Exhibit 99.3
TECHNOLOGY RESEARCH CORPORATION
Unaudited Pro Forma Condensed Combined Financial Statements
On March 31, 2010, Technology Research Corporation (the “Company”) acquired 100% of the common stock of Patco Electronics, Inc., (“Patco”). The acquisition was effective March 31, 2010 and the results of Patco have not been included in the Company’s results of operations for the year ended March 31, 2010. The following unaudited pro forma condensed combined financial statements have been prepared to give effect to the completed acquisition, which was accounted for using the purchase method of accounting.
The unaudited pro form condensed combined statements of income for the two years ended March 31, 2010 are presented herein. The Company’s consolidated balance sheet filed in the Company’s Annual Report on Form 10-K reflects the acquisition of Patco. The unaudited pro forma condensed combined statement of income for the two years ended March 31, 2010 combines the historical results of the Company and Patco, and gives effect to the acquisition as if it had occurred on April 1, 2009 and 2008, respectively.
The unaudited pro forma condensed combined financial statements presented are based on the assumptions and adjustments described in the accompanying notes. Unaudited pro forma results of operations, assuming the acquisition was consummated at the beginning of fiscal 2009 and 2010, are presented for illustrative purposes. The pro formas represent the historical results of the Company combined with those of Patco for the periods presented, adjusted for specific factually supportable items such as amortization of intangible assets. The pro forma results of operations do not include the costs of integration or any nonrecurring costs and are not necessarily indicative of either future results of operations or results that would have been achieved if the acquisition had been consummated at the beginning of the periods presented in the accompanying financial statements. The unaudited pro forma condensed combined financial statements, and accompanying notes, are based upon the respective historical consolidated and combined financial statements of the Company and Patco, and should be read in conjunction with the historical financial statements and related notes of the Company contained in the Company’s Annual Report on Form 10-K for the year ended March 31, 2010, as well as the historical financial statements and related notes of Patco, which were attached as Exhibit 99.2 to the Company’s current report on Form 8-K filed on April 12, 2010.
Technology Research Corporation
Unaudited Pro Forma Combined Statement of Income
Year Ended March 31, 2010
(in thousands, except share and per share amounts)
| TRC as reported |
Patco | Pro Forma Adjustments |
Pro forma Combined |
||||||||||
| Revenue |
|||||||||||||
| Commercial |
$ | 14,709 | 14,709 | ||||||||||
| Military |
19,706 | 4,853 | 24,559 | ||||||||||
| Royalty |
418 | 418 | |||||||||||
| Total Revenue |
34,833 | 4,853 | — | 39,686 | |||||||||
| Cost of sales |
21,196 | 2,446 | 23,642 | ||||||||||
| Gross profit |
13,637 | 2,407 | — | 16,044 | |||||||||
| Operating expenses: |
|||||||||||||
| Selling and marketing |
2,444 | — | 2,444 | ||||||||||
| General and administrative |
3,896 | 378 | 4,274 | ||||||||||
| Research and development |
2,589 | 82 | 2,671 | ||||||||||
| Acquisition related transaction costs |
515 | (515 | ) | (a) | — | ||||||||
| Amortization of acquisition related intangibles |
— | 1,548 | (b) | 1,548 | |||||||||
| Total operating expenses |
9,444 | 460 | 1,033 | 10,937 | |||||||||
| Income from operations |
4,193 | 1,947 | (1,033 | ) | 5,107 | ||||||||
| Other income (expense): |
|||||||||||||
| Other income, net |
29 | 3 | (50 | ) | (c) | (18 | ) | ||||||
| Interest expense |
— | — | |||||||||||
| Other income (expense), net |
29 | 3 | (50 | ) | (18 | ) | |||||||
| Income before income taxes |
4,222 | 1,950 | (1,083 | ) | 5,089 | ||||||||
| Income tax expense |
1,384 | 731 | (583 | ) | (d) | 1,532 | |||||||
| Net income |
$ | 2,838 | 1,219 | (500 | ) | 3,557 | |||||||
| Basic shares |
5,903 | 675 | (e) | 6,578 | |||||||||
| Basic EPS |
$ | 0.48 | 0.54 | ||||||||||
| Diluted shares |
5,997 | 675 | (e) | 6,672 | |||||||||
| Diluted EPS |
$ | 0.47 | 0.53 | ||||||||||
See accompanying notes to unaudited pro forma consolidated financial statements.
Technology Research Corporation
Unaudited Pro Forma Combined Statement of Income
Year Ended March 31, 2009
(in thousands, except share and per share amounts)
| TRC as reported |
Patco | Pro Forma Adjustments |
Pro forma Combined |
|||||||||||
| Revenue |
||||||||||||||
| Commercial |
$ | 18,582 | 18,582 | |||||||||||
| Military |
14,674 | 3,815 | 18,489 | |||||||||||
| Royalty |
477 | 477 | ||||||||||||
| Total Revenue |
33,733 | 3,815 | — | 37,548 | ||||||||||
| Cost of sales |
22,266 | 2,029 | 24,295 | |||||||||||
| Gross profit |
11,467 | 1,786 | — | 13,253 | ||||||||||
| Operating expenses: |
||||||||||||||
| Selling and marketing |
2,899 | — | 2,899 | |||||||||||
| General and administrative |
4,627 | 351 | 4,978 | |||||||||||
| Research and development |
2,381 | 115 | 2,496 | |||||||||||
| Acquisition related transaction costs |
— | — | — | |||||||||||
| Amortization of acquisition related intangibles |
— | 1,548 | (b) | 1,548 | ||||||||||
| Total operating expenses |
9,907 | 466 | 1,548 | 11,921 | ||||||||||
| Income from operations |
1,560 | 1,320 | (1,548 | ) | 1,332 | |||||||||
| Other income (expense): |
||||||||||||||
| Other income, net |
590 | 1 | (50 | ) | (c) | 541 | ||||||||
| Interest expense |
(10 | ) | (10 | ) | ||||||||||
| Other income (expense), net |
580 | 1 | (50 | ) | 531 | |||||||||
| Income before income taxes |
2,140 | 1,321 | (1,598 | ) | 1,863 | |||||||||
| Income tax expense |
500 | 490 | (584 | ) | (d) | 406 | ||||||||
| Net income |
$ | 1,640 | 831 | (1,014 | ) | 1,457 | ||||||||
| Basic shares |
5,891 | 675 | (e) | 6,566 | ||||||||||
| Basic EPS |
$ | 0.27 | 0.22 | |||||||||||
| Diluted shares |
5,897 | 675 | (e) | 6,572 | ||||||||||
| Diluted EPS |
$ | 0.27 | 0.22 | |||||||||||
See accompanying notes to unaudited pro forma consolidated financial statements.
TECHNOLOGY RESEARCH CORPORATION
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
| 1. | Basis of Presentation |
The unaudited pro forma condensed combined statement of income for the two years ended March 31, 2010 were prepared using the historical unaudited condensed consolidated statement of income of the Company for the two years ended March 31, 2010 as included in the Company’s Annual Report on Form 10-K for such periods and the unaudited management accounts of Patco for the two years ended March 31, 2010. In the opinion of management, the unaudited management accounts of Patco have been prepared on the same basis as the audited combined financial statements of Patco and include all adjustments, which consist only of normal recurring adjustments, necessary for the fair presentation of results of operations of Patco.
The unaudited pro forma condensed combined statement of income for the year ended March 31, 2010 was prepared using the historical audited consolidated statement of income of the Company for the year ended March 31, 2010 as included in the Company’s Annual Report on Form 10-K for such period, and the unaudited combined statement of income of Patco for the year ended March 31, 2010, which was derived by taking the audited statement of income for the year ended December 31, 2009 and subtracting the unaudited income statement for the three months ended March 31, 2009 and adding the unaudited income statement for the three months ended March 31, 2010. The derivation of the unaudited income statement of Patco for the year ended March 31, 2010 is as follows:
| (in thousands) |
Revenue | Income
from Continuing Operations |
||||||
| Year ended December 31, 2009 |
$ | 5,988 | $ | 2,749 | ||||
| Deduct: Three months ended March 31, 2009 |
(1,532 | ) | (700 | ) | ||||
| Add: Three months ended March 31, 2010 |
397 | (102 | ) | |||||
| Year ended March 31, 2010 |
$ | 4,853 | $ | 1,947 | ||||
The unaudited pro forma condensed combined statement of Patco income for the year ended March 31, 2009 was prepared using the historical audited consolidated statement of income of the Company for the year ended March 31, 2009 as included in the Company’s Annual Report on Form 10-K for such period, and the unaudited statement of income of Patco for the year ended March 31, 2009, which was derived by taking the audited statement of income for the year ended December 31, 2008 and subtracting the unaudited income statement for the
three months ended March 31, 2008 and adding the unaudited income statement for the three months ended March 31, 2009. The derivation of the unaudited income statement of Patco for the year ended March 31, 2009 is as follows:
| (in thousands) |
Revenue | Income
from Continuing Operations |
||||||
| Year ended December 31, 2008 |
$ | 3,044 | $ | 826 | ||||
| Deduct: Three months ended March 31, 2008 |
(761 | ) | (206 | ) | ||||
| Add: Three months ended March 31, 2009 |
1,532 | 700 | ||||||
| Year ended March 31, 2010 |
$ | 3,815 | $ | 1,320 | ||||
| 2. | Purchase Price Allocation |
The preliminary allocation of the purchase price is based upon estimates of the assets and liabilities acquired in accordance with the relevant accounting guidance. The preliminary allocations may be reviewed when the Company completes its valuations. The acquisition of Patco is based on management’s consideration of past and expected future performance as well as the potential strategic fit with the long-term goals of the Company. The expected long-term growth, market position and expected synergies to be generated by Patco are the primary factors that gave rise to an acquisition price which resulted in the recognition of goodwill.
The following is a summary of the purchase price:
| (in thousands) |
|||
| Cash |
$ | 5,000 | |
| Common Stock – 674,950 shares |
2,426 | ||
| Present value of contingent consideration |
738 | ||
| Purchase Price |
$ | 8,164 | |
The preliminary allocation of the aggregate purchase price of this acquisition is as follows:
| (in thousands) |
||||
| Goodwill |
$ | 5,465 | ||
| Identifiable intangible assets |
3,584 | |||
| Net assets acquired |
(885 | ) | ||
| Purchase Price |
$ | 8,164 | ||
Identifiable intangible assets primarily include employment agreements, backlog and trade secrets.
| 3. | Pro Forma Adjustments |
The following pro forma adjustments are based on preliminary estimates, which may change as additional information is obtained:
| a. | To reflect amortization of the acquired intangible assets. |
| b. | To adjust for acquisition related transaction costs. |
| c. | To reflect the estimated decrease in interest income earned on the cash paid for the acquisition as if the cash was not available for investment during the period. |
| d. | To adjust income tax expense on adjusting entries. |
| e. | To adjust the weighted average share calculation for shares issued as part of the acquisition. |