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EX-23.1 - EX-23.1 - CONTROL4 CORPa14-25191_1ex23d1.htm

Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

On September 10, 2014, Control4 Corporation (“Control4” or the “Company”), through its wholly owned subsidiary, Control4 EMEA, LTD (“Control4 EMEA”), completed the acquisition of Extra Vegetables Limited, a company incorporated in England and Wales (“Extra Vegetables”), pursuant to a Stock Purchase Agreement dated August 28, 2014, by and among Control4 EMEA and all of the shareholders of Extra Vegetables (the “Purchase Agreement”).

 

The unaudited pro forma condensed combined balance sheet as of June 30, 2014 and the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2014, and the year ended December 31, 2013, are based on the historical financial statements of the Company and Extra Vegetables after giving effect to the Company’s acquisition of Extra Vegetables and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

 

The Company’s fiscal year end is December 31 and Extra Vegetables’ fiscal year end is January 31. Accordingly, the unaudited pro forma condensed combined balance sheet as of June 30, 2014 combines the Company’s historical unaudited condensed consolidated balance sheet as of June 30, 2014 and Extra Vegetables’ historical unaudited condensed balance sheet as of July 31, 2014 translated from pounds sterling into U.S. dollars using a conversion rate of £1=$1.6929, which was the spot exchange rate as of July 31, 2014. Furthermore, the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2014 combines the Company’s historical results for the six months ended June 30, 2014 with Extra Vegetables’ historical results for the six months ended July 31, 2014 translated from pounds sterling into U.S. dollars using a conversion rate of £1=$1.6792, which was the average of the daily exchange rates for the period from February 1, 2014 through July 31, 2014. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 combines the Company’s historical results for the calendar year ended December 31, 2013 with Extra Vegetables’ historical results for the fiscal year ended January 31, 2014 translated from pounds sterling into U.S. dollars using a conversion rate of £1=$1.5684, which was the average of the daily exchange rates for the period from February 1, 2013 through January 31, 2014.

 

The unaudited pro forma condensed combined balance sheet is presented as if the acquisition of Extra Vegetables had occurred on June 30, 2014. The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2014 is presented as if the acquisition of Extra Vegetables had occurred on January 1, 2014. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2013 is presented as if the acquisition of Extra Vegetables had occurred on January 1, 2013.

 

The preliminary allocation of the consideration transferred used in the unaudited pro forma condensed combined financial statements is based upon preliminary estimates. The preliminary amount of consideration transferred is subject to potential adjustments in the event that the accounts receivable becomes uncollectible or preliminary estimates of accrued liabilities, including income taxes payable, are inaccurate. The Company expects the allocation of the consideration transferred to be final within the measurement period (up to one year from the acquisition date).

 

The unaudited pro forma condensed combined financial statements, including the notes thereto, do not reflect any potential cost savings or other synergies that could result from the merger. The unaudited pro forma condensed combined financial statements are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations for future periods or the results that would have been achieved if the merger had been consummated on the dates indicated. The pro forma adjustments are based upon information and assumptions available at the time of filing this Current Report on Form 8-K/A.

 

The unaudited pro forma condensed combined financial information should be read in conjunction with the historical consolidated financial statements and notes thereto of the Company and other financial information pertaining to the Company contained in its Annual Report on Form 10-K for the year ended December 31, 2013, historical condensed consolidated financial statements and notes thereto of the Company contained in its Quarterly Report on Form 10-Q for the three and six months ended June 30, 2014, and Extra Vegetables’ historical financial statements and notes thereto for the fiscal year ended January 31, 2014, included as Exhibit 99.1 in this Current Report on Form 8–K/A.

 

1



 

CONTROL4 CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF JUNE 30, 2014

 

(in thousands, except share data)

 

 

 

 

 

Extra

 

Pro Forma

 

Adjustment

 

Pro Forma

 

 

 

Control4

 

Vegetables

 

Adjustments

 

Reference

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,413

 

$

718

 

$

(882

)

(A)

 

$

18,249

 

Short-term investments

 

47,573

 

 

 

 

 

47,573

 

Accounts receivable, net

 

16,692

 

 

 

 

 

16,692

 

Inventories

 

15,990

 

 

 

 

 

15,990

 

Prepaid expenses and other current assets

 

2,187

 

20

 

 

 

 

2,207

 

Total current assets

 

100,855

 

738

 

(882

)

 

 

100,711

 

Long-term investments

 

22,543

 

 

 

 

 

22,543

 

Other assets

 

5,961

 

3

 

535

 

(B) (C) (D)

 

6,499

 

Total assets

 

$

129,359

 

$

741

 

$

(347

)

 

 

$

129,753

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

12,517

 

$

7

 

$

 

 

 

$

12,524

 

Accrued liabilities

 

6,399

 

387

 

 

 

 

6,786

 

Deferred revenue

 

729

 

 

 

 

 

729

 

Current portion of notes payable

 

1,089

 

 

 

 

 

1,089

 

Total current liabilities

 

20,734

 

394

 

 

 

 

21,128

 

Notes payable

 

1,322

 

 

 

 

 

1,322

 

Other long-term liabilities

 

434

 

 

 

 

 

434

 

Total liabilities

 

22,490

 

394

 

 

 

 

22,884

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 500,000,000 shares authorized; 23,790,827 shares issued and outstanding at June 30, 2014 (unaudited)

 

2

 

 

 

 

 

2

 

Additional paid-in capital

 

207,450

 

 

 

 

 

207,450

 

Accumulated deficit

 

(100,612

)

347

 

(347

)

(E)

 

(100,612

)

Accumulated other comprehensive income

 

29

 

 

 

 

 

29

 

Total stockholders’ equity

 

106,869

 

347

 

(347

)

 

 

106,869

 

Total liabilities and stockholders’ equity

 

$

129,359

 

$

741

 

$

(347

)

 

 

$

129,753

 

 

See accompanying notes to unaudited pro forma condensed combined financial statements.

 

2



 

CONTROL4 CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2014

 

(in thousands, except per share data)

 

 

 

Historical

 

Pro Forma

 

Adjustment

 

Pro Forma

 

 

 

Control4

 

Extra Vegetables

 

Adjustments

 

Reference

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

68,516

 

$

764

 

$

 

 

 

$

69,280

 

Cost of revenue

 

33,313

 

 

 

 

 

33,313

 

Cost of revenue — inventory purchase commitment

 

 

 

 

 

 

 

Gross margin

 

35,203

 

764

 

 

 

 

35,967

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

13,872

 

64

 

 

 

 

13,936

 

Sales and marketing

 

12,665

 

54

 

 

 

 

12,719

 

General and administrative

 

7,128

 

46

 

77

 

(G)

 

7,251

 

Litigation settlement

 

35

 

 

 

 

 

35

 

Total operating expenses

 

33,700

 

164

 

77

 

 

 

33,941

 

Income from operations

 

1,503

 

600

 

(77

)

 

 

2,026

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

1

 

 

 

 

 

1

 

Other income (expense), net

 

71

 

(12

)

 

 

 

59

 

Total other income (expense)

 

72

 

(12

)

 

 

 

60

 

Income before income taxes

 

1,575

 

588

 

(77

)

 

 

2,086

 

Income tax expense

 

(103

)

(128

)

16

 

(H)

 

(215

)

Net income

 

$

1,472

 

$

460

 

$

(61

)

 

 

$

1,871

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.06

 

 

 

 

 

 

 

$

0.08

 

Diluted

 

$

0.06

 

 

 

 

 

 

 

$

0.07

 

Weighted-average number of shares:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

23,417

 

 

 

 

 

 

 

23,417

 

Diluted

 

25,709

 

 

 

 

 

 

 

25,709

 

 

See accompanying notes to unaudited pro forma condensed combined financial statements.

 

3



 

CONTROL4 CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2013

 

(in thousands, except per share data)

 

 

 

Historical

 

Pro Forma

 

Adjustment

 

Pro Forma

 

 

 

Control4

 

Extra Vegetables

 

Adjustments

 

Reference

 

Combined

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

128,511

 

$

1,283

 

$

 

 

 

$

129,794

 

Cost of revenue

 

64,234

 

 

 

 

 

64,234

 

Cost of revenue — inventory purchase commitment

 

(380

)

 

 

 

 

(380

)

Gross margin

 

64,657

 

1,283

 

 

 

 

65,940

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

24,979

 

121

 

 

 

 

25,100

 

Sales and marketing

 

21,975

 

113

 

 

 

 

22,088

 

General and administrative

 

12,387

 

75

 

155

 

(F)

 

12,617

 

Litigation settlement

 

440

 

 

 

 

 

440

 

Total operating expenses

 

59,781

 

309

 

155

 

 

 

60,245

 

Income from operations

 

4,876

 

974

 

(155

)

 

 

5,695

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

(454

)

2

 

 

 

 

(452

)

Other income (expense), net

 

(671

)

(25

)

 

 

 

(696

)

Total other income (expense)

 

(1,125

)

(23

)

 

 

 

(1,148

)

Income before income taxes

 

3,751

 

951

 

(155

)

 

 

4,547

 

Income tax expense

 

(248

)

(205

)

34

 

(H)

 

(419

)

Net income

 

$

3,503

 

$

746

 

$

(121

)

 

 

$

4,128

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.33

 

 

 

 

 

 

 

$

0.39

 

Diluted

 

$

0.16

 

 

 

 

 

 

 

$

0.19

 

Weighted-average number of shares:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

10,609

 

 

 

 

 

 

 

10,609

 

Diluted

 

22,263

 

 

 

 

 

 

 

22,263

 

 

See accompanying notes to unaudited pro forma condensed combined financial statements.

 

4



 

Control4 Corporation

 

Notes to Unaudited Pro Forma Condensed Combined Financial Statements

 

1. Basis of Pro Forma Presentation

 

The unaudited pro forma condensed combined financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.

 

The Company accounts for business combinations pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. In accordance with ASC 805, the Company recognizes separately from goodwill, the identifiable assets acquired, the liabilities assumed, and any noncontrolling interests in an acquiree, generally at the acquisition date fair value as defined by ASC 820, Fair Value Measurements and Disclosures. Goodwill as of the acquisition date is measured as the excess of consideration fair value transferred and the net of the identifiable assets acquired and the liabilities assumed at the acquisition date.

 

The Company has made significant assumptions and estimates in determining the consideration transferred and the preliminary allocation of the consideration transferred in the unaudited pro forma condensed combined financial statements. These preliminary estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as the Company finalizes the valuation of certain tangible and intangible assets acquired and liabilities assumed in connection with the acquisition primarily related to tax matters. These changes could result in material variances between the Company’s future financial results and the amounts presented in these unaudited pro forma condensed combined financial statements, including variances in fair values recorded, as well as expenses and cash flows associated with these items.

 

The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the Company’s consolidated results of operations or financial position that would have been reported had the Extra Vegetables acquisition been completed as of the dates presented, and should not be taken as a representation of the Company’s future consolidated results of operations or financial position. The unaudited pro forma condensed combined financial statements have been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisitions, (ii) factually supportable, and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and associated cost savings that the Company may achieve with respect to the combined companies. The unaudited pro forma condensed combined financial statements should be read in conjunction with the Company’s historical consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2013, historical condensed consolidated financial statements and notes thereto of the Company contained in its Quarterly Report on Form 10-Q for the three and six months ended June 30, 2014, and Extra Vegetables’ historical financial statements and notes thereto for the fiscal year ended January 31, 2014.

 

2. Extra Vegetables Acquisition

 

On September 10, 2014, Control4 Corporation (“Control4” or the “Company”), through its wholly owned subsidiary, Control4 EMEA, LTD (“Control4 EMEA”), completed the acquisition of Extra Vegetables Limited, a company incorporated in England and Wales (“Extra Vegetables”), pursuant to a Stock Purchase Agreement dated August 28, 2014, by and among Control4 EMEA and all of the shareholders of Extra Vegetables (the “Purchase Agreement”).

 

The total purchase price for Control4’s acquisition of Extra Vegetables was $882,246 in cash, which included a base purchase price of $675,000 and $207,246 as payment for the Company’s net working capital. The purchase price of this acquisition was funded by Control4’s cash and cash equivalents.

 

Preliminary Allocation of Consideration Transferred

 

Total consideration transferred was allocated to tangible and identifiable intangible assets acquired and liabilities assumed based on their preliminary fair values at the acquisition date as set forth below, with such preliminary fair values being subject to final review and analysis and consideration of the tax implications of the fair value allocations. While, from the acquisition date, the Extra Vegetables products will be provided to the Company’s customers without charge of a separate fee, the Company believes that the acquisition of Extra Vegetables will strengthen the Company’s interoperability development efforts for the connected home, accelerate

 

5



 

the development and time-to-market for essential third-party device drivers, offer more comprehensive technical support, deliver better functionality, and provide more integration opportunities, while eliminating complexity for the Company’s dealers and distributors managing multiple vendors, licensing, and permission models. Management estimated the fair values of tangible and intangible asset and liabilities in accordance with the applicable accounting guidance for business combinations. The preliminary amount of consideration transferred is subject to potential adjustments in the event that the accounts receivable becomes uncollectible or preliminary estimates of accrued liabilities, including income taxes payable, are inaccurate. The Company expects the allocation of the consideration transferred to be final within the measurement period (up to one year from the acquisition date).

 

The Company’s preliminary allocation of consideration transferred for Extra Vegetables is as follows (in thousands):

 

 

 

Estimated Fair Value

 

Cash

 

$

265,030

 

Other assets acquired

 

124,727

 

Intangible assets

 

596,000

 

Goodwill

 

79,000

 

Total assets acquired

 

1,064,757

 

Taxes payable

 

175,250

 

Other liabilities assumed

 

7,261

 

Total net assets acquired

 

$

882,246

 

 

3. Pro Forma Adjustments

 

The unaudited pro forma condensed combined balance sheet and statement of operations give effect to the following pro forma adjustments:

 

(A)                               Adjustment to record the cash consideration transferred to the former Extra Vegetables stockholders.

 

(B)                               Adjustment to re-measure the acquired assets to their fair value and to conform to Control4’s accounting policies.

 

(C)                               Adjustment to record the preliminary fair value of the following identifiable intangible assets:

 

 

 

Intangible Asset

 

 

 

Amount

 

Developed Technology

 

$

574,000

 

Non-compete Agreements

 

22,000

 

Total

 

$

596,000

 

 

(D)                               Adjustment to record goodwill.

 

(E)                                Adjustments to record the elimination of Extra Vegetables’ historical stockholders’ equity.

 

(F)                                 Adjustment to record the amortization expense related to the intangible assets acquired as if the acquisition had occurred on January 1, 2013. Estimated amortization expense by intangible asset category and the respective estimated useful life of each intangible asset category are shown below:

 

 

 

Intangible Asset

 

Estimated

 

Estimated

 

 

 

Amount

 

Useful Life

 

Amortization Expense

 

Developed Technology

 

$

574,000

 

4 years

 

$

143,500

 

Non-compete Agreements

 

22,000

 

2 years

 

11,000

 

Total

 

$

596,000

 

 

 

$

154,500

 

 

6



 

(G)                               Adjustment to record the amortization expense related to the intangible assets acquired as if the acquisition had occurred on January 1, 2014. Estimated amortization expense by intangible asset category and the respective estimated useful life of each intangible asset category are shown below:

 

 

 

Intangible Asset

 

Estimated

 

Estimated

 

 

 

Amount

 

Useful Life

 

Amortization Expense

 

Developed Technology

 

$

574,000

 

4 years

 

$

71,750

 

Non-compete Agreements

 

22,000

 

2 years

 

5,500

 

Total

 

$

596,000

 

 

 

$

77,250

 

 

(H)                          Reflects the estimated tax benefit that would have been recognized as a result of the assumed reduction of taxable income.

 

7