Exhibit 99.1
Unaudited Pro Forma Condensed Consolidated Financial Statements
On September 30, 2019, CUI Global, Inc. ("the Company") entered into an asset sale agreement by and among, CUI, Inc. ("Seller"), a wholly owned subsidiary of the Company ("Parent"), and Back Porch International, Inc. ("Buyer"). Pursuant to the terms of the asset sale agreement, the Seller and Parent agreed to sell and assign to the Buyer, the rights and obligations of Seller and Parent to the assets constituting the non-power supply electromechanical components product group of Seller and Parent effective the close of business September 30, 2019. In addition to the assets purchased, the Buyer shall assume and agree to pay, perform and discharge certain liabilities agreed to by the Buyer and Seller including scheduled accounts payable and vendor purchase orders at the closing of the Disposition, with the Sellers generally remaining obligated for remaining pre-closing liabilities other than the assumed liabilities (the “Excluded Liabilities”). The Sellers retain their power supply components product lines and their internet domain names and trademarks.
As consideration for the Disposed Company, Buyer agreed to pay the Company an aggregate purchase price of $15 million (the "Purchase Price"), plus the assumption of certain agreed upon liabilities. The Buyer agreed to pay the Purchase Price as follows: (a) approximately $4.7 million at the Closing in cash (b) Assumption in full by Buyer of the note payable held between the Parent and International Electronic and Electrical Trading Inc., (formerly known as International Electronic Device, Inc.) in the amount of approximately $5.3 million (c) Remaining amount as an "Earn out" based on earnings from the closing date to December 31, 2024 paid at the end of each quarter starting in 2021. The total guaranteed earn out is $5.0 million (fair value of $3.3 million at September 30, 2019).
The Purchase Agreement contains customary representations and warranties made by the Sellers and the Purchaser. The Purchase Agreement also contains certain post-closing covenants, including the covenants by Sellers, along with their affiliates, to not engage in a business that is competitive with the Business for a period of five years after the closing of the Disposition, subject to certain exceptions, and to not solicit employees of the Business for a period of five years after the closing of the Disposition, subject to certain exceptions. The Purchase Agreement provides that Sellers will indemnify the Purchaser, and the Purchaser will indemnify the Sellers, for breaches of representations, warranties and covenants, and for certain other matters, including the indemnification by Sellers for Excluded Liabilities.
The foregoing description of the Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Purchase Agreement, which is filed as Exhibit 2 to this Current Report on Form 8-K and is incorporated herein by reference. The Purchase Agreement has been attached as an exhibit to this report to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information about the Sellers or the Purchaser or any of their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Purchase Agreement were made only for the purposes of such agreement and as of specified dates, were solely for the benefit of the parties to such agreement, and may be subject to limitations agreed upon by the contracting parties. The representations and warranties may have been made for the purposes of allocating contractual risk between the parties to the agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the Purchase Agreement and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the Sellers or the Purchaser or any of their respective subsidiaries or affiliates. In addition, the assertions embodied in the representations and warranties contained in the Purchase Agreement are qualified by information in a confidential disclosure schedule that the parties have exchanged. Accordingly, investors should not rely on the representations and warranties as characterizations of the actual state of facts, since (i) they were made only as of the date of such agreement or a prior, specified date, (ii) in some cases they are subject to qualifications with respect to materiality, knowledge and/or other matters and (iii) they may be modified in important part by the underlying disclosure schedule.
The following unaudited pro forma condensed consolidated financial statements ("Unaudited Pro Forma Statements") and explanatory notes are based on the Company's historical consolidated financial statements adjusted to give effect to the Asset Sale transaction. The unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2019 and year ended December 31, 2018 have been prepared with the assumption that the asset sale transaction occurred as of the beginning of the statement period. The pro forma consolidated statement of operations as of December 31, 2017 has been included to present the impact of the sale of the Disposed Company on continuing operations. The unaudited pro forma condensed balance sheet as of June 30, 2019 has been prepared with the assumption that the asset sale transaction was completed as of the balance sheet date.
The unaudited pro forma statements do not necessarily reflect what the Company's financial condition or results of operations would have been had the asset sale transaction occurred on the date indicated, or which may result in the future. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma statements have been prepared by the Company based upon assumptions deemed appropriate by the Company's management. An explanation of certain assumptions is set forth under the Notes hereto.
The unaudited pro forma statements should be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 as well as the Company's unaudited condensed consolidated financial statements and notes thereto included in the Company's Quarterly report on Form 10-Q for the period ended June 30, 2019.
CUI Global Inc.
Unaudited Pro Forma Consolidated Balance Sheets
As of June 30, 2019
| Other | Pro | |||||||||||||||
(in thousands, except share and per share amounts) | Historical | Disposition | Adjustments | forma | |||||||||||||
Assets: | |||||||||||||||||
Current Assets: | |||||||||||||||||
Cash and cash equivalents | $ | 2,635 | $ | — | $ | — | $ | 2,635 | |||||||||
Trade accounts receivable, net | 14,333 | 2,317 | — | 12,016 | |||||||||||||
Inventories, net | 12,361 | 1,709 | — | 10,652 | |||||||||||||
Contract assets | 2,876 | — | — | 2,876 | |||||||||||||
Prepaid expenses and other current assets | 1,579 | 59 | — | 1,520 | |||||||||||||
Total current assets | 33,784 | 4,085 | — | 29,699 | |||||||||||||
Property and equipment, net | 5,064 | 210 | — | 4,854 | |||||||||||||
Investment in VPS - equity method | 5,552 | — | — | 5,552 | |||||||||||||
Right of use assets - Operating leases | 7,238 | — | — | 7,238 | |||||||||||||
Goodwill | 13,094 | — | — | 13,094 | |||||||||||||
Other intangible assets, net | 13,028 | 598 | — | 12,430 | |||||||||||||
Earn-out receivable | — | — | 3,322 | (2b) | 3,322 | ||||||||||||
Restricted cash | 523 | — | — | 523 | |||||||||||||
Deposits and other assets | 852 | — | — | 852 | |||||||||||||
Total assets | $ | 79,135 | $ | 4,893 | $ | 3,322 | $ | 77,564 | |||||||||
Liabilities and Stockholders' Equity: | |||||||||||||||||
Current Liabilities: | |||||||||||||||||
Accounts payable | $ | 8,511 | $ | 921 | $ | — | $ | 7,590 | |||||||||
Notes payable - current | 5,304 | — | (5,304 | ) | (2b) | — | |||||||||||
Operating lease obligations - current portion | 992 | — | — | 992 | |||||||||||||
Accrued expenses | 5,709 | 315 | — | 5,394 | |||||||||||||
Contract liabilities | 2,069 | 36 | — | 2,033 | |||||||||||||
Refund liabilities | 2,164 | 865 | — | 1,299 | |||||||||||||
Total current liabilities | 24,749 | 2,137 | (5,304 | ) | 17,308 | ||||||||||||
Line of credit | 6,450 | — | (4,696 | ) | (2c) | 1,754 | |||||||||||
Operating lease obligations, less current portion | 6,426 | — | — | 6,426 | |||||||||||||
Deferred tax liabilities | 1,914 | — | — | 1,914 | |||||||||||||
Other long-term liabilities | 161 | — | — | 161 | |||||||||||||
Total liabilities | 39,700 | 2,137 | (10,000 | ) | 27,563 | ||||||||||||
Commitments and contingencies | |||||||||||||||||
Stockholders' Equity: | |||||||||||||||||
Preferred stock, par value $0.001; 10,000,000 shares authorized; no shares issued at June 30, 2019 | — | — | — | — | |||||||||||||
Common stock, par value $0.001; 325,000,000 shares authorized; 28,632,302 shares issued and outstanding at June 30, 2019 | 29 | — | — | 29 | |||||||||||||
Additional paid-in capital | 170,006 | — | — | 170,006 | |||||||||||||
Accumulated deficit | (126,373 | ) | — | 10,566 | (2e) | (115,807 | ) | ||||||||||
Accumulated other comprehensive loss | (4,227 | ) | — | — | (4,227 | ) | |||||||||||
Total stockholders' equity | 39,435 | — | 10,566 | 50,001 | |||||||||||||
Total liabilities and stockholders' equity | $ | 79,135 | $ | 2,137 | $ | 566 | $ | 77,564 |
CUI Global Inc.
Unaudited Pro Forma Consolidated Statements of Operations
For the Six Months Ended June 30, 2019
| Other | Pro | |||||||||||||||
(In thousands, except share and per share amounts) | Historical | Disposition | Adjustments | Forma | |||||||||||||
Total revenues | $ | 45,821 | $ | 11,564 | $ | — | $ | 34,257 | |||||||||
Cost of revenues | 30,755 | 7,108 | — | 23,647 | |||||||||||||
Gross profit | 15,066 | 4,456 | — | 10,610 | |||||||||||||
Operating expenses: | |||||||||||||||||
Selling, general and administrative | 18,631 | 3,506 | — | 15,125 | |||||||||||||
Depreciation and amortization | 1,001 | 31 | — | 970 | |||||||||||||
Research and development | 845 | 37 | — | 808 | |||||||||||||
Provision for bad debt | 138 | 4 | — | 134 | |||||||||||||
Other operating income | (2 | ) | — | — | (2 | ) | |||||||||||
Total operating expenses | 20,613 | 3,578 | — | 17,035 | |||||||||||||
(Loss) income from operations | (5,547 | ) | 878 | — | (6,425 | ) | |||||||||||
Loss from equity method investment in VPS | (356 | ) | — | — | (356 | ) | |||||||||||
Fair value gain on equity method investment purchase | 629 | — | — | 629 | |||||||||||||
Other expense | (135 | ) | (3 | ) | — | (132 | ) | ||||||||||
Interest expense | (203 | ) | — | 133 | (2f) | (70 | ) | ||||||||||
(Loss) income before taxes | (5,612 | ) | 875 | 133 | (6,354 | ) | |||||||||||
Income tax (benefit) expense | (344 | ) | 229 | 35 | (2f) | (538 | ) | ||||||||||
Net (loss) income | $ | (5,268 | ) | $ | 646 | $ | 98 | $ | (5,816 | ) | |||||||
Basic and diluted weighted average common shares outstanding | 28,609,324 | 28,609,324 | 28,609,324 | 28,609,324 | |||||||||||||
Basic and diluted (loss) income per common share | $ | (0.18 | ) | $ | 0.02 | $ | — | $ | (0.20 | ) |
CUI Global Inc.
Unaudited Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 2018
| Other | Pro | |||||||||||||||
(In thousands, except share and per share amounts) | Historical | Disposition | Adjustments | Forma | |||||||||||||
Total revenues | $ | 96,789 | $ | 27,489 | $ | — | $ | 69,300 | |||||||||
Cost of revenues | 67,879 | 16,739 | — | 51,140 | |||||||||||||
Gross profit | 28,910 | 10,750 | — | 18,160 | |||||||||||||
Operating expenses: | |||||||||||||||||
Selling, general and administrative | 36,341 | 7,037 | — | 29,304 | |||||||||||||
Depreciation and amortization | 2,152 | 51 | — | 2,101 | |||||||||||||
Research and development | 2,802 | 35 | — | 2,767 | |||||||||||||
Provision for bad debt | 33 | 8 | — | 25 | |||||||||||||
Impairment of goodwill and intangible assets | 4,347 | — | — | 4,347 | |||||||||||||
Other operating expenses | 13 | — | — | 13 | |||||||||||||
Total operating expenses | 45,688 | 7,131 | — | 38,557 | |||||||||||||
(Loss) income from operations | (16,778 | ) | 3,619 | — | (20,397 | ) | |||||||||||
Other expense | (251 | ) | — | — | (251 | ) | |||||||||||
Interest expense | (502 | ) | — | 265 | (2f) | (237 | ) | ||||||||||
(Loss) income before taxes | (17,531 | ) | 3,619 | 265 | (20,885 | ) | |||||||||||
Income tax (benefit) expense | (206 | ) | 949 | 69 | (2f) | (1,086 | ) | ||||||||||
Net (loss) income | $ | (17,325 | ) | $ | 2,670 | $ | 196 | $ | (19,799 | ) | |||||||
Basic and diluted weighted average number of shares outstanding | 28,517,339 | 28,517,339 | 28,517,339 | 28,517,339 | |||||||||||||
Basic and diluted (loss) income per common share | $ | (0.61 | ) | $ | 0.09 | $ | 0.01 | $ | (0.69 | ) |
CUI Global Inc.
Unaudited Pro Forma Consolidated Statements of Operations
For the Year Ended December 31, 2017
| Pro | |||||||||||
(In thousands, except share and per share amounts) | Historical | Disposition | Forma | |||||||||
Total revenues | $ | 83,275 | $ | 21,221 | $ | 62,054 | ||||||
Cost of revenues | 55,406 | 12,632 | 42,774 | |||||||||
Gross profit | 27,869 | 8,589 | 19,280 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative | 33,921 | 5,794 | 28,127 | |||||||||
Depreciation and amortization | 2,163 | 48 | 2,115 | |||||||||
Research and development | 2,525 | 20 | 2,505 | |||||||||
Provision (credit) for bad debt | (13 | ) | 1 | (14 | ) | |||||||
Impairment of goodwill and intangible assets | 3,155 | — | 3,155 | |||||||||
Other operating expenses | 47 | — | 47 | |||||||||
Total operating expenses | 41,798 | 5,863 | 35,935 | |||||||||
(Loss) income from operations | (13,929 | ) | 2,726 | (16,655 | ) | |||||||
Other income (expense) | 234 | (1 | ) | 235 | ||||||||
Interest expense | (500 | ) | — | (500 | ) | |||||||
(Loss) income before taxes | (14,195 | ) | 2,725 | (16,920 | ) | |||||||
Income tax (benefit) expense | (1,606 | ) | 1,045 | (2,651 | ) | |||||||
Net (loss) income | $ | (12,589 | ) | $ | 1,680 | $ | (14,269 | ) | ||||
Basic and diluted weighted average number of shares outstanding | 22,397,865 | 22,397,865 | 22,397,865 | |||||||||
Basic and diluted (loss) income per common share | $ | (0.56 | ) | $ | 0.08 | $ | (0.64 | ) |
1. | Asset Sale Transaction |
On September 30, 2019, CUI Global, Inc. ("the Company") entered into an asset sale agreement by and among, CUI, Inc. ("Seller"), a wholly owned subsidiary of the Company ("Parent"), and Back Porch International, Inc. ("Buyer"). Pursuant to the terms of the asset sale agreement, the Seller and Parent agreed to sell and assign to the Buyer, the rights and obligations of Seller and Parent to the assets constituting the non-power supply electromechanical components product group of Seller and Parent effective the close of business September 30, 2019. In addition to the assets purchased, the Buyer shall assume and agree to pay, perform and discharge certain liabilities agreed to by the Buyer and Seller ("Assumed Liabilities"). Transaction costs were immaterial.
2. | Unaudited Pro Forma Adjustments |
The following notes describe the basis for and/or assumptions regarding the pro forma adjustments included in the Company's unaudited pro forma statements.
All dollar amounts (except share and per share data) presented in the notes to our unaudited consolidated financial statements are stated in thousands of dollars, unless otherwise noted.
(a) Recording the disposition of the electromechanical components business. The amounts include the assets and liabilities attributable to the business being sold.
(b) Recording of the sale proceeds, net of estimated transaction related expenses.
Cash proceeds from sale | $ | 4,696 | ||
Buyer's assumption of related party note payable | 5,304 | |||
Future earn-out payments | 3,322 | (1) | ||
Total proceeds from sale | $ | 13,322 |
(1) This amount reflects the fair value of the $5.0 million guaranteed earn-out payments as of September 30, 2019. |
(c) Recording of repayment of the line of credit.
Cash Proceeds from sale | $ | 4,696 | ||
Line of credit balance | $ | 6,450 | ||
Less: Partial repayment of line of credit | 4,696 | |||
Line of credit balance after partial repayment | $ | 1,754 |
(d) The table below represents the current tax expense and related taxes payable associated with sale of the Company's electromechanical components business.
Income tax at statutory rate | $ | 2,770 | ||
Benefit from net operating loss utilization | (2,770 | ) | ||
Total income tax payable | $ | — |
(e) The estimated gain on the sale of the business if we had completed the sale as of June 30, 2019 is as follows:
Net proceeds (Note (b)) | $ | 13,322 | ||
Net assets sold | 2,756 | |||
Pre-tax gain on sale | 10,566 | |||
Tax expense | — | |||
After-tax gain on sale | $ | 10,566 |
This estimated gain has not been reflected in the pro forma condensed consolidated statement of operations as it is considered to be nonrecurring in nature and is reflected within equity on the balance sheet for the period ended June 30, 2019. No adjustment has been made to the sale proceeds to give effect to any potential post-closing adjustments under the terms of the asset sale agreement.
(f) The interest expense savings on the payoff of the Company's related-party note payable.
6 months | ||||||||
Ended | ||||||||
June 30, 2019 | 2018 | |||||||
Interest expense on related party note payable | $ | 133 | $ | 265 | ||||
tax effect at statutory rate | 35 | 69 | ||||||
Interest expense net of tax effect | $ | 98 | $ | 196 |
The pro forma effect on interest expense related to the partial payoff of the line of credit would not have been material for the six-month period ended June 30, 2019 or for the year ended December 31, 2018.
3. | Discontinued Operations |
The financial results of the electromechanical components business, net of income taxes, have been removed to reflect the effects of the disposition and the retrospective presentation as discontinued operations in future filings. The following table presents the financial results for the electromechanical components business for the years ended December 31, 2018 and 2017 and for the six months ended June 30, 2019.
For the Six | For the Year | For the Year | ||||||||||
Months | Ended | Ended | ||||||||||
Ended June | December | December | ||||||||||
30, 2019 | 31, 2018 | 31, 2017 | ||||||||||
(In thousands, except share and per share amounts) | ||||||||||||
Total revenues | $ | 11,564 | $ | 27,489 | $ | 21,221 | ||||||
Cost of revenues | 7,108 | 16,739 | 12,632 | |||||||||
Gross profit | 4,456 | 10,750 | 8,589 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative | 3,506 | 7,037 | 5,794 | |||||||||
Depreciation and amortization | 31 | 51 | 48 | |||||||||
Research and development | 37 | 35 | 20 | |||||||||
Provision for bad debt | 4 | 8 | 1 | |||||||||
Total operating expenses | 3,578 | 7,131 | 5,863 | |||||||||
Income from operations | 878 | 3,619 | 2,726 | |||||||||
Other expense | (3 | ) | — | (1 | ) | |||||||
Income before taxes | 875 | 3,619 | 2,725 | |||||||||
Income tax expense | 229 | 949 | 1,045 | |||||||||
Net Income | $ | 646 | $ | 2,670 | $ | 1,680 | ||||||
Basic and diluted weighted average number of shares outstanding | 28,609,324 | 28,517,339 | 22,397,865 | |||||||||
Basic and diluted income per common share | $ | 0.02 | $ | 0.09 | $ | 0.08 |