Exhibit 99.2
HWN, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
HWN, Inc. (“HWN” or the “Company”), d/b/a High Wire Network Solutions, Inc., is a Chicago-based provider of engineering and installation services and staffing solutions and cybersecurity and other services to the telecommunications industry. HWN is a global provider of managed security, professional services and commercial/industrial electrical solutions delivered exclusively through a channel sales model. HWN’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment. HWN was incorporated in Delaware on January 20, 2017.
On February 7, 2019, HWN and JTM Electrical and Technology, LLC. (“JTM”), an Illinois Corporation, entered into an operating agreement through which HWN owns 50% of JTM.
On June 16, 2021, HWN completed a merger with Spectrum Global Solutions, Inc (“Spectrum”). The merger was accounted for as a reverse merger. At the time of the reverse merger, Spectrum’s subsidiaries included the ADEX Corporation, ADEX Puerto Rico, ADEX Canada LLC (collectively “ADEX”), AW Solutions Puerto Rico, LLC (“AWS PR”) and Tropical Communications, Inc. (“Tropical”).
On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. For accounting purposes, HWN is the surviving entity and is referred to throughout as “HWN”, “High Wire”, or “the Company”.
The following unaudited pro forma condensed consolidated financial statements of the consolidated company (the “pro forma financial statements”) include the unaudited pro forma condensed consolidated balance sheet as of December 31, 2020, (the “pro forma balance sheet”), the unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2021, and the twelve months ended December 31, 2020, as adjusted to give effect to the Company’s acquisition of Spectrum and the related financing transactions.
The pro forma balance sheet combines the historical condensed consolidated balance sheet of the Company as of March 31, 2021, and the historical condensed combined balance sheet of Spectrum as of March, 31, 2021, giving effect to the acquisition as if it had been consummated on March 31, 2021. The three month pro forma statement of operations combines the historical consolidated statement of operations of the Company and the historical condensed consolidated statement of operations of Spectrum for the 3 months ended March 31, 2021, each giving effect to the acquisition as if it had been consummated on January 1, 2021, the first day of the Company’s fiscal quarter ended March 31, 2021.
The pro forma financial statements are for informational purposes only and are not intended to represent or to be indicative of the actual results of operations or financial position that the consolidated company would have reported had the acquisition been completed as of the dates set forth in the pro forma financial statements, and should not be taken as being indicative of the consolidated company’s future consolidated results of operations or financial position.
The assumptions and estimates underlying the unaudited adjustments to the pro forma financial statements are described in the accompanying notes, which should be read together with the pro forma financial statements.
The pro forma financial statements should be read together with the Company’s historical financial statements, which are included in the Company’s latest annual report on Form 10-K and quarterly report on Form 10-Q, and Spectrum historical information included herein.
High Wire Networks, Inc. (f/k/a Spectrum Global Solutions, Inc.) (“High Wire”) was incorporated in the State of Nevada on January 22, 2007. HWN, Inc., (d/b/a High Wire Network Solutions, Inc.).
HWN, Inc. (“HWN”) was incorporated in Delaware on January 20, 2017. HWN is a global provider of managed security, professional services and commercial/industrial electrical solutions delivered exclusively through a channel sales model. HWN’s Overwatch managed security platform-as-a-service offers organizations end-to-end protection for networks, data, endpoints and users via multiyear recurring revenue contracts in this fast-growing technology segment.
On February 7, 2019, HWN and JTM Electrical and Technology LLC (“JTM”), an Illinois Corporation, entered into an operating agreement through which HWN owned 50% of JTM.
On June 16, 2021, HWN completed a merger with Spectrum Global Solutions, Inc. The merger was accounted for as a reverse merger. At the time of the reverse merger, Spectrum’s subsidiaries included the ADEX Entities, AWS PR and Tropical.
On January 7, 2022, Spectrum Global Solutions, Inc. legally changed its name to High Wire Networks, Inc. For accounting purposes, HWN is the surviving entity and is referred to throughout as “HWN”, “High Wire”, or “the Company”.
These unaudited pro forma condensed consolidated financial statements (“pro forma financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP) and are expressed in US dollars. These pro forma financial statements do not contain all of the information required for annual financial statements. Accordingly, they should be read in conjunction with the most recent annual financial statements of the Company and Spectrum.
The historical consolidated financial statements have been adjusted in the pro forma financial statements to give effect to pro forma events that are (1) directly attributable to the business combination, (2) factually supportable and (3) with respect to the pro forma condensed consolidated statements of operations, expected to have a continuing impact on the cconsolidated results following the business combination.
The business combination was accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of Spectrum’s assets acquired and liabilities assumed.
These pro forma financial statements have been compiled from and include:
| | (a) | an unaudited pro forma balance sheet combining the audited balance sheet of the Company as at December 31, 2020, with the audited balance sheet of Spectrum as at December 31, 2020, giving effect to the transaction as if it occurred on December31, 2020. |
| | (b) | an unaudited pro forma statement of operations combining the audited annual statement of operations of the Company for the year ended December, 31, 2020, with the audited statement of operations of Spectrum for the year ended December 31, 2020, giving effect to the transaction as if it occurred on January 1, 2020. |
| | (c) | an unaudited pro forma statement of operations combining the audited annual statement of operations of the Company for the three months ended March 31, 2021, with the audited statement of operations of Spectrum for the three months ended March 31, 2021, giving effect to the transaction as if it occurred on January 1, 2021. |
The unaudited pro forma financial statements have been compiled using the significant accounting policies as set out in the audited consolidated financial statements of the Company for the three months ended March 31, 2021. Based on the review of the accounting policies of Spectrum, it is the Company’s management’s opinion that there are no material accounting differences between the accounting policies of the Company and Spectrum. The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and notes thereto of the Company.
It is management’s opinion that these pro forma financial statements include all adjustments necessary for the fair presentation, in all material respects, of the proposed transaction described above in accordance with US GAAP applied on a basis consistent with the Company’s accounting policies.
The unaudited pro forma financial statements are not intended to reflect the results of operations or the financial position of the Company which would have actually resulted had the proposed transaction been effected on the dates indicated. Further, the unaudited pro forma financial information is not necessarily indicative of the results of operations that may be obtained in the future. The actual pro forma adjustments will depend on a number of factors, and could result in a change to the unaudited pro forma financial statements.
The fair value of the consideration transferred liabilities assumed are as follows:
| Purchase consideration | | Fair Value | |
| Common stock | | $ | 5,561,975 | |
| Convertible debt | | | 1,049,638 | |
| Derivative liabilities | | | 6,929,000 | |
| Loans payable | | | 2,377,400 | |
| Loans payable, related parties | | | 2,447,252 | |
| Lease liabilities | | | 106,615 | |
| Fair value of stock options | | | 204,715 | |
| Fair value of warrants | | | 362,687 | |
| Fair value of Series A Preferred | | | 1,024,000 | |
| Fair value of Series D Preferred | | | 1,271,000 | |
| Total purchase price | | $ | 21,334,282 | |
The fair value of the net assets acquired are as follows:
| Allocation of purchase consideration | | | |
| Working capital | | $ | 781,470 | |
| Other assets | | | 12,893 | |
| Contract assets | | | 426,647 | |
| Goodwill | | | 13,667.934 | |
| Customer lists | | | 4,720,863 | |
| Tradenames | | | 1,724,475 | |
| Total enterprise value | | $ | 21,334,282 | |
The preliminary allocation of consideration to the assets acquired and liabilities assumed at their estimated acquisition date fair values.
The pro forma adjustments are based on the Company’s preliminary estimates and assumptions that are subject to change. The pro forma financial statements incorporate the following pro forma adjustments:
| | (a) | Represents the elimination of Spectrum and HWN historical equity common stock. |
| | (b) (c) (d) | Represents the fair value of the common stock assumed in the reverse merger. Represents the elimination of the historical value of the Spectrum preferred stock. Represents the fair value of the Series A, Series B and Series D Preferred Stock assumed in the reverse merger. |
| | (e) | Represents the payment of the estimated transaction costs of $200,000 related to the acquisition of Spectrum. |
| | (f) | Reflects the adjustment of historical intangible assets acquired by the Company to their estimated fair values. As part of the preliminary valuation analysis, the Company identified intangible assets, including trade names, and customer relationships. The fair value of identifiable intangible assets is determined primarily using the “Relief from Royalty Method,” and the “Multiple Period Excess Earnings Method”. |
| | (g) | Reflects adjustment to remove Spectrum’ historical goodwill of $331,223 and record goodwill associated with the acquisition of $13,562,296 as described Note 2. |
| | | |
| | (h) | Reflects adjustment to reflect the Spectrum shares outstanding as of March 31, 2021 |
| (i) | Reflects adjustment to reflect the Spectrum shares outstanding as of December 31, 2020. |
HWN, Inc.
Unaudited Proforma Condensed Consolidated Statement of Operations
For the twelve months ended December 31, 2020
| | | HWN, Inc. | | | Spectrum Global
Solutions, Inc. | | | Adjustments
Pro forma
Adjustments | | | Consolidated | |
| Revenues | | $ | 15,756,944 | | | $ | 18,677,444 | | | $ | - | | | $ | 34,434,388 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Cost of goods sold | | | 9,897,718 | | | | 15,403,987 | | | | - | | | | 25,301,705 | |
| Depreciation and amortization | | | 284,571 | | | | 54,248 | | | | 378,696 | (f) | | | 717,515 | |
| Goodwill impairment | | | - | | | | - | | | | - | | | | - | |
| General and administrative | | | 6,983,632 | | | | 7,523,991 | | | | 200,000 | (e) | | | 14,707,623 | |
| | | | | | | | | | | | | | | | | |
| Total operating expenses | | | 17,165,921 | | | | 22,982,226 | | | | 578,696 | | | | 40,726,843 | |
| (Loss) income from operations | | | (1,408,977 | ) | | | (4,304,782 | ) | | | (578,696 | ) | | | (6,292,455 | ) |
| | | | | | | | | | | | | | | | | |
| Other income (expenses): | | | | | | | | | | | | | | | | |
| Interest expense | | | (167,771 | ) | | | (1,057,064 | ) | | | - | | | | (1,224,835 | ) |
| Loss on settlement of debt | | | - | | | | (2,623,379 | ) | | | - | | | | (2,623,379 | ) |
| Amortization of debt discounts on convertible debentures and loans payable | | | - | | | | (651,129 | ) | | | - | | | | (651,129 | ) |
| Default and debt extension fees | | | - | | | | (120,903 | ) | | | | | | | (120,903 | ) |
| Changes in fair value of derivative instrument | | | - | | | | (662,968 | ) | | | - | | | | (662,968 | ) |
| Exchange loss | | | - | | | | (3,991 | ) | | | - | | | | (3,991 | ) |
| Initial derivative expense | | | - | | | | (594,803 | ) | | | - | | | | (594,803 | ) |
| Gain on PPP loan forgiveness | | | 873,400 | | | | | | | | - | | | | 873,400 | |
| | | | | | | | | | | | | | | | | |
| Loss on return of common stock | | | - | | | | (194,732 | ) | | | - | | | | (194,732 | ) |
| | | | | | | | | | | | | | | | | |
| Loss on fair value of additional shares | | | - | | | | (177,746 | ) | | | - | | | | (177,746 | ) |
| other income | | | 27,183 | | | | - | | | | - | | | | 27,183 | |
| Total other (expense) income | | | 732,812 | | | | 6,086,715 | ) | | | - | | | | (5,353,903 | ) |
| (Loss) income before benefit for income taxes | | | (676,165 | ) | | | (10,391,497 | ) | | | (578,696 | ) | | | (11,646,658 | ) |
| | | | | | | | | | | | | | | | | |
| Benefit for income taxes | | | - | | | | 1,908 | | | | - | | | | 1,908 | |
| Net (loss) income from continuing operations | | | (676,165 | ) | | | 10,393,405 | ) | | | (578,696 | ) | | | (11,646,566 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss from discontinued operations, net of tax | | | - | | | | (7,316,891 | ) | | | - | | | | (7,316,891 | ) |
| | | | | | | | | | | | | | | | | |
| Net Loss | | | (676,165 | ) | | | (17,710,296 | ) | | | (578,696 | ) | | | (18,965,547 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss attributable to non-controlling interest | | | 16,918 | | | | - | | | | - | | | | 16,918 | |
| | | | | | | | | | | | | | | | | |
| Net loss (income) attributable to HWN, Inc common stock holders | | $ | (693,083 | ) | | $ | (17,710,296 | ) | | $ | (578,696 | ) | | $ | (18,965,457 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share attributable to HWN, Inc. common stockholders: | | $ | (395.14 | ) | | | | | | | | | | $ | (1.44 | ) |
| | | | | | | | | | | | | | | | | |
| Basic weighted average number of common shares outstanding | | | 1,754 | | | | | | | | 13,187,197 | (i) | | | 13,188,951 | |
| Diluted weighted average number of common shares outstanding | | | 1,754 | | | | | | | | 13,187,197 | (i) | | | 13,188,951 | |
HWN, Inc.
Unaudited Proforma Consolidated Condensed Balance Sheets
As of December 31, 2020
| | | HWN, Inc
Consolidated | | | Spectrum Global
Solutions, Inc. | | | Adjustments | | | | Proforma
Consolidated | |
| ASSETS | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| Current assets; | | | | | | | | | | | | | |
| Cash | | $ | 436,448 | | | $ | 580,800 | | | $ | (200,000 | ) | (e) | | $ | 817,248 | |
| Accounts receivable, net of allowances | | | 2,286,023 | | | | 2,481,124 | | | | - | | | | | 4,767,145 | |
| Contract Assets | | | 60,862 | | | | 167,649 | | | | - | | | | | 228,511 | |
| Other current assets | | | 151,795 | | | | 13,025 | | | | - | | | | | 164,820 | |
| Total current assets | | | 2,935,128 | | | | 3,242,598 | | | | (200,000 | ) | | | | 5,977,726 | |
| | | | | | | | | | | | | | | | | | |
| Property and equipment, net | | | 475,441 | | | | 14,186 | | | | - | | | | | 489,627 | |
| Goodwill | | | 2,607,632 | | | | 331,223 | | | | 13,231,073 | | (g) | | | 16,169,928 | |
| intangible assets, net of accumulated amortization | | | 1,401,144 | | | | 622,568 | | | | 5,822,770 | | (f) | | | 7,846,482 | |
| Operating right of use assets | | | 239,489 | | | | 116,817 | | | | - | | | | | 356,306 | |
| Total assets | | $ | 7,658,834 | | | $ | 4,327,392 | | | $ | 18,853,843 | | | | $ | 30,840,069 | |
| | | | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ DEFECIT (EQUITY) | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | | | | | | | |
| Accounts payable and accrued expenses | | $ | 1,494,178 | | | $ | 2,369,477 | | | $ | - | | | | | 3,863,655 | |
| Contract liabilities | | | 214,450 | | | | 287,775 | | | | - | | | | | 502,225 | |
| Notes payable, current portion, net of debt discount | | | 65,453 | | | | 532,381 | | | | - | | | | | 597,834 | |
| Notes payable, related parties, current portion | | | 557,858 | | | | - | | | | - | | | | | 557,858 | |
| Convertible debentures, current portion, net of debt discount | | | - | | | | 1,002,463 | | | | - | | | | | 1,002,463 | |
| Factor financing | | | - | | | | 1,914,611 | | | | - | | | | | 1,914,611 | |
| Derivative liabilities, current portion | | | - | | | | 3,028,504 | | | | 2,124,474 | | | | | 5,152,978 | |
| Warrant liability | | | - | | | | 100,000 | | | | | | | | | 100,000 | |
| Operating lease liabilities, current portion | | | 86,510 | | | | 122,838 | | | | - | | | | | 209,348 | |
| Total current liabilities | | | 2,418,449 | | | | 9,358,049 | | | | 2,124,474 | | | | | 13,900,972 | |
| | | | | | | | | | | | | | | | | | |
| Long term liabilities | | | | | | | | | | | | | | | | | |
| Convertible loans payable to related parties | | | - | | | | 577,925 | | | | | | | | | 577,925 | |
| Loans payable, net of current portion | | | 595,741 | | | | 2,920,125 | | | | | | | | | 3,515,866 | |
| Loans payable to related parties, net of current portion | | | 1,735,114 | | | | - | | | | | | | | | 1,735,114 | |
| Operating lease liabilities, net of current portion | | | 196,594 | | | | - | | | | - | | | | | 196,594 | |
| Derivative liabilities, net of current portion | | | - | | | | 362,000 | | | | | | | | | 362,000 | |
| Total long term liabilities | | | 2,527,449 | | | | 3,860,050 | | | | - | | | | | 6,387,499 | |
| Total liabilities | | | 4,945,898 | | | | 13,218,099 | | | | 2,124,474 | | | | | 20,288,471 | |
| | | | | | | | | | | | | | | | | | |
| Commitments and contingencies | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Series A preferred stock | | | - | | | | 737,403 | | | | (374,716 | ) | (c,d) | | | 362,687 | |
| Series B preferred stock | | | - | | | | 484,530 | | | | 539,470 | | (c,d) | | | 1,024,000 | |
| Series D preferred stock | | | - | | | | - | | | | 1,271,000 | | (d) | | | 1,271,000 | |
| Total mezzanine equity | | | - | | | | 1,221,933 | | | | 1,435,754 | | | | | 2,657,687 | |
| | | | | | | | | | | | | | | | | | |
| Stockholder’s Equity (Deficit) | | | | | | | | | | | | | | | | | |
| Common stock | | | - | | | | 132 | | | | - | | (a) (b) | | | 132 | |
| Additional paid-in-capital | | | 718,542 | | | | 38,292,653 | | | | (33,731,810 | ) | (a) (b) | | | 5,279,385 | |
| Treasury stock at cost | | | (420,000 | ) | | | (277,436 | ) | | | 697,436 | | (a) | | | - | |
| Common stock subscribed | | | - | | | | 74,742 | | | | (74,742 | ) | (a) | | | - | |
| Accumulated deficit | | | 802,370 | | | | (48,202,731 | ) | | | 48,402,731 | | (a) | | | 1,002,370 | |
| | | | | | | | | | | | | | | | | | |
| Total stockholders’ equity (deficit) | | | 1,100,912 | | | | (10,112,640 | ) | | | 15,293,615 | | | | | 6,281,887 | |
| | | | | | | | | | | | | | | | | | |
| Non-controlling interest | | | 1,612,024 | | | | - | | | | | | | | | 1,612,024 | |
| | | | | | | | | | | | | | | | | | |
| Total stockholders’ equity (deficit) | | | 2,712,936 | | | | (10,112,640 | ) | | | 15,293,615 | | | | | 7,893,911 | |
| | | | | | | | | | | | | | | | | | |
| Total liabilities, non controlling interest and stockholders equity (deficit) | | $ | 7,658,834 | | | $ | 4,327,392 | | | $ | 18,853,843 | | | | $ | 30,840,069 | |
HWN, Inc.
Unaudited Proforma Condensed Consolidated Statement of Operations
For the three Months ended March 31, 2021
| | | HWN, Inc. | | | Spectrum Global
Solutions, Inc. | | | Adjustments
Pro forma
Adjustments | | | Proforma
Consolidated | |
| Revenues | | $ | 5,073,840 | | | $ | 4,065,989 | | | $ | - | | | $ | 9,139,829 | |
| | | | | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | | | | |
| Cost of goods sold | | | 2,978,544 | | | | 3,355,670 | | | | - | | | | 6,334,214 | |
| Depreciation and amortization | | | 65,127 | | | | 13,520 | | | | 94,674 | (f) | | | 173,321 | |
| General and administrative | | | 1,867,968 | | | | 1,248,118 | | | | 200,000 | (e) | | | 3,316,086 | |
| | | | - | | | | - | | | | - | | | | - | |
| Total operating expenses | | | 4,911,639 | | | | 4,617,308 | | | | 294,674 | | | | 9,823,621 | |
| (Loss) income from operations | | | 162,201 | | | | (551,319 | ) | | | (294,674 | ) | | | (683,792 | ) |
| | | | | | | | | | | | | | | | | |
| Other income (expenses): | | | | | | | | | | | | | | | | |
| Interest expense | | | (44,428 | ) | | | (94,704 | ) | | | - | | | | (139,132 | ) |
| Loss on settlement of debt | | | - | | | | (1,199,373 | ) | | | - | | | | (1,199,373 | ) |
| Amortization of debt discounts on convertible debentures and loans payable | | | - | | | | (175,855 | ) | | | - | | | | (175,855 | ) |
| Changes in fair value of derivative instrument | | | - | | | | (5,270,344 | ) | | | - | | | | (5,270,344 | ) |
| Exchange loss | | | - | | | | (5,706 | ) | | | - | | | | (5,706 | ) |
| Initial derivative expense | | | - | | | | (2,470,000 | ) | | | - | | | | (2,470,000 | ) |
| Loss on contract cancellation | | | - | | | | (164,950 | ) | | | - | | | | (164,950 | ) |
| Loss on settlement of warrants | | | - | | | | (117,655 | ) | | | - | | | | (117,655 | ) |
| Loss on fair value of additional shares | | | - | | | | (41,730 | ) | | | - | | | | (41,730 | ) |
| PPP loan forgiveness | | | 250,800 | | | | - | | | | - | | | | 250,800 | |
| Other income | | | 333 | | | | - | | | | - | | | | 333 | |
| Total other (expense) income | | | 206,705 | | | | (9,540,317 | ) | | | - | | | | (9,333,612 | ) |
| (Loss) income before benefit for income taxes | | | 368,906 | | | | (10,091,636 | ) | | | (294,674 | ) | | | (10,017,404 | ) |
| | | | | | | | | | | | | | | | | |
| Benefit for income taxes | | | - | | | | - | | | | - | | | | - | |
| Net (loss) income | | | 368,906 | | | | (10,091,636 | ) | | | (294,674 | ) | | | (10,017,404 | ) |
| | | | | | | | | | | | | | | | | |
| Net loss attributable to non-controlling interest | | | 499,170 | | | | - | | | | - | | | | 499,170 | |
| Net (loss) income attributable to HWN, Inc | | | (130,264 | ) | | | (10,091,636 | ) | | | (294,674 | ) | | | (10,516,574 | ) |
| | | | | | | | | | | | | | | | | |
| Less dividends on preferred stock | | | - | | | | 83,987 | | | | - | | | | 83,987 | |
| Net loss (income) attributable to HWN, Inc common stockholders | | $ | (130,264 | ) | | $ | (10,007,649 | ) | | $ | (294,674 | ) | | $ | (10,432,587 | ) |
| | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share attributable to HWN, Inc. common stockholders: | | $ | (74.27 | ) | | | | | | | | | | $ | (0.46 | ) |
| | | | | | | | | | | | | | | | | |
| Basic weighted average number of common shares outstanding | | | 1,754 | | | | | | | | 22,642,075 | (h) | | | 22,643,829 | |
| Diluted weighted average number of common shares outstanding | | | 1,754 | | | | | | | | 22,642,075 | (h) | | | 22,643,829 | |
6
