		581,114			291,076
Accrued expenses and other current liabilities		73,268			71,427
Net cash provided by operating activities		1,859,423			993,068
Investing activities:
Purchase of property, plant and equipment		(3,310	)		(217,888	)
Net cash used in investing activities		(3,310	)		(217,888	)
Financing activities:
Stockholder distributions		(840,000	)		(282,566	)
Proceeds from line of credit		—			400,000
Repayment of line of credit		(400,000	)		—
Proceeds from issuance of long-term debt		—			550,000
Repayment of long-term debt		(152,328	)		(1,478,544	)
Net cash used in financing activities		(1,392,328	)		(811,110	)
Net increase (decrease) in cash		463,785			(35,930	)
Cash, beginning of year		184,153			220,083
Cash, end of year	$	647,938		$	184,153
Supplemental cash flow information:
Cash paid for interest	$	43,299		$	54,931
Fixed assets acquired through debt financing	$	46,016		$	102,892
Inventory acquired through debt financing	$	—		$	130,500

See accompanying notes to financial statements.

9

International Medical Equipment & Services, Inc.

Notes to Financial Statements

1. Summary of Significant Accounting Policies

Organization and Nature of Operations

International Medical Equipment & Services, Inc. (the “Company”), is an international distributor of medical imaging equipment and parts, headquartered in Fort Mill, South Carolina. The Company also provides training on the operation of medical imaging equipment.

Basis of Accounting

The Company prepares its financial statements on the accrual basis of accounting. Under this method, income is recognized as it is earned, and expenses are recognized as they are incurred.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management in the preparation of the accompanying financial statements relate primarily to the collectability of accounts receivable, depreciable lives of property and equipment, and recoverability of the carrying value of inventory. Actual results could differ from those estimates.

Cash

The Company maintains cash balances at certain banks which at times may exceed the Federal Deposit Insurance Corporation limits. The Company has not historically experienced losses related to these balances.

Accounts Receivable and Concentration of Credit Risk

Accounts receivable are unsecured customer obligations due under normal trade terms generally requiring payment within 30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer, less any allowed deductions and other allowances. Customer account balances are considered delinquent when payment is not received within the trade terms granted. The Company estimates the allowance for doubtful accounts based on historical experience, the credit worthiness of its customers, and management’s assessment of general economic conditions, affecting its customer base. Consequently, an adverse change in those factors could affect the Company’s estimate of its bad debts. After exhausting collection efforts, any uncollectible accounts receivable are written off against the reserve. The Company does not charge interest on past due accounts receivable. The Company’s allowance for doubtful accounts totaled approximately $95,000 and $0 at December 31, 2014 and 2013, respectively.

At December 31, 2014 and 2013, two customers comprised approximately 33 percent and 25 percent of accounts receivable, respectively.

10

International Medical Equipment & Services, Inc.

Notes to Financial Statements

Inventories

Inventories are valued at the lower of the cost or net realizable value. The costs of inventories are determined using the first-in, first-out (“FIFO”) method. An allowance to reduce inventories to their net realizable value is determined by management based on age, analysis of usage, industry trends and expected demand.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is computed using the straight-line method over the estimated useful lives of the assets or the term of the lease, if shorter. Maintenance and repairs are charged to expense as incurred. Significant renewals or betterments that extend the useful lives of property and equipment are capitalized. When items of property and equipment are disposed of, the cost and accumulated depreciation and amortization is removed from the accounts, and any resulting gain or loss is recorded in the statements of operations. No gain or loss on disposal of property and equipment was recognized in 2014 or 2013.

The estimated useful lives of property and equipment are as follows:

Machinery and equipment	5-10 years
Furniture and fixtures	7-10 years
Computers and equipment	1-3 years
Leasehold improvements	Lesser of useful life or lease term

Impairment of Long-Lived Assets

Long-lived assets and finite intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to dispose. No impairment charges were recognized in 2014 or 2013.

Revenue Recognition

The Company recognizes revenue from equipment and parts sales when the product is delivered or shipped to the customer, title and risk of ownership passes to the customer, collectability is reasonably assured, provided that persuasive evidence of an arrangement exists, and the price is fixed or determinable. Deposits received in advance are recorded as customer deposits and are included in current liabilities until revenue is recognized. The Company recognizes revenue from training and consulting services at the time of the services are rendered. Revenue is recorded net of an allowance for estimated returns and discounts.

11

International Medical Equipment & Services, Inc.

Notes to Financial Statements

Sales and Use Tax

Sales are presented net of sales and use taxes in the accompanying statements of operations. Sales and use tax amounts are included as a component of cost of sales in the accompanying statements of operations.

Shipping and Handling Costs

Costs to ship products to customers are expensed as incurred. Shipping costs of approximately $187,000 and $76,000 for the years ended December 31, 2014 and 2013, respectively, are recorded as a component of selling, general and administrative expenses in the accompanying statements of operations.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred. Advertising and marketing costs totaled approximately $76,000 and $62,000 for the years ended December 31, 2014 and 2013, respectively, and are included as a component of selling, general and administrative expenses in the accompanying statements of operations.

Income Taxes

The shareholders of the Company have elected under the provisions of Subchapter S of the Internal Revenue Code to include the Company’s income in their personal income for federal and state income tax purposes. Accordingly, the Company is not subject to federal or state income taxes for its United States sourced income.

ASC 740, Income Taxes (“ASC 740”) was adopted by the Company as of January 1, 2009. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. Under ASC 740, the impact of an uncertain income tax position on the income tax returns must be recognized at the largest amount that is more-likely-than-not to be required to be recognized upon audit by the relevant taxing authority. ASC 740 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting for interim periods, disclosure and transition issues with respect to tax positions. The Company believes it has no uncertain tax positions as of December 31, 2014 and 2013.

The Company includes interest and penalties accrued in accordance with ASC 740 in the financial statements as a component of interest expense. No amounts were required to be recorded as of December 31, 2014 and 2013.

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

12

International Medical Equipment & Services, Inc.

Notes to Financial Statements

ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.

As of December 31, 2014 and 2013 and for the years then ended, the carrying values reflected in the accompanying balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to their relative short term maturities.

The carrying values of debt approximate fair market value since these financial instruments bear interest at variable rates which approximate current market rates for bonds with similar maturities and credit quality.

At December 31, 2014 and 2013, the Company did not have any assets or liabilities that were required to be measured at fair value on a recurring basis.

Recently Issued Accounting and Reporting Guidance

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in amounts that reflect the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, may require more judgment and estimates within the revenue recognition process than are required under existing U.S. GAAP. For private companies, the standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern. ASU 2014-15 requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern and if those conditions exist, the required disclosures. The standard is effective for annual periods ending after December 15, 2016, and interim periods therein. The Company does not expect adoption of this standard will have a significant impact on the Company’s financial statements.

13

International Medical Equipment & Services, Inc.

Notes to Financial Statements

Subsequent Events

Under ASC 855, companies are required to disclose events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The statement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The statement sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. See Note 8.

2. Accounts Receivable

Accounts receivable consist of the following:

December 31,	2014			2013
Accounts receivable	$	721,049		$	426,377
Less: allowance for doubtful accounts and returns		(92,557	)		—
Accounts receivable, net	$	628,492		$	426,377

3. Inventories

Inventories consist of the following:

December 31,	2014			2013
Equipment	$	541,393		$	871,037
Parts		1,062,556			1,338,105
Less: allowance for slow moving and obselete inventory		(85,602	)		(162,665	)
Inventories, net	$	1,518,347		$	2,046,477

14

International Medical Equipment & Services, Inc.

Notes to Financial Statements

4. Property and Equipment

Property and equipment consist of the following:

December 31,	2014			2013
Machinery and equipment	$	410,555		$	407,244
Furniture and fixtures		17,679			17,679
Computers and equipment		2,885			2,885
Vehicles		302,866			256,850
Leasehold improvements		111,507			111,507
Total property and equipment		845,492			796,165
Less: accumulated depreciation and amortization		(443,944	)		(296,221	)
Property and equipment, net	$	401,548		$	499,944

Depreciation and amortization expense for the years ended December 31, 2014 and 2013 was approximately $148,000 and $116,000, respectively.

5. Borrowings

Long-term debt consists of the following:

December 31,	2014			2013
Revolving line of credit	$	—		$	400,000
Term loan		378,610			482,656
Automobile financing		133,329			135,594
Total long-term debt and capital leases		511,939			1,018,250
Less: current maturities		(145,521	)		(140,124	)
Long-term debt and capital leases, net	$	366,418		$	878,126

On April 24, 2013, the Company entered into a credit agreement (the “Credit Agreement”) with a financial institution. The Credit Agreement consists of a $550,000 term loan (the “Term Loan”) and a $1,000,000 revolving credit facility (the “Revolver”). Borrowings under the Credit Agreement are collateralized by accounts receivable, inventory, and fixed assets of the Company. The Term Loan is payable in monthly installments of principal and interest totaling $10,144 through the maturity date of April 24, 2018. The Credit Agreement was amended on February 10, 2014 and March 31, 2015 to increase the availability under the Revolver to $1,500,000 and extend its maturity date to April 24, 2016.

15

International Medical Equipment & Services, Inc.

Notes to Financial Statements

Interest accrues on borrowings under the Revolver at LIBOR plus 3.25% (3.43% at December 31, 2013). The interest rate on the Company’s Term Loan was 4.0% at both December 31, 2014 and 2013.

The Company enters into loan agreements in connection with the purchase of its automobiles. At December 31, 2014 and 2013, the Company had four and three automobile financing arrangements in place, respectively. Amounts outstanding under these financing arrangements are collateralized by the related automobiles. These financing arrangements require monthly payments of principal and interest ranging from $555 to $923 each, accrue interest at annual rates ranging from 2.99% to 5.9% and mature in periods beginning in February 2017 through January 2019.

The Company also enters into loan agreements from time to time in connection with the purchase of medical imaging equipment for resale. At December 31, 2012, the Company had seven equipment financing arrangements in place, having a total outstanding loan obligation of approximately $1,225,000. These loans were collateralized by the equipment acquired, accrued interest at annual rates ranging from 4.5% to 5.5%, and had original maturity dates ranging from April 15, 2013 to October 19, 2016. All of the equipment loans were repaid during 2013.

The Credit Agreement contains certain covenants, including covenants restricting additional indebtedness and the payment of dividends. In addition, the Company must maintain certain annual financial covenants, including, among other things, a maximum debt to net worth ratio and a minimum fixed charge coverage ratio., The Company is also required to submit its compiled financial statements to the lender within 120 days of its year-end. The Company was in compliance with its debt covenants at both December 31, 2014 and 2013.

Future maturities of the Company’s outstanding borrowings as of December 31, 2014, are as follows:

Years Ending March 31,
2015	$	145,521
2016		151,642
2017		151,812
2018		59,989
2019		2,975
Total notes payable	$	511,939

6. Commitments

The Company is from time-to-time involved in litigation incidental to the conduct of its business, and such matters can involve current and former employees and other matters. These actions are routine and are expected to continue to be resolved without a material effect on the Company’s financial position or future results of operation.

16

International Medical Equipment & Services, Inc.

Notes to Financial Statements

7. Related Party Transactions

The Company leases its office and warehouse facility from a related party under a month-to-month arrangement. Amounts paid to the related party for the use of the facility approximated $99,000 in each of 2014 and 2013.

During 2014, the Company recognized revenue of approximately $64,000 related to the sales of parts to Richardson Electronics, Ltd., who acquired the Company in June 2015.

8. Subsequent Events

The Company has evaluated subsequent events from the date of the balance sheet through December 18, 2015, the date the financial statements were available for issuance. On March 31, 2015, the Company extended the maturity date of the Revolver to April 24, 2016. On June 15, 2015, certain of the Company’s assets were acquired by Richardson Electronics, Ltd. for cash proceeds approximating $12.2 million. Proceeds generated from the sale were used to repay the Company’s outstanding debt obligations. No other material recognizable subsequent events were identified.

17

International Medical Equipment &
Services, Inc.

Unaudited Financial Statements 

Three Months Ended March 31, 2015 and 2014 

International Medical Equipment & Services, Inc.

Unaudited Financial Statements 

Three Months Ended March 31, 2015 and 2014

International Medical Equipment & Services, Inc.

CONTENTs

Unaudited Financial Statements
	Balance Sheets	3
	Statements of Operations	4
	Statements of Changes in Stockholders’ Equity	5
	Statements of Cash Flows	6
	Notes to Unaudited Financial Statements	7-14

International Medical Equipment & Services, Inc.

Unaudited Balance Sheets

March 31,	2015		2014
Assets
Current assets:
Cash	$	330,959	$	92,381
Accounts receivable, net (Note 2)		805,858		779,200
Inventories, net (Note 3)		1,923,076		2,794,191
Prepaid expenses and other current assets		37,112		24,443
Total current assets		3,097,005		3,690,215
Property and equipment, net (Note 4)		436,667		519,030
Total assets	$	3,533,672	$	4,209,245

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	322,800	$	609,642
Current portion of notes payable (Note 5)		167,324		145,153
Customer deposits		125,000		686,586
Accrued expenses		121,511		70,296
Total current liabilities		736,635		1,511,677
Revolving line of credit (Note 5)		—		400,000
Long term notes payable, less current portion (Note 5)		369,250		485,350
Total liabilities		1,105,885		2,397,027

Stockholders' Equity:
Common stock, voting, no par, 100,000 shares authorized; 1,000 shares issued and outstanding at March 31, 2015 and 2014		400		400
Retained earnings		2,427,387		1,811,818
Total stockholders' equity		2,427,787		1,812,218
Total liabilities and stockholders' equity	$	3,533,672	$	4,209,245

See accompanying notes to unaudited financial statements.

3

International Medical Equipment & Services, Inc.

Unaudited Statements of Operations

Three Months Ended March 31,	2015			2014
Net revenue	$	2,841,067		$	2,073,166
Cost of goods sold		1,352,214			914,932
Gross profit		1,488,853			1,158,234
Operating expenses:
Selling, general and administrative expenses		462,298			429,442
Depreciation expense		36,913			36,931
Operating income		989,642			691,861
Interest expense, net		(5,362	)		(11,602	)
Other income (expense), net		4,641			(21,867	)
Net income	$	988,921		$	658,392

See accompanying notes to unaudited financial statements.

4

International Medical Equipment & Services, Inc.

Unaudited Statements of Changes in Stockholders’ Equity

	Stockholders'		Retained
	Equity		Earnings			Total
Balance, December 31, 2013	$	400	$	1,320,926		$	1,321,326
Net income		—		658,392			658,392
Stockholder distributions		—		(167,500	)		(167,500	)
Balance, March 31, 2014	$	400	$	1,811,818		$	1,812,218
Balance, December 31, 2014	$	400	$	1,598,466		$	1,598,866
Net income		—		988,921			988,921
Stockholder distributions		—		(160,000	)		(160,000	)
Balance, March 31, 2015	$	400	$	2,427,387		$	2,427,787

See accompanying notes to unaudited financial statements.

5

International Medical Equipment & Services, Inc.

Unaudited Statements of Cash Flows

Three Months Ended March 31,	2015			2014
Operating activities:
Net income	$	988,921		$	658,392
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		36,913			36,931
Changes in:
Accounts receivable		(177,366	)		(352,823	)
Inventories		(404,729	)		(747,714	)
Prepaid expenses and other assets		152,843			89,488
Accounts payable		175,286			151,915
Customer deposits		(747,190	)		395,510
Accrued expenses and other current liabilities		(134,260	)		(112,207	)
Net cash (used in) provided by operating activities		(109,582	)		119,492
Investing activities:
Purchase of property and equipment		(12,532	)		(10,001	)
Net cash used in investing activities		(12,532	)		(10,001	)
Financing activities:
Stockholder distributions		(160,000	)		(167,500	)
Repayment of long-term debt		(34,865	)		(33,763	)
Net cash used in financing activities		(194,865	)		(201,263	)
Net decrease in cash		(316,979	)		(91,772	)
Cash, beginning of period		647,938			184,153
Cash, end of period	$	330,959		$	92,381
Supplemental cash flow information:
Cash paid for interest	$	5,362		$	11,603
Fixed assets acquired through debt financing		59,500			46,016

See accompanying notes to unaudited financial statements.

6

International Medical Equipment & Services, Inc.

Notes to Unaudited Financial Statements

1. Summary of Significant Accounting Policies

Organization and Nature of Operations

International Medical Equipment & Services, Inc. (the “Company”), is an international distributor of medical imaging equipment and parts, headquartered in Fort Mill, South Carolina. The Company also provides training on the operation of medical imaging equipment.

Basis of Accounting

The unaudited quarterly financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). In the opinion of management, these unaudited quarterly financial statements contain all adjustments, consisting of adjustments of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented. The results of operations for the three months ended March 31, 2015 and 2014 are not necessarily indicative of the results to be expected for the full years.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates made by management in the preparation of the accompanying financial statements relate primarily to the collectability of accounts receivable, depreciable lives of property and equipment, and recoverability of the carrying value of inventory. Actual results could differ from those estimates.

Cash

The Company maintains cash balances at certain banks which at times may exceed the Federal Deposit Insurance Corporation limits. The Company has not historically experienced losses related to these balances.

Accounts Receivable and Concentration of Credit Risk

Accounts receivable are unsecured customer obligations due under normal trade terms generally requiring payment within 30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer, less any allowed deductions and other allowances. Customer account balances are considered delinquent when payment is not received within the trade terms granted. The Company estimates the allowance for doubtful accounts based on historical experience, the credit worthiness of its customers, and management’s assessment of general economic conditions, affecting its customer base. Consequently, an adverse change in those factors could affect the Company’s estimate of its bad debts. After exhausting collection efforts, any uncollectible accounts receivable are written off against the reserve. The Company does not charge interest on past due accounts receivable. The Company’s allowance for doubtful accounts totaled approximately $93,000 and $0 at March 31, 2015 and 2014, respectively.

7

International Medical Equipment & Services, Inc.

Notes to Unaudited Financial Statements

At March 31, 2015, four customers comprised approximately 49 percent of accounts receivable. At March 31, 2014, two customers comprised approximately 48 percent of accounts receivable.

Inventories

Inventories are valued at the lower of the cost or net realizable value. The costs of inventories are determined using the first-in, first-out (“FIFO”) method. An allowance to reduce inventories to their net realizable value is determined by management based on age, analysis of usage, industry trends and expected demand.

Property and Equipment

Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property and equipment is computed using the straight-line method over the estimated useful lives of the assets or the term of the lease, if shorter. Maintenance and repairs are charged to expense as incurred. Significant renewals or betterments that extend the useful lives of property and equipment are capitalized. When items of property and equipment are disposed of, the cost and accumulated depreciation and amortization is removed from the accounts, and any resulting gain or loss is recorded in the statements of operations.

The estimated useful lives of property and equipment are as follows:

Machinery and equipment	5-10 years
Furniture and fixtures	7-10 years
Computers and equipment	1-3 years
Leasehold improvements	Lesser of useful life or lease term

Impairment of Long-Lived Assets

Long-lived assets and finite intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to dispose. No impairment charges were recognized in the three-month periods ended March 31, 2015 and 2014.

Revenue Recognition

The Company recognizes revenue from equipment and parts sales when the product is delivered o shipped to the customer, title and risk of ownership passes to the customer, collectability is reasonably assured, provided that persuasive evidence of an arrangement exists, and the price is fixed or determinable. Deposits received in advance are recorded as customer deposits and are included in current liabilities until revenue is recognized. The Company recognizes revenue from training and consulting services at the time of the services are rendered. Revenue is recorded net of an allowance for estimated returns and discounts.

8

International Medical Equipment & Services, Inc.

Notes to Unaudited Financial Statements

Sales and Use Tax

Sales are presented net of sales and use taxes in the accompanying statements of operations. Sales and use tax amounts are included as a component of cost of sales in the accompanying statements of operations.

Shipping and Handling Costs

Costs to ship products to customers are expensed as incurred. Shipping costs of approximately $81,500 and $90,000 for the three months ended March 31, 2015 and 2014, respectively, are recorded as a component of selling, general and administrative expenses in the accompanying statements of operations.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred. Advertising and marketing costs totaled approximately $17,600 and $5,000 for the three months ended March 31, 2015 and 2014, respectively, and are included as a component of selling, general and administrative expenses in the accompanying statements of operations.

Income Taxes

The shareholders of the Company have elected under the provisions of Subchapter S of the Internal Revenue Code to include the Company’s income in their personal income for federal and state income tax purposes. Accordingly, the Company is not subject to federal or state income taxes for its United States sourced income.

ASC 740, Income Taxes (“ASC 740”) was adopted by the Company as of January 1, 2009. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. Under ASC 740, the impact of an uncertain income tax position on the income tax returns must be recognized at the largest amount that is more-likely-than-not to be required to be recognized upon audit by the relevant taxing authority. ASC 740 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting for interim periods, disclosure and transition issues with respect to tax positions. The Company believes it has no uncertain tax positions as of March 31, 2015 and 2014.

The Company includes interest and penalties accrued in accordance with ASC 740 in the consolidated financial statements as a component of interest expense. No amounts were required to be recorded as of and for the three month periods ended March 31, 2015 and 2014.

Fair Value Measurements

ASC 820, Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

9

International Medical Equipment & Services, Inc.

Notes to Unaudited Financial Statements

ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1: Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2: Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instruments valuation.

As of March 31, 2015 and 2014 and for the three-month periods then ended, the carrying values reflected in the accompanying balance sheets for cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the relative short term maturities of these financial instruments.

The carrying values of debt approximates fair value since these financial instruments bear interest at variable rates which approximate current market rates for bonds with similar maturities and credit quality.

At March 31, 2015 and 2014, the Company did not have any assets or liabilities that were required to be measured at fair value on a recurring basis.

Recently Issued Accounting and Reporting Guidance

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenue when promised goods or services are transferred to customers in amounts that reflect the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, may require more judgment and estimates within the revenue recognition process than are required under existing U.S. GAAP. For private companies, the standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of the adoption of ASU 2014-09 on its financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements – Going Concern. ASU 2014-15 requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern and if those conditions exist, the required disclosures. The standard is effective for annual periods ending after December 15, 2016, and interim periods therein. The Company does not expect adoption of this standard will have a significant impact on the Company’s financial statements.

10

International Medical Equipment & Services, Inc.

Notes to Unaudited Financial Statements

Subsequent Events

Under ASC 855, companies are required to disclose events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. The statement requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The statement sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. See Note 8.

2. Accounts Receivable

Accounts receivable consist of the following:

March 31,	2015			2014
Accounts receivable	$	898,414		$	779,200
Less: allowance for doubtful accounts		(92,556	)		—
Accounts receivable, net	$	805,858		$	779,200

3. Inventories

Inventories consist of the following:

March 31,	2015			2014
Equipment	$	649,677		$	1,368,277
Parts		1,312,590			1,568,341
Less: allowance for slow moving and obselete inventory		(39,191	)		(142,427	)
Inventories, net	$	1,923,076		$	2,794,191

11

International Medical Equipment & Services, Inc.

Notes to Unaudited Financial Statements

4. Property and Equipment

Property and equipment consist of the following:

March 31,	2015			2014
Machinery and equipment	$	412,084		$	407,245
Furniture and fixtures		17,679			17,679
Computers and equipment		2,885			2,885
Vehicles		320,426			312,866
Leasehold improvements		111,507			111,507
Total property and equipment		864,581			852,182
Less: accumulated depreciation and amortization		(427,914	)		(333,152	)
Property and equipment, net	$	436,667		$	519,030

Depreciation and amortization expense for the three months ended March 31, 2015 and 2014 was $36,913 and $36,931, respectively, and is included as a component of selling, general and administrative expense in the accompanying statements of operations.

5. Borrowings

Long-term debt consists of the following:

March 31,	2015			2014
Revolving line of credit	$	—		$	400,000
Term loan		351,732			457,053
Automobile financing		184,842			173,450
Total long-term debt and capital leases		536,574			1,030,503
Less: current maturities		(167,324	)		(145,153	)
Long-term debt and capital leases, net	$	369,250		$	885,350

On April 24, 2013, the Company entered into a credit agreement (the “Credit Agreement”) with a financial institution. The Credit Agreement consists of a $550,000 term loan (the “Term Loan”) and a $1,000,000 revolving credit facility (the “Revolver”). Borrowings under the Credit Agreement are collateralized by accounts receivable, inventory, and fixed assets of the Company. The Term Loan is payable in monthly installments of principal and interest totaling $10,144 through the maturity date of April 24, 2018. The Credit Agreement was amended on February 10, 2014 and March 31, 2015 to increase the availability under the Revolver to $1,500,000 and extend its maturity date to April 24, 2016.

12

International Medical Equipment & Services, Inc.

Notes to Unaudited Financial Statements

Interest accrues on borrowings under the Revolver at LIBOR plus 3.25%. The interest rate on the Company’s Term Loan was 4.0% at both March 31, 2015 and 2014.

The Company enters into loan agreements in connection with the purchase of its automobiles. At March 31, 2015 and 2014, the Company had five automobile financing arrangements in place, respectively. Amounts outstanding under these financing arrangements are collateralized by the related automobiles. These financing arrangements require monthly payments of principal and interest ranging from $555 to $923 each, accrue interest at annual rates ranging from 2.99% to 5.9% and mature in periods beginning in February 2017 through February 2021.

The Credit Agreement contains certain covenants, including covenants restricting additional indebtedness and the payment of dividends. In addition, the Company must maintain certain annual financial covenants, including, among other things, a maximum debt to net worth ratio and a minimum fixed charge coverage ratio. The Company is also required to submit its compiled financial statements to the lender within 120 days of its year end.

Future maturities of the Company’s outstanding borrowings as of March 31, 2015 are as follows:

Years Ending March 31,
2015	$	167,324
2016		155,781
2017		152,638
2018		56,565
2019		4,266
Total notes payable	$	536,574

6. Commitments

The Company is from time-to-time involved in litigation incidental to the conduct of its business, and such matters can involve current and former employees and other matters. These actions are routine and are expected to continue to be resolved without a material effect on the Company’s financial position or future results of operation.

7. Related Party Transactions

The Company leases its office and warehouse facility from a related party under a month-to-month arrangement. Amounts paid to the related party for the use of the facility approximated $27,000 for the three months ended March 31, 2015 and 2014. These amounts are included as a component of selling, general and administrative expenses in the accompanying statements of operations.

13

International Medical Equipment & Services, Inc.

Notes to Unaudited Financial Statements

8. Subsequent Events

The Company has evaluated subsequent events from the date of the balance sheet through December 18, 2015, the date the financial statements were available for issuance. On June 15, 2015, certain of the Company’s assets were acquired by Richardson Electronics, Ltd. for cash proceeds approximating $12.2 million. Proceeds generated from the sale were used to repay the Company’s outstanding debt obligations. No other material recognizable subsequent events were identified.

14

EX-99

Richardson Electronics, Ltd. 8-K/A

Exhibit 99.2

Richardson Electronics, Ltd.

Unaudited Pro Forma Condensed Combined Financial Information

In thousands, except share data

On June 15, 2015, Richardson Electronics, Ltd (“the Company”) acquired certain assets of International Medical Equipment and Services, Inc. (“IMES”), pursuant to the terms of the Purchase Agreement (“Agreement”).

IMES, based in South Carolina, provides reliable, cost-saving solutions worldwide for major brands of CT and MRI equipment. This acquisition positions Richardson Healthcare to provide cost effective diagnostic imaging replacement parts and training to hospitals, diagnostic imaging centers, medical institutions, and independent service organizations. IMES offers an extensive selection of replacement parts, as well as an interactive training center, on-site test bays and experienced technicians who provide 24/7 customer support. Replacement parts are readily available and triple tested to provide peace of mind when uptime is critical. IMES core operations will remain in South Carolina. Richardson Healthcare will expand IMES' replacement parts and training offerings geographically leveraging the Company’s global infrastructure.

The consideration paid by the Company to IMES at closing was $12.2 million in cash. This includes the purchase of inventory, receivables, fixed assets, and certain other assets of the company. The Company did not acquire any liabilities of IMES. The total consideration paid excludes transaction costs and is subject to post-close adjustments.

In connection with the Agreement, the Company also entered into an Employment, Non-Disclosure, and Non-Compete Agreement (“Employment Agreement”) with Lee A. McIntyre III as the Company’s Executive Vice President, IMES. During the term of his employment, Mr. McIntyre will earn an annual base salary of $300,000. In addition to his base salary, he will be entitled to an annual bonus equal to 20% of the EBITDA of IMES provided that the EBITDA of the business is at least $2.0 million inclusive of the bonus payment. The annual bonus payment will terminate after five years.

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting. The unaudited pro forma condensed combined balance sheet as of May 30, 2015, is presented as if the acquisition of IMES had occurred on that date. The unaudited pro forma condensed combined statement of operations for the year ended May 30, 2015, is presented as if the IMES acquisition had occurred on June 1, 2014.

The unaudited pro forma condensed combined statement of operations includes IMES’ statement of income from April 1, 2014, through March 31, 2015, and the Company’s statement of income from its fiscal year beginning June 1, 2014, and ended May 30, 2015. The unaudited pro forma condensed combined balance sheet includes IMES’ balance sheet as of March 31, 2015, and the Company’s balance sheet as of May 30, 2015. The unaudited pro forma condensed combined financial information should be read in conjunction with a) the Company’s Annual Report on Form 10-K for the year ended May 30, 2015, and (b) with IMES’ historical financial statements and notes thereto included in the Company’s Current Report on Form 8-K/A to which this document is filed as an exhibit. Certain reclassifications were made to the overall presentation of the historical IMES financial statements to conform to the Company’s presentation. The Company’s unaudited condensed combined balance sheet as of August 29, 2015, reflects the impact of the acquisition and an estimate of the purchase price allocation, and is included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended August 29, 2015.

The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and is not necessarily indicative of the financial results that would have occurred if the acquisition of IMES had been consummated on the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future operating results of the Company. No effect has been given in the unaudited pro forma condensed combined financial information for the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities. The detailed valuation studies necessary to arrive at the required fair market value of the IMES assets to be acquired and the related allocations of the purchase price have not been fully completed as of the date of this filing. The purchase price has been allocated to the assets acquired based upon management’s preliminary estimate of their respective fair values as of the date of acquisition. Therefore, the actual amounts recorded as of the completion of the analysis might differ materially from the information presented in the unaudited pro forma condensed combined financial statements. The pro forma adjustments, as described in the accompanying notes, are based upon available information and certain assumptions that are believed to be reasonable as of the date of this document.

Richardson Electronics, Ltd.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of the Fiscal Year Ended May 30, 2015
(amounts in thousands)

	FY 2015
	Richardson		IMES (1)		Notes		Pro Forma Adjustments			Proforma
Assets
Current Assets
Cash and cash equivalents	$	74,535	$	331		(A)	$	(12,540	)	$	62,326
Accounts Receivable, net		20,753		806							21,559
Inventories		38,769		1,923							40,692
Prepaid expenses and other assets		1,696		37		(A)		(37	)		1,696
Deferred Income Taxes		804									804
Income tax receivable		929									929
Investments - current		23,692									23,692
Total current assets		161,178		3,097				(12,577	)		151,698
Property, Plant and Equipment, Net		10,081		437		(B)		(207	)		10,311
Other intangibles, net		743				(C)		3,400			4,143
Goodwill		—				(C)		5,850			5,850
Non-Current Deferred Income Taxes		1,443									1,443
Investments - non-current		11,549									11,549
Total non-current assets		23,816		437				9,043			33,296
TOTAL ASSETS	$	184,994	$	3,534			$	(3,534	)	$	184,994
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable	$	15,768	$	323		(D)	$	(323	)	$	15,768
Accrued Liabilities		10,144		413		(D)		(413	)		10,144
Total current liabilities		25,912		736				(736	)		25,912
Non-current deferred income tax liabilities		1,209									1,209
Other non-current Liabilities		1,221		369		(D)		(369	)		1,221
Total non-current liabilities		2,430		369				(369	)		2,430
Total Liabilities		28,342		1,105				(1,105	)		28,342
Total Stockholders' Equity		156,652		2,429		(G)		(2,429	)		156,652
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	184,994	$	3,534			$	(3,534	)	$	184,994

(1) As of March 31, 2015 for IMES

Richardson Electronics, Ltd.
Unaudited Pro Forma Condensed Combined Statement of Operations
For Fiscal Year Ended May 30, 2015
(amounts in thousands, except share and per share amounts)

	FY 2015
	Richardson			IMES (1)			Notes			Pro Forma Adjustments			Proforma
Net sales	$	136,957		$	9,179								$	146,136
Cost of sales		95,819			5,134									100,953
Gross margin		41,138			4,045						—			45,183
Selling, general, and administrative expenses		49,229			2,608			(E)	(I)		322			52,159
(Gain) loss on disposal of assets		(5	)		(2	)								(7	)
Operating Income (Loss)	$	(8,086	)	$	1,439					$	(322	)	$	(6,969	)
Other (income) expense
Interest (income) expense		(999	)		35			(H)			(2	)		(966	)
Foreign exchange (gain) loss		(185	)		—									(185	)
Other, net		92			(59	)								33
Total other (income) expense		(1,092	)		(24	)					(2	)		(1,118	)
Income (loss) from continuing operations before income taxes		(6,994	)		1,463						(320	)		(5,851	)
Income tax provision (benefit)		(1,466	)		—			(F)						(1,466	)
Income (loss) from continuing operations	$	(5,528	)	$	1,463					$	(320	)	$	(4,385	)
Net Income (loss) from continuing operations per share
Per common share - basic	$	(0.41	)										$	(0.32	)
Per common share - diluted	$	(0.41	)										$	(0.32	)
Per Class B common shares - basic	$	(0.36	)										$	(0.29	)
Per Class B common shares - diluted	$	(0.36	)										$	(0.29	)
Weighted average number of shares
Common shares - basic		11,682												11,682
Common shares - diluted		11,682												11,682
Class B common shares - basic		2,151												2,151
Class B common shares - diluted		2,151												2,151

(1) Statement of Income information for IMES is for the period from April 1, 2014, to March 31, 2015.

Notes to Unaudited Pro Forma Condensed Combined Financial Information

Amounts in thousands

1. 

Description of Transaction

On June 15, 2015, Richardson Electronics, Ltd (“the Company”) acquired certain assets of International Medical Equipment and Services, Inc. (“IMES”), pursuant to the terms of the Purchase Agreement (“Agreement”).

IMES, based in South Carolina, provides reliable, cost-saving solutions worldwide for major brands of CT and MRI equipment. This acquisition positions Richardson Healthcare to provide cost effective diagnostic imaging replacement parts and training to hospitals, diagnostic imaging centers, medical institutions, and independent service organizations. IMES offers an extensive selection of replacement parts, as well as an interactive training center, on-site test bays and experienced technicians who provide 24/7 customer support. Replacement parts are readily available and triple tested to provide peace of mind when uptime is critical. IMES core operations will remain in South Carolina. Richardson Healthcare will expand IMES' replacement parts and training offerings geographically leveraging the Company’s global infrastructure.

The consideration paid by the Company to IMES at closing was $12.2 million in cash. This includes the purchase of inventory, receivables, fixed assets, and certain other assets of the company. The Company did not acquire any liabilities of IMES. The total consideration paid excludes transaction costs and is subject to post-close adjustments.

In connection with the Agreement, the Company also entered into an Employment, Non-Disclosure, and Non-Compete Agreement (“Employment Agreement”) with Lee A. McIntyre III as the Company’s Executive Vice President, IMES. During the term of his employment, Mr. McIntyre will earn an annual base salary of $300,000. In addition to his base salary, he will be entitled to an annual bonus equal to 20% of the EBITDA of IMES provided that the EBITDA of the business is at least $2.0 million inclusive of the bonus payment. The annual bonus payment will terminate after five years.

2.

Basis of Presentation

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting. The unaudited pro forma condensed combined balance sheet as of May 30, 2015 is presented as if the acquisition of IMES had occurred on that date. The unaudited pro forma condensed combined statement of operations for the year ended May 30, 2015 is presented as if the IMES acquisition had occurred on June 1, 2014.

The unaudited pro forma condensed combined statement of operations includes IMES’ statement of income from April 1, 2014, through March 31, 2015, and the Company’s statement of income from its fiscal year beginning June 1, 2014, and ended May 30, 2015. The unaudited pro forma condensed combined balance sheet includes IMES’ balance sheet as of March 31, 2015, and the Company’s balance sheet as of May 30, 2015. The unaudited pro forma condensed combined financial information should be read in conjunction with a) the Company’s Annual Report on Form 10-K for the year ended May 30, 2015, and (b) with IMES’ historical financial statements and notes thereto included in the Company’s Current Report on Form 8-K/A to which this document is filed as an exhibit. Certain reclassifications were made to the overall presentation of the historical IMES financial statements to conform to the Company’s presentation. The Company’s unaudited condensed combined balance sheet as of August 29, 2015, reflects the impact of the acquisition and an estimate of the purchase price allocation, and is included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended August 29, 2015.

The unaudited pro forma condensed combined financial information is provided for illustrative purposes only and is not necessarily indicative of the financial results that would have occurred if the acquisition of IMES had been consummated on the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future operating results of the Company. No effect has been given in the unaudited pro forma condensed combined financial information for the cost of any integration activities or benefits that may result from synergies that may be derived from any integration activities. The detailed valuation studies necessary to arrive at the required fair market value of the IMES assets to be acquired and the related allocations of the purchase price have not been fully completed as of the date of this filing. The purchase price has been allocated to the assets acquired based upon management’s preliminary estimate of their respective fair values as of the date of acquisition. Therefore, the actual amounts recorded as of the completion of the analysis might differ materially from the information presented in the unaudited pro forma condensed combined financial statements. The pro forma adjustments, as described in the accompanying notes, are based upon available information and certain assumptions that are believed to be reasonable as of the date of this document.

3.

Assets Acquired

The estimated fair value of assets for the IMES transaction, reconciled to the consideration transferred, are provided below and are presented as if the acquisition had occurred on May 30, 2015.

Accounts receivable	$	806
Inventories		1,923
Property, plant and equipment		230
Goodwill		5,850
Other intangibles		3,400
Purchase Price	$	12,209

4.

Pro Forma Adjustments

This note should be read in conjunction with Note 1. Description of Transaction; Note 2. Basis of Presentation; and Note 3. Assets Acquired.

Adjustments under the heading “Pro Forma Adjustments” represent the following:

A.	To eliminate the cash and prepaid assets that were not acquired from IMES and reflect the purchase price of $12.2 million.
B.	To eliminate the net book value of automobiles of $0.2 million that were not part of the purchase price.
C.	To record the definite-lived intangibles and goodwill acquired and the incremental amortization expense. The following is a summary of the acquired intangible assets preliminary fair value and average amortization periods:

	Fair Value		Average Amortization Period		Estimated Annual Amortization Expense
Trade Name	$	700		3 years	$	233
Customer Relationships		2,500		20 years		125
Technology		200		10 years		20
Total	$	3,400			$	378

D.	To eliminate the current and non-current liabilities not assumed with the acquisition.
E.	To include the full year of amortization expense of $0.4 million, offset with the depreciation expense of the automobiles of less than $0.1 million which were not included with the acquired assets.
F.	There is no tax provision to record for IMES as the Company has a net operating loss carryforward to offset the $1.4 million of net income from IMES.
G.	To eliminate IMES equity as of the date of the acquisition.
H.	To adjust for foregone interest income of $33 thousand on cash paid for the acquisition of $12,209. The estimated amount of foregone interest is based on an estimated 27 basis points based on average available short-term interest rates during such time.  Also included in this adjustment is interest expense of $35 thousand that relates to the debt of IMES which was not acquired.
I.	The Employment Agreement with the Company’s Executive Vice President of IMES includes an annual bonus equal to 20% of the EBITDA of IMES provided that the EBITDA is at least $2 million inclusive of the bonus payment.  The bonus payments will be expensed as earned.  The annual bonus payment will terminate after five years.  The potential compensation expense resulting from the bonus arrangement is not reflected in the pro forma condensed combined statement of operations because the ultimate level of such expense for any period is currently not factually supportable.