UNAUDITED PRO FORMA FINANCIAL INFORMATION
On December 30, 2022, Wireless Telecom Group, Inc. (the “Company”) completed the previously announced sale of its wholly owned subsidiary, Wireless Telecommunications Group, LTD, a company organized under the laws of England and Wales to E-Space Acquisitions LLC for $14.5 million comprised of $13.75 million in cash consideration and a $750,000 note payable, subject to agreed-upon reductions of approximately $650,000.
Wireless Telecommunications Group, LTD wholly owns CommAgility LTD, a company organized under the laws of England and Wales. Wireless Telecommunications Group, LTD and CommAgility LTD collectively made up the Company’s Radio, Baseband and Software segment (“RBS”).
As previously disclosed on March 1, 2022, the Company completed the sale of its formerly wholly owned subsidiary, Microlab/FXR, LLC (“Microlab”) to RF Industries, LTD for approximately $22.8 million in proceeds net of indemnification and purchase price adjustment holdbacks and direct expenses.
The following unaudited pro forma consolidated financial statements of the Company have been derived from the Company’s historical consolidated financial statements. The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2022 give effect to the Company’s sale of RBS as if it had occurred on January 1, 2022. The unaudited pro forma consolidated balance sheet as of September 30, 2022 gives effect to the sale of RBS as if it had occurred on that date. The unaudited pro forma consolidated statement of operations for the twelve months ended December 31, 2021 give effect to the Company’s sale of RBS and Microlab as if both divestitures had occurred on January 1, 2021.
The unaudited pro forma consolidated financial statements of the Company and its subsidiaries have been prepared using assumptions and estimates that the Company’s management believes are reasonable under the circumstances and are intended for informational purposes only. They are not necessarily indicative of the financial results that would have occurred if the transactions described herein had taken place on the dates indicated, nor are they indicative of the future consolidated results of the Company. However, management believes that the estimates and assumptions used provide a reasonable basis for presenting the significant effects of the sale of Microlab and RBS. Management also believes the pro forma adjustments give appropriate effect to the estimates and assumptions and are applied in conformity with accounting principles generally accepted in the United States of America.
The unaudited pro forma financial information should be read in conjunction with the historical consolidated financial statements and accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Company for the nine months ended September 30, 2022 (unaudited) and for the year ended December 31, 2021 (audited), including the related notes, filed with the Securities and Exchange Commission on Form 10-Q on November 14, 2022 and on Form 10-K on March 17, 2022, respectively.
Wireless Telecom Group, Inc.
Unaudited Pro Forma Balance Sheet
As of September 30, 2022
(in thousands, except share amounts)
| As of September 30, 2022 | ||||||||||||||
| WTG As Reported | Pro Froma Adjustments | WTG As Adjusted | ||||||||||||
| CURRENT ASSETS | ||||||||||||||
| Cash & cash equivalents | $ | 10,726 | $ | 12,500 | (a) | $ | 23,226 | |||||||
| Accounts receivable - net of reserves of $183 | 4,329 | (1,243 | ) | (b) | 3,086 | |||||||||
| Inventories - net of reserves of $686 | 5,685 | (612 | ) | (b) | 5,073 | |||||||||
| Prepaid expenses and other current assets | 2,196 | (860 | ) | (b) | 1,336 | |||||||||
| TOTAL CURRENT ASSETS | 22,936 | 9,785 | 32,721 | |||||||||||
| PROPERTY PLANT AND EQUIPMENT - NET | 1,162 | (651 | ) | (b) | 511 | |||||||||
| OTHER ASSETS | ||||||||||||||
| Goodwill | 9,405 | (3,405 | ) | (b) | 6,000 | |||||||||
| Acquired intangible assets, net | 3,070 | (339 | ) | (b) | 2,731 | |||||||||
| Deferred income taxes, net | 2,412 | - | 2,412 | |||||||||||
| Right of use assets | 724 | - | 724 | |||||||||||
| Other assets | 253 | - | 253 | |||||||||||
| TOTAL OTHER ASSETS | 15,864 | (3,744 | ) | 12,120 | ||||||||||
| TOTAL ASSETS | $ | 39,962 | $ | 5,390 | $ | 45,352 | ||||||||
| CURRENT LIABILITIES | ||||||||||||||
| Short term debt | $ | - | $ | - | $ | - | ||||||||
| Accounts payable | 1,527 | (823 | ) | (b) | 704 | |||||||||
| Short term leases | 369 | - | 369 | |||||||||||
| Accrued expenses and other current liabilities | 4,307 | (809 | ) | (b) | 3,498 | |||||||||
| Deferred revenue | 92 | (72 | ) | (b) | 20 | |||||||||
| TOTAL CURRENT LIABILITIES | 6,295 | (1,704 | ) | 4,591 | ||||||||||
| LONG TERM LIABILITIES | ||||||||||||||
| Long term debt | - | - | - | |||||||||||
| Long term leases | 397 | - | 397 | |||||||||||
| Other long term liabilities | 30 | - | 30 | |||||||||||
| Deferred tax liability | 189 | (189 | ) | (b) | 0 | |||||||||
| TOTAL LONG TERM LIABILITIES | 616 | (189 | ) | 427 | ||||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||||
| Preferred Stock, $.01 par value, 2,000,000 shares authorized, none issued | - | - | - | |||||||||||
| Common Stock, $.01 par value, 75,000,000 shares authorized 35,550,342 shares issued, 22,310,889 shares outstanding | 366 | - | 366 | |||||||||||
| Additional paid in capital | 52,635 | - | 52,635 | |||||||||||
| Retained earnings/(deficit) | 7,210 | 7,293 | (a) | 14,503 | ||||||||||
| Treasury stock at cost, 13,239,453 shares | (27,170 | ) | - | (27,170 | ) | |||||||||
| Accumulated other comprehensive income | 10 | (10 | ) | (b) | - | |||||||||
| TOTAL SHAREHOLDERS’ EQUITY | 33,051 | 7,283 | 40,334 | |||||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 39,962 | $ | 5,390 | $ | 45,352 | ||||||||
Wireless Telecom Group, Inc.
Unaudited Pro Forma Consolidated Statements of Operations
(in thousands, except per share amounts)
| Nine months ended September 30, 2022 | ||||||||||||||
| WTG As Reported | Pro Froma Adjustments | WTG As Adjusted | ||||||||||||
| Net revenues | $ | 18,994 | $ | (3,366 | ) | (c) | $ | 15,628 | ||||||
| Cost of revenues | 8,566 | (1,749 | ) | (c) | 6,817 | |||||||||
| Gross profit | 10,428 | (1,617 | ) | 8,811 | ||||||||||
| Operating expenses: | ||||||||||||||
| Research and development | 3,352 | (1,980 | ) | (c) | 1,372 | |||||||||
| Sales and marketing | 3,620 | (680 | ) | (c) | 2,940 | |||||||||
| General and administrative | 9,169 | (1,580 | ) | (c) | 7,589 | |||||||||
| Total operating expenses | 16,141 | (4,240 | ) | 11,901 | ||||||||||
| Operating income/(loss) | (5,713 | ) | 2,623 | (3,090 | ) | |||||||||
| Gain/(loss) on extinguishment of debt | (792 | ) | - | (792 | ) | |||||||||
| Other income/(expense) | 87 | 216 | (c) | 303 | ||||||||||
| Interest expense | (159 | ) | - | (159 | ) | |||||||||
| Gain/(Loss) before taxes | (6,577 | ) | 2,839 | (3,738 | ) | |||||||||
| Tax provision/(benefit) | (1,540 | ) | 599 | (c) | (941 | ) | ||||||||
| Net income/(loss) from continuing operations | $ | (5,037 | ) | $ | 2,240 | $ | (2,797 | ) | ||||||
| Net income from discontinued operations, net of tax | 11,695 | - | 11,695 | |||||||||||
| Net income/(loss) | $ | 6,658 | 2,240 | $ | 8,898 | |||||||||
| Other comprehensive income/(loss): | ||||||||||||||
| Foreign currency translation adjustments | (761 | ) | 761 | (c) | - | |||||||||
| Comprehensive Income/(Loss) | $ | 5,897 | $ | 3,001 | $ | 8,898 | ||||||||
| Income/(loss) per share from continuing operations: | ||||||||||||||
| Basic | $ | (0.23 | ) | $ | (0.13 | ) | ||||||||
| Diluted | $ | (0.23 | ) | $ | (0.13 | ) | ||||||||
| Income/(loss) per share from discontinued operations: | ||||||||||||||
| Basic | $ | 0.53 | $ | 0.53 | ||||||||||
| Diluted | $ | 0.53 | $ | 0.53 | ||||||||||
| Income/(loss) per share: | ||||||||||||||
| Basic | $ | 0.30 | $ | 0.41 | ||||||||||
| Diluted | $ | 0.30 | $ | 0.41 | ||||||||||
| Weighted average shares outstanding: | ||||||||||||||
| Basic | 21,886 | 21,886 | ||||||||||||
| Diluted | 21,886 | 21,886 | ||||||||||||
Wireless Telecom Group, Inc.
Unaudited Pro Forma Consolidated Statements of Operations
(in thousands, except per share amounts)
| Year ended December 31, 2021 | ||||||||||||||
| WTG As Reported | Pro Froma Adjustments | WTG As Adjusted | ||||||||||||
| Net revenues | $ | 49,245 | $ | (26,569 | ) | (d) | $ | 22,676 | ||||||
| Cost of revenues | 24,158 | (14,446 | ) | (d) | 9,712 | |||||||||
| Gross profit | 25,087 | (12,123 | ) | 12,964 | ||||||||||
| Operating expenses: | ||||||||||||||
| Research and development | 5,550 | (3,832 | ) | (d) | 1,718 | |||||||||
| Sales and marketing | 7,169 | (3,166 | ) | (d) | 4,003 | |||||||||
| General and administrative | 11,869 | (2,793 | ) | (d) | 9,076 | |||||||||
| Goodwill impairment | 258 | (258 | ) | - | ||||||||||
| Loss on change in fair value of contingent consideration | 386 | - | 386 | |||||||||||
| Total operating expenses | 25,232 | (10,049 | ) | 15,183 | ||||||||||
| Operating income/(loss) | (145 | ) | (2,074 | ) | (2,219 | ) | ||||||||
| Gain/(loss) on extinguishment of debt | 2,045 | - | 2,045 | |||||||||||
| Other income/(expense) | 70 | 438 | (e) | 508 | ||||||||||
| Interest expense | (1,143 | ) | 1,133 | (f) | (10 | ) | ||||||||
| Income/(Loss) before taxes | 827 | (503 | ) | 324 | ||||||||||
| Tax provision/(benefit) | (673 | ) | 696 | (g) | 23 | |||||||||
| Net income/(loss) | $ | 1,500 | $ | (1,199 | ) | $ | 301 | |||||||
| Other comprehensive income/(loss): | ||||||||||||||
| Foreign currency translation adjustments | (70 | ) | 70 | - | ||||||||||
| Comprehensive Income/(Loss) | $ | 1,430 | $ | (1,129 | ) | $ | 301 | |||||||
| Loss per share: | ||||||||||||||
| Basic | $ | 0.07 | $ | 0.01 | ||||||||||
| Diluted | $ | 0.06 | $ | 0.01 | ||||||||||
| Weighted average shares outstanding: | ||||||||||||||
| Basic | 22,050 | 22,050 | ||||||||||||
| Diluted | 24,297 | 24,297 | ||||||||||||
Notes to the Unaudited Pro Forma Financial Information
Note 1 – Basis of Presentation
The historical unaudited consolidated balance sheet as of September 30, 2022 reflects the reported assets, liabilities and shareholders’ equity of the Company with pro forma adjustments associated with the sale of RBS.
The unaudited pro forma consolidated balance sheet as of September 30, 2022 has been prepared in accordance with the Securities and Exchange Commission’s pro forma rules under S-X Article 11 assuming the sale of RBS occurred as of that date. The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2022 have been prepared assuming the sale of RBS occurred on January 1, 2022. The unaudited pro forma consolidated statement of operations for the year ended December 31, 2021 have been prepared assuming that the sale of Microlab and RBS occurred on January 1, 2021. All material adjustments required to reflect the sales of Microlab and RBS are set forth in the columns labeled “Pro Forma Adjustments”. The data contained in the columns labeled “WTG As Reported” is derived from WTG’s historical unaudited consolidated balance sheet as of September 30, 2022 and WTG’s historical unaudited consolidated statement of operations for the nine months ended September 30, 2022 and audited consolidated statement of operations for the year ended December 31, 2021.
Note 2 – Pro Forma Adjustments
The following adjustments were made in the preparation of the unaudited pro forma consolidated balance sheet:
| (a) | To record as of September 30, 2022 (i) the expected net proceeds from the sale of RBS and (ii) the expected gain on the sale of RBS pursuant to the terms of the Purchase Agreement: |
Amount (in thousands) | ||||
| Gross consideration from the sale of RBS | $ | 14,500 | ||
| Estimated Closing and transaction costs | (1,250 | ) | ||
| Estimated offsets | (650 | ) | ||
| Purchase price note receivable | (100 | ) | ||
| Expected Net Proceeds from sale of RBS | $ | 12,500 | ||
Amount (in thousands) | ||||
| Gross consideration from the sale RBS | $ | 14,500 | ||
| Estimated offsets to purchase price | (650 | ) | ||
| Estimated transaction costs | (1,250 | ) | ||
| Book value of RBS assets | (5,307 | ) | ||
| Estimated gain on sale of RBS | $ | 7,293 | ||
Note – The expected net gain on the sale of RBS has not been reflected in the pro form consolidated statements of operations.
| (b) | To eliminate the net assets of the RBS segment consisting of trade accounts receivable, inventory, prepaid and other current assets, goodwill and acquired intangible assets, net fixed assets, accounts payable, accrued expenses, deferred revenue, deferred tax liability and accumulated other comprehensive income. Prepaid and other current assets includes the recognition of the $100,000 note receivable that is part of the purchase consideration. |
| (c) | To eliminate the operating activity related to RBS which includes net revenues, costs of revenues, research and development, sales and marketing and general and administrative expenses, other expenses comprised primarily of foreign exchange losses and tax benefit. Other comprehensive income adjustment related to foreign currency translation adjustments is also eliminated. |
| (d) | To eliminate the operating activity related to Microlab and RBS (in thousands): |
| Microlab | RBS | Total | ||||||||||
| Net Revenues | $ | 17,756 | $ | 8,813 | $ | 26,569 | ||||||
| Costs of Revenues | 10,259 | 4,187 | 14,446 | |||||||||
| Operating expenses: | ||||||||||||
| Research and development | 900 | 2,932 | 3,832 | |||||||||
| Sales and marketing | 2,374 | 792 | 3,166 | |||||||||
| General and administrative | 42 | 2,752 | 2,793 | |||||||||
| Goodwill impairment | 258 | 258 | ||||||||||
| (e) | To record sublease income related to Microlab’s sublease of 25 Eastman’s Road Parsippany N.J. |
| (f) | To eliminate interest expense related to our term debt and debt discount amortization. |
| (g) | To revise the tax benefit for elimination of Microlab and RBS taxable income. |