EX-99.1 3 ex_164429.htm EXHIBIT 99.1 ex_164429.htm

Exhibit 99.1

 

 

Unaudited Pro Forma Condensed Consolidated Financial Statements

 

On November 8, 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 Bel Fuse 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 majority of its power supply business of Seller and Parent effective upon the close of the transaction up to 30 days following the signing of the agreement on November 8, 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 with the Sellers generally remaining obligated for remaining pre-closing liabilities other than the assumed liabilities (the “Excluded Liabilities”).

 

As consideration for the Disposed Company, Buyer agreed to pay the Company an aggregate purchase price of $32 million (the "Purchase Price"), plus the assumption of certain agreed upon liabilities and subject to closing working capital adjustments.

 

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 nine months ended September 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 September 30, 2019 has been prepared with the assumption that the asset sale transaction was completed as of the balance sheet date excluding working capital adjustments.

 

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 September 30, 2019.

 

 
 

 

CUI Global Inc.

Unaudited Pro Forma Consolidated Balance Sheets

As of September 30, 2019

 

           

Disposition of

    

Other

      

Pro

  

(in thousands, except share and per share amounts)

  

Historical

    

Business

    

Adjustments

      

forma

  
                                   

Assets:

          

(2a)

                    

Current Assets:

                                  

Cash and cash equivalents

   $ 1,728     $ —     $ 30,053   (2c)   $ 31,781  

Trade accounts receivable, net

     4,589       —       —         4,589  

Inventories

     1,580       —       —         1,580  

Contract assets

     2,567       —       —         2,567  

Prepaid expenses and other current assets

     1,462       —       —         1,462  

Assets held for sale

     30,486       24,667       —         5,819  

Total current assets

     42,412       24,667       30,053         47,798  
                                   

Property and equipment, net

     4,211       —       —         4,211  

Investment in VPS - equity method

     5,198       —       —         5,198  

Right of use assets - Operating leases

     5,615       —       —         5,615  

Other intangible assets, net

     4,271       —       —         4,271  

Note receivable - related party

     3,183       —                 3,183  

Deposits and other assets

     69       —       —         69  
                                   

Total assets

   $ 64,959     $ 24,667     $ 30,053       $ 70,345  
                                   

Liabilities and Stockholders' Equity:

                                  

Current Liabilities:

                                  

Accounts payable

   $ 3,096     $ —     $ —       $ 3,096  

Notes payable - current

     269       —       —         269  

Operating lease obligations - current portion

     754       —       —         754  

Accrued expenses

     2,599       —       —         2,599  

Contract liabilities

     2,222       —       —         2,222  

Liabilities held for sale

     10,059       7,421       (680

)

 (2c)     1,958  

Total current liabilities

     18,999       7,421       (680

)

       10,898  
                                   

Operating lease obligations, less current portion

     4,977       —       —         4,977  

Deferred tax liabilities

     1,584       —       —         1,584  

Other long-term liabilities

     166       —       —         166  

Total liabilities

     25,726       7,421       (680

)

       17,625  
                                   

Commitments and contingencies

                                  
                                   

Stockholders' Equity:

                                  

Preferred stock, par value $0.001; 10,000,000 shares authorized; no shares issued at September 30, 2019

     —       —       —         —  
                                   

Common stock, par value $0.001; 325,000,000 shares authorized; 28,680,260 shares issued and outstanding at September 30, 2019

     29       —       —         29  
                                   

Additional paid-in capital

     170,049       —       —         170,049  

Accumulated deficit

     (126,685

)

     —       13,487         (113,198

)

Accumulated other comprehensive loss

     (4,160

)

     —       —         (4,160

)

Total stockholders' equity

     39,233       —       13,487         52,720  

Total liabilities and stockholders' equity

   $ 64,959     $ 7,421     $ 12,807       $ 70,345  

 

 
 

 

 

Reconciliation of the Carrying Amounts of Major Classes of Assets and Liabilities of the Power Disposal Group to Total Assets and Liabilities of the Power Disposal Group Classified as Held for Sale

 

   

September 30,

  

(in thousands)

  

2019

  
         

Carrying amounts of the major classes of assets included in Power disposal group classified as held for sale:

        
         

Trade accounts receivables

   $ 4,187  

Inventories

     5,758  

Prepaid expenses and other current assets

     154  

Property and equipment

     77  

Right of use assets - operating leases

     3  

Goodwill

     8,002  

Other intangible assets

     6,479  

Deposits and other assets

     7  

Total assets of the disposal group classified as held for sale

   $ 24,667  
         

Carrying amounts of the major classes of liabilities included in the Power disposal group classified as held for sale:

        
         

Accounts payable

   $ 4,209  

Operating lease obligations - current portion

     2  

Accrued expenses

     1,048  

Contract liabilities

     111  

Refund liabilities

     2,050  

Operating lease obligations, less current portion

     1  

Total liabilities

   $ 7,421  

 

 
 

 

CUI Global Inc.

Unaudited Pro Forma Consolidated Statements of Operations

For the Nine Months Ended September 30, 2019

 

(In thousands, except share and per share amounts)

  

Historical *

    

Less

Disposition

of

Electromec

-hanical

Business

    

Less

Disposition

of Power

Group

Business

    

Less

Operations

Held for

Sale

    

Other

Adjustments

      

Pro Forma

  
                                                   

Total revenues

   $ 67,366     $ 16,315     $ 26,253     $ 7,005     $ —       $ 17,793  
      —                                            

Cost of revenues

     45,563       10,121       16,305       5,673       —         13,464  
                                                   

Gross profit

     21,803       6,194       9,948       1,332       —         4,329  
                                                   

Operating expenses:

                                                  

Selling, general and administrative

     28,160       5,066       8,155       847       —         14,092  

Depreciation and amortization

     1,453       37       223       57       —         1,136  

Research and development

     955       37       2       793       —         123  

Provision (credit) for bad debt

     90       (7

)

     (13

)

     —       —         110  

Gain on sale of Electromechanical components

     (3,631

)

     (3,631

)

     —       —                 —  

Other operating income

     (13

)

     —       —       —       —         (13

)
                                                   

Total operating expenses

     27,014       1,502       8,367       1,697       —         15,448  
                                                   

(Loss) income from operations

     (5,211

)

     4,692       1,581       (365

)

     —         (11,119

)
                                                   

Loss from equity method investment in VPS

     (710

)

     —       —       —       —         (710

)

Fair value gain on equity method investment purchase

     629       —       —       —       —         629  

Other expense

     (611

)

     (20

)

     (38

)

     22       —         (575

)

Interest expense

     (309

)

     (29

)

     (46

)

     —       199   (2f)     (35

)
                                                   

Income (loss) from continuing operations before taxes

     (6,212

)

     4,643       1,497       (343

)

     199         (11,810

)
                                                   

Income tax (benefit) expense

     (632

)

     801       258       (59

)

     34   (2f)     (1,598

)
                                                   

Income (loss) from continuing operations

   $ (5,580

)

   $ 3,842     $ 1,239     $ (284

)

   $ 165       $ (10,212

)
                                                   

Basic and diluted weighted average common shares outstanding

     28,636,918       28,636,918       28,636,918       28,636,918       28,636,918         28,636,918  
                                                   

Basic and diluted (loss) income per common share

   $ (0.19

)

   $ 0.13     $ 0.04     $ (0.01

)

   $ 0.01       $ (0.36

)

 

* Historical numbers are classified in their major classes of income and expense. Pro forma income is equal to income from continuing operations as reported in the Company's latest Form 10-Q filed November 12, 2019.

 

 
 

 

CUI Global Inc.

Unaudited Pro Forma Consolidated Statements of Operations

For the Year Ended December 31, 2018

 

(In thousands, except share and per share amounts)

  

Historical

    

Less

Disposition

of

Electromec-

hanical

Business

    

Less

Disposition

of Power

Group

Business

    

Less

Operations

Held for

Sale

    

Other

Adjustments

      

Pro Forma

  
                                                   

Total revenues

   $ 96,789     $ 27,489     $ 40,216     $ 8,742     $ —       $ 20,342  
                                                   

Cost of revenues

     67,879       16,739       24,177       9,180       —         17,783  
                                                   

Gross profit

     28,910       10,750       16,039       (438

)

     —         2,559  
                                                   

Operating expenses:

                                                  

Selling, general and administrative

     36,341       7,037       9,529       1,146       —         18,629  

Depreciation and amortization

     2,152       51       164       303       —         1,634  

Research and development

     2,802       35       31       2,581       —         155  

Provision for bad debt

     33       8       12       —       —         13  

Impairment of goodwill and intangible assets

     4,347       —       —       —       —         4,347  

Other operating expenses

     13       —       9       4       —         —  
                                                   

Total operating expenses

     45,688       7,131       9,745       4,034       —         24,778  
                                                   

(Loss) income from operations

     (16,778

)

     3,619       6,294       (4,472

)

     —         (22,219

)
                                                   

Other expense

     (251

)

     —       65       (14

)

     —         (302

)

Interest expense

     (502

)

     —       (19

)

     (2

)

     265   (2f)     (216

)
                                                   

(Loss) income before taxes

     (17,531

)

     3,619       6,340       (4,488

)

     265   (2f)     (22,737

)
                                                   

Income tax (benefit) expense

     (206

)

     949       1,662       20       69         (2,768

)
                                                   

Net (loss) income

   $ (17,325

)

   $ 2,670     $ 4,678     $ (4,508

)

   $ 196       $ (19,969

)
                                                   

Basic and diluted weighted average number of shares outstanding

     28,517,339       28,517,339       28,517,339       28,517,339       28,517,339         28,517,339  
                                                   

Basic and diluted (loss) income per common share

   $ (0.61

)

   $ 0.09     $ 0.16     $ (0.16

)

   $ —       $ (0.70

)

 

 
 

 

CUI Global Inc.

Unaudited Pro Forma Consolidated Statements of Operations

For the Year Ended December 31, 2017

 

(In thousands, except share and per share amounts)

  

Historical

    

Less

Disposition

of

Electromec-

hanical

Business

    

Less

Disposition

of Power

Group

Business

    

Less

Operations

Held for

Sale

    

Pro Forma

  
                                         

Total revenues

   $ 83,275     $ 21,221     $ 35,407     $ 7,804     $ 18,843  
                                         

Cost of revenues

     55,406       12,632       21,607       8,254       12,913  
                                         

Gross profit

     27,869       8,589       13,800       (450

)

     5,930  
                                         

Operating expenses:

                                        

Selling, general and administrative

     33,921       5,794       9,509       1,112       17,506  

Depreciation and amortization

     2,163       48       343       318       1,454  

Research and development

     2,525       20       16       2,267       222  

Provision (credit) for bad debt

     (13

)

     1       2       —       (16

)

Impairment of goodwill and intangible assets

     3,155       —       —       —       3,155  

Other operating expenses

     47       —       43       2       2  
                                         

Total operating expenses

     41,798       5,863       9,913       3,699       22,323  
                                         

(Loss) income from operations

     (13,929

)

     2,726       3,887       (4,149

)

     (16,393

)
                                         

Other income (expense)

     234       (1

)

     (88

)

     13       310  

Interest expense

     (500

)

     —       (34

)

     —       (466

)
                                         

(Loss) income before taxes

     (14,195

)

     2,725       3,765       (4,136

)

     (16,549

)
                                         

Income tax (benefit) expense

     (1,606

)

     1,045       987       (1,084

)

     (2,554

)
                                         

Net (loss) income

   $ (12,589

)

   $ 1,680     $ 2,778     $ (3,052

)

   $ (13,995

)
                                         

Basic and diluted weighted average number of shares outstanding

     22,397,865       22,397,865       22,397,865       22,397,865       22,397,865  
                                         

Basic and diluted (loss) income per common share

   $ (0.56

)

   $ 0.08     $ 0.12     $ (0.14

)

   $ (0.62

)

 

 
 

 

 

1.

Asset Sale Transaction

 

On November 8, 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 Bel Fuse, 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 majority of its power supply business of Seller and Parent effective within 30 days of November 8, 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 approximately $1.3 million.

 

 

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 power group 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

   $ 32,000  

Less: estimated transaction costs

     1,267  

Net cash proceeds from sale

   $ 30,733  

 

(c) Recording of repayment of the line of credit.

 

Net cash proceeds from sale

   $ 30,733  
         

Less: repayment of line of credit

     680  

Net cash increase after assumed payoff of LOC

   $ 30,053  

 

(d) The table below represents the tax expense and related taxes payable associated with sale of the Company's power group business.

 

Income tax at statutory rate

   $ 3,535  

Benefit from net operating loss utilization

     (3,535

)

Total income tax payable

   $ —  

 

(e) The estimated gain on the sale of the power group business if we had completed the sale as of September 30, 2019 is as follows:

 

Net proceeds (Note (b))

   $ 30,733  

Net assets sold

     17,246  

Pre-tax gain on sale

     13,487  

Tax expense

     —  

After-tax gain on sale

   $ 13,487  

 

 
 

 

This estimated gain on the sale of the power group 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 September 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, which was assumed as part of the sale of the Company's electromechanical business in September 2019.

 

   

9 months

          
   

Ended

          
   

September

30, 2019

    

2018

  

Interest expense on related party note payable

   $ 199     $ 265  

tax effect at statutory rate

     34       69  

Interest expense net of tax effect

   $ 165     $ 196  

 

The pro forma effect on interest expense related to the payoff of the line of credit would not have been material for the nine-month period ended September 30, 2019 or for the year ended December 31, 2018.

 

 
 

 

3. Discontinued Operations

 

The financial results of the Company's discontinued operations, net of income taxes, have been removed to reflect the effects of the disposition and held for sale assets and liabilities of the Company's power and electromechanical businesses and the retrospective presentation as discontinued operations in future filings. The following table presents the financial results for the power and electromechanical businesses for the years ended December 31, 2018 and 2017 and for the nine months ended September 30, 2019.

 

   

For the Nine

    

For the Year

    

For the Year

  
   

Months

    

Ended

    

Ended

  
   

Ended September

    

December

    

December

  
     30, 2019      31, 2018      31, 2017  
                         

(In thousands, except share and per share amounts)

                        
                         

Total revenues

   $ 49,573     $ 76,447       64,432  
                         

Cost of revenues

     32,099       50,096       42,493  
                         

Gross profit

     17,474       26,351       21,939  
                         

Operating expenses:

                        

Selling, general and administrative

     14,068       17,712       16,415  

Depreciation and amortization

     317       518       709  

Research and development

     832       2,647       2,303  

Provision (credit) for bad debt

     (20

)

     20       3  

Gain on sale of Electromechanical components

     (3,631

)

     —       —  

Other operating expenses

     —       13       45  
                         

Total operating expenses

     11,566       20,910       19,475  
                         

Income from operations

     5,908       5,441       2,464  
                         

Other income (expense)

     (36

)

     51       (76

)

Interest expense

     (274

)

     (286

)

     (34

)
                         

Income before taxes

     5,598       5,206       2,354  
                         

Income tax expense

     966       2,562       948  
                         

Net Income

   $ 4,632     $ 2,644     $ 1,406  
                         

Basic and diluted weighted average number of shares outstanding

     28,636,918       28,517,339       22,397,865  
                         

Basic and diluted income per common share

   $ 0.16     $ 0.09     $ 0.06