UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 8-K/A

Amendment No. 1

 


 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): February 1, 2019

 


 

Control4 Corporation

(Exact name of registrant as specified in its charter)

 


 

Delaware

 

001-36017

 

42-1583209

(State or other jurisdiction
of incorporation)

 

(Commission
File Number)

 

(I.R.S. Employer
Identification No.)

 

11734 S. Election Road

Salt Lake City, Utah 84020

(Address of principal executive offices) (Zip code)

 

(801) 523-3100

Registrant’s telephone number, including area code

 

Not Applicable

(Former name or former address if changed since last report)

 


 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company   o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

 

 


 

EXPLANATORY NOTE

 

This 8-K/A is filed as an amendment (“Amendment No. 1”) to the Current Report on Form 8-K filed by Control4 Corporation (“Control4”) on February 4, 2019 (the “8-K”).  As previously reported in the 8-K, on February 1, 2019, Control4 completed its acquisition of NEEO AG, a company organized and headquartered in Switzerland (“NEEO”), pursuant to a Stock Purchase Agreement (the “Purchase Agreement”) dated January 11, 2019, by and among Control4, NEEO and all of the shareholders of NEEO.

 

Pursuant to Instruction 4 to Item 9.01(a) and Instruction 2 to Item 9.01(b) of Form 8-K, in the 8-K Control4 stated that it intended to file the financial information required under parts (a) and (b) of Item 9.01 not later than 71 calendar days after the date that the 8-K was required to be filed with the SEC. Control4 hereby files this Amendment No. 1 to amend the 8-K in order to include the required financial statements and pro forma financial information.  Except for the foregoing, this Amendment No. 1 does not amend the 8-K in any way and does not modify or update any other disclosures contained in the 8-K. Accordingly, this Amendment No. 1 should be read in conjunction with the 8-K.

 

Item 9.01. Financial Statements and Exhibits.

 

(a)  Financial Statements of Businesses Acquired.

 

The audited financial statements of NEEO for the year ended December 31, 2018 are attached as Exhibit 99.1 to this Amendment No. 1.

 

(b)    Pro Forma Financial Information.

 

The unaudited pro forma condensed financial statements as of December 31, 2018, giving effect to Control4’s acquisition of NEEO, are attached as Exhibit 99.2 to this Amendment No. 1.

 

(d)  Exhibits.

 

Exhibit Number

 

Description of Exhibits

 

 

 

23.1

 

Consent of Independent Auditors for NEEO AG (WSRP, LLC).

 

 

 

99.1

 

Audited financial statements of NEEO AG for the year ended December 31, 2018.

 

 

 

99.2

 

Unaudited Pro Forma Condensed Financial Statements for Control4 Corporation and NEEO AG as of December 31, 2018.

 

2


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

Date: April 16, 2019

Control4 Corporation

 

 

 

 

By:

/s/ Mark Novakovich

 

 

Mark Novakovich

 

 

Chief Financial Officer

 

3


Exhibit 23.1

 

CONSENT OF INDEPENDENT AUDITORS

 

We consent to the incorporation by reference in the following Registration Statements:

 

(1) 

 

Registration Statement (Form S-8 No. 333-190326) pertaining to the 2003 Equity Incentive Plan and the 2013 Stock Option and Incentive Plan of Control4 Corporation,

 

 

 

(2) 

 

Registration Statements (Form S-8 Nos. 333-197836,  333-215986, 333-223091 and 333-229620) pertaining to the 2013 Stock Option and Incentive Plan of Control4 Corporation, and

 

 

 

(3) 

 

Registration Statement (Form S-8 No. 333-215987) pertaining to the 401(k) Plan of Control4 Corporation

 

of our report dated April 12, 2019, with respect to the financial statements of NEEO AG included in this Current Report on Form 8-K/A of Control4 Corporation.

 

/s/ WSRP, LLC

 

 

 

Salt Lake City, Utah

 

April 16, 2019

 

 


Exhibit 99.1

 

NEEO AG

 

Consolidated Financial Statements

Year Ended December 31, 2018

 


 

NEEO AG

 

Contents

 

Independent Auditors’ Report

3-4

 

 

Consolidated Financial Statements

 

 

 

Consolidated Balance Sheet

6

 

 

Consolidated Statement of Operations

7

 

 

Consolidated Statement of Changes in Stockholders’ Deficit

8

 

 

Consolidated Statement of Cash Flows

9

 

 

Notes to Consolidated Financial Statements

10 - 22

 

2


 

Independent Auditors’ Report

 

NEEO AG

Bern, Switzerland

 

We have audited the accompanying consolidated financial statements of NEEO AG, which comprise the consolidated balance sheet as of December 31, 2018, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the year then ended, and the related notes to the consolidated financial statements.

 

Management’s Responsibility for the Financial Statements

 

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ Responsibility

 

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of the accounting policies used and reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Opinion

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NEEO AG as of December 31, 2018, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

 

3


 

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that NEEO AG will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, NEEO AG has incurred significant losses with substantial debt outstanding at year end which raise substantial doubt about its ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to that matter.

 

 

/s/ WSRP, LLC

 

 

 

Salt Lake City, Utah

 

April 12, 2019

 

 

4


 

Consolidated Financial Statements

 


 

NEEO AG

 

Consolidated Balance Sheet

 

December 31,

 

2018

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

Cash and cash equivalents

 

CHF

 

238,983

 

Accounts receivable, net

 

 

 

25,380

 

Inventory

 

 

 

557,891

 

Consigned inventory

 

 

 

279,586

 

Prepaid expenses and other current assets

 

 

 

496,836

 

Related party receivable

 

 

 

52,218

 

 

 

 

 

 

 

Total current assets

 

 

 

1,650,894

 

 

 

 

 

 

 

Property and equipment, net

 

 

 

57,540

 

 

 

 

 

 

 

Total assets

 

CHF

 

1,708,434

 

 

 

 

 

 

 

Liabilities and Stockholder’s Deficit

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

CHF

 

891,523

 

Accrued expenses and other current liabilities

 

 

 

989,420

 

Consigned inventory liability

 

 

 

279,586

 

Related party payable

 

 

 

96,278

 

Current maturities of notes payable

 

 

 

3,533,920

 

 

 

 

 

 

 

Total current liabilities

 

 

 

5,790,727

 

 

 

 

 

 

 

Notes payable, net of current portion

 

 

 

1,796,570

 

Pension liability

 

 

 

485,506

 

 

 

 

 

 

 

Total liabilities

 

 

 

8,072,803

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficit

 

 

 

 

 

Common stock - CHF.06 par value; 3,325,207 shares authorized, issued and outstanding. CHF .01 par value; 29,454,917 shares authorized, issued and outstanding

 

 

 

494,062

 

Additional paid-in capital

 

 

 

6,215,522

 

Accumulated deficit

 

 

 

(12,660,691

)

Accumulated other comprehensive loss

 

 

 

(413,262

)

 

 

 

 

 

 

Total stockholders’ deficit

 

 

 

(6,364,369

)

 

 

 

 

 

 

Total liabilities and stockholders’ deficit

 

CHF

 

1,708,434

 

 

See accompanying notes to consolidated financial statements.

 

6


 

NEEO AG

 

Consolidated Statement of Operations

 

Year Ended December 31,

 

2018

 

 

 

 

 

 

 

Revenues

 

CHF

 

905,097

 

Cost of revenues

 

 

 

1,126,426

 

 

 

 

 

 

 

Gross loss

 

 

 

(221,329

)

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

Research and development

 

 

 

420,308

 

Selling, general and administrative

 

 

 

3,266,075

 

 

 

 

 

 

 

Total operating expenses

 

 

 

3,686,383

 

 

 

 

 

 

 

Loss from operations

 

 

 

(3,907,712

)

 

 

 

 

 

 

Other expense

 

 

 

 

 

Interest expense

 

 

 

373,509

 

Other components of defined benefit plans, net

 

 

 

27,572

 

Foreign exchange loss

 

 

 

77,423

 

 

 

 

 

 

 

Total other expense

 

 

 

478,504

 

 

 

 

 

 

 

Loss before income taxes

 

 

 

(4,386,216

)

 

 

 

 

 

 

Income tax expense

 

 

 

3,739

 

 

 

 

 

 

 

Net loss

 

CHF

 

(4,389,955

)

Other comprehensive income (loss)

 

 

 

 

 

Pension plan actuarial loss

 

 

 

(177,220

)

Pension plan amortization of prior service cost

 

 

 

28,534

 

 

 

 

 

 

 

Total comprehensive loss

 

CHF

 

(4,538,641

)

 

See accompanying notes to consolidated financial statements.

 

7


 

NEEO AG

 

Consolidated Statement of Changes in Stockholders’ Deficit

 

 

 

Shares
PAR 0.06

     

Shares
PAR 0.01

     

Amount

     

Additional
Paid-In
Capital

     

Accumulated
Deficit

     

Accumulated
Other
Comprehensive
Loss

     

Total

 

Balance, December 31, 2017

 

3,325,207

 

29,454,917

 

CHF

494,062

 

CHF

6,102,546

 

CHF

(8,270,736

)

CHF

(264,576

)

CHF

(1,938,704

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash contributions

 

 

 

 

112,976

 

 

 

112,976

 

Other comprehensive loss

 

 

 

 

 

 

(148,686

)

(148,686

)

Net loss

 

 

 

 

 

(4,389,955

)

 

(4,389,955

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2018

 

3,325,207

 

29,454,917

 

CHF

494,062

 

CHF

6,215,522

 

CHF

(12,660,691

)

CHF

(413,262

)

CHF

(6,364,369

)

 

See accompanying notes to consolidated financial statements.

 

8


 

NEEO AG

 

Consolidated Statement of Cash Flows

 

Years Ended December 31,

 

2018

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net loss

 

CHF

 

(4,389,955

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

 

 

191,801

 

Pension cost

 

 

 

139,801

 

Non-cash interest expense

 

 

 

112,976

 

Foreign currency transactions

 

 

 

22,024

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

 

 

(25,380

)

Inventory

 

 

 

(201,511

)

Prepaid expenses and other current assets

 

 

 

39,383

 

Related party receivable

 

 

 

9,323

 

Accounts payable

 

 

 

87,795

 

Accrued expenses and other current liabilities

 

 

 

725,854

 

Related party payable

 

 

 

(302,193

)

 

 

 

 

 

 

Net cash used in operating activities

 

 

 

(3,590,082

)

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchases of property and equipment

 

 

 

(13,681

)

 

 

 

 

 

 

Net cash used in investing activities

 

 

 

(13,681

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Proceeds from issuance of notes payable

 

 

 

4,044,948

 

Repayment of notes payable

 

 

 

(285,000

)

 

 

 

 

 

 

Net cash provided by financing activities

 

 

 

3,759,948

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

 

156,185

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of year

 

 

 

82,798

 

 

 

 

 

 

 

Cash and cash equivalents, end of year

 

CHF

 

238,983

 

 

 

 

 

 

 

Supplemental disclosures for cash flow information

 

 

 

 

 

Cash paid for interest

 

CHF

 

17,100

 

 

See accompanying notes to consolidated financial statements.

 

9


 

NEEO AG

 

Notes to Consolidated Financial Statements

 

1.              Description of Business

 

NEEO AG (the “Company”), which was formed on April 15, 2014, is registered in the Canton of Solothurn, Switzerland. The Company operates in the field of development, manufacturing and selling of products in the home automation industry.

 

2.              Summary of Significant Accounting Policies and Estimates

 

Basis of Presentation and Consolidation

 

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The consolidated financial statements include the accounts of NEEO AG and its wholly owned subsidiary NEEO Inc. Intercompany transactions and balances have been eliminated in consolidation.

 

Going Concern

 

In connection with the preparation of the consolidated financial statements for the year ended December 31, 2018, the Company conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity’s ability to continue as a going concern within one year after the date of the issuance, or the date of availability, of the consolidated financial statements to be issued, noting that there did not appear to be evidence of substantial doubt of the entity’s ability to continue as a going concern as the company was acquired by Control4 Corporation on February 1, 2019.

 

Concentrations of Risk

 

The Company relies on one contract manufacturer for the production of its products. A significant disruption in the operations of this contract manufacturer would impact the production of the Company’s products for a substantial period of time, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

 

The Company maintains its cash and cash equivalents with large financial institutions. Management believes that these financial institutions are financially sound and accordingly are subject to minimal credit risk.

 

Use of Accounting Estimates

 

In preparing financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid securities purchased with original maturities of 90 days or less to be cash equivalents.

 

10


 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at the invoiced amount and do not generally bear interest. The Company determines whether an allowance for doubtful accounts is required based on historical write-off experience and customer economic data which represents the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. Account balances are charged off against the allowance when the Company believes it is probable the receivable will not be recovered.

 

Inventory

 

Inventory consisting of hardware is stated at the lower of cost (first in, first out method) or net realizable value. The Company periodically assesses the recoverability of its inventory and reduces the carrying value of the inventory when items are determined to be obsolete, defective or in excess of forecasted sales requirements.

 

Consigned Inventory and Consigned Inventory Liability

 

The Company utilizes a contract manufacturer for manufacturing and assembly of its products. The contract manufacturer is required to procure and stock raw materials sufficient to meet the Company’s production forecast, that, once processed, the Company is obligated to repurchase as finished goods; therefore, the Company records these materials as consigned inventory and consigned inventory liability.

 

Property and Equipment

 

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the following estimated useful lives:

 

Computer equipment and software

 

2 - 3 years

Manufacturing tooling and test equipment

 

3 years

Furniture and fixtures

 

4 years

 

Expenditures for all maintenance and repairs are charged as operating expenses. Additions, major renewals and replacements that increase the useful lives of assets are capitalized. Amortization of leasehold improvements is computed using the straight-line method over the shorter of the lease term or the estimated useful life of the leasehold improvements.

 

Impairment of Long-Lived Assets

 

When events or circumstances indicate the carrying value of a long-lived asset may be impaired, the Company estimates the future undiscounted cash flows to be derived from the asset to assess whether or not a potential impairment exists, in accordance with Accounting Standards Codification (“ASC”) Topic 360, Property, Plant, and Equipment. If the carrying value exceeds the estimate of future undiscounted cash flows, the impairment is calculated as the excess of the carrying value of the asset over the estimate of its fair value. No long-lived asset impairment was recognized during the year ended December 31, 2018.

 

11


 

Warranty Obligation

 

The Company provides warranties on all product sales for two years. The Company accrues for the estimated warranty costs at the time of sale based on historical warranty experience plus any known or expected changes in warranty exposure. As of December 31, 2018, the accrued warranty liability included in “accrued expenses and other current liabilities” in the consolidated balance sheet was CHF 65,000.

 

Foreign Currency

 

In general, the functional currency of a foreign operation is the local currency. Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. The effects of foreign currency translation adjustments, if any, are included in stockholders’ deficit as a component of accumulated other comprehensive income/loss.

 

Revenue Recognition

 

The Company’s revenues primarily result from the sale of manufactured products and reflect the consideration to which the Company expects to be entitled. The Company records revenue based on a five-step model in accordance with ASC Topic 606, Revenue from Contracts with Customers. For its customer contracts, the Company identifies the performance obligations, determines the transaction price, allocates the contract transaction price to the performance obligation, and recognizes the revenue when control of goods or services is transferred to the customer.

 

For product sales, each purchase order, along with any existing governing customer agreements when applicable, represents a contract with a customer and each product sold to a customer typically represents a distinct performance obligation. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of the Company’s product sales are subject to ExWorks (as defined in Incoterms 2010) delivery terms and revenue is recorded at the point in time when products are picked up from the warehouse, as the Company has determined that this is the point in time that control transfers to the customer.

 

Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities.

 

Collaborative Arrangements

 

The Company determines the proper accounting treatment for each collaborative arrangement based on the guidance in ASC 808. During 2018 the Company was party to a collaborative arrangement with a related party (shareholder) to jointly develop a new product. Under the terms of the arrangement the Company will be reimbursed by the shareholder for research and development expenses. The Company determined that the shareholder did not meet the definition of a customer as both parties to the arrangement share in the risks and benefits of the activities. The reimbursements received from the shareholder are recorded as an offset to research and development expense.

 

12


 

Cost of Revenue

 

Cost of revenue primarily consists of the cost of inventory sold during the period and shipping and handling expenses.

 

Research and Development Expense

 

Research and development expenses consist primarily of personnel costs, depreciation associated with research and development equipment, contract labor and consulting services. Research and development costs are expensed as incurred.

 

Fair Value of Financial Instruments

 

The Company records certain financial instruments at fair value in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, and notes payable. The fair values of cash and cash equivalents, accounts receivable, accounts payable and short-term note payable approximate their respective carrying values because of the short maturity of those instruments. The fair value of the long-term notes payable approximates its current carrying value due to the market terms.

 

Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:

 

Level 1 — inputs include quoted prices for identical instruments and are the most observable.

 

Level 2 — inputs include quoted prices for similar assets and observable inputs such as interest rates, currency exchange rates and yield curves.

 

Level 3 — inputs are not observable in the market and include management’s judgments about the assumptions market participants would use in pricing the asset or liability.

 

Income Taxes

 

Deferred tax assets and liabilities are recognized for differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the tax bases of assets and liabilities that will result in future taxable or deductible amounts. The deferred tax assets and liabilities are measured using the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company presents deferred tax positions on a net position, when resulting from the same tax jurisdiction.

 

13


 

Advertising

 

The Company expenses advertising costs as incurred. Advertising expense was CHF 453,842 for the year ended December 31, 2018.

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases, which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the term of the lease. Accounting for lessors remains largely unchanged from current GAAP. ASU 2016-02 will be effective for the Company’s fiscal year ending December 31, 2019. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on the Company’s financial statements.

 

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The standard amends the income statement presentation of the components of net periodic benefit cost for defined benefit pension and other postretirement plans. The standard requires entities to (1) disaggregate the current-service-cost component from the other components of net benefit cost (the “other components”) and present it with other current compensation costs for related employees in the income statement and (2) present the other components elsewhere in the income statement and outside of income from operations if such a subtotal is presented. This standard is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company has early adopted this standard for the year ended December 31, 2018.

 

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General. This ASU modifies the disclosure requirements for defined benefit and other postretirement plans. This ASU eliminates certain disclosures associated with accumulated other comprehensive income, plan assets, related parties, and the effects of interest rate basis point changes on assumed health care costs; while other disclosures have been added to address significant gains and losses related to changes in benefit obligations. This ASU also clarifies disclosure requirements for projected benefit and accumulated benefit obligations. The amendments in this ASU are effective for fiscal years ending after December 15, 2021 and for interim periods therein with early adoption permitted. Adoption on a retrospective basis for all periods presented is required. The Company is currently evaluating the impact of adoption on its financial statement disclosures.

 

14


 

3.              Prepaid Expenses and Other Current Assets

 

Prepaid expenses and other current assets are comprised of the following at December 31, 2018:

 

VAT receivables

 

CHF

261,655

 

Prepaid expenses

 

119,921

 

Other

 

115,260

 

 

 

 

 

Prepaid expenses and other current assets

 

CHF

496,836

 

 

4.              Property and Equipment, Net

 

The following is a summary of property and equipment, net at December 31, 2018:

 

Computer equipment and software

 

CHF

28,285

 

Manufacturing tooling and test equipment

 

471,335

 

Furniture and fixtures

 

15,583

 

 

 

515,203

 

Accumulated depreciation and amortization

 

(457,663

)

 

 

 

 

Property and equipment, net

 

CHF

57,540

 

 

Depreciation and amortization expense related to property and equipment was CHF 168,901 for the year ended December 31, 2018.

 

5.              Accrued Expenses and Other Current Liabilities

 

Accrued expenses and other current liabilities are comprised of the following at December 31, 2018:

 

Employee compensation and benefits

 

CHF

342,386

 

VAT payables

 

124,656

 

Deferred revenue

 

64,169

 

Interest payable

 

106,083

 

Other

 

352,126

 

 

 

 

 

Accrued expenses and other current liabilities

 

CHF

989,420

 

 

15


 

NEEO AG

 

Notes to Consolidated Financial Statements

 

6.              Notes Payable

 

Notes payable consists of the following at December 31, 2018:

 

Note payable to related party (shareholder), secured by all tooling, hardware and consigned inventory. Due in monthly payments of principle and interest at 2.5% per annum through September 30, 2019. The note was fully repaid in January 2019.

 

CHF

 

159,676

 

Note payable to related party (shareholder), secured by shares of NEEO AG held by the Company’s founder. Due in monthly payments of principle and interest at 6.0% per annum through February 1, 2019. The note was fully repaid in January 2019.

 

 

 

128,527

 

Note payable to related party (shareholder), secured by shares of NEEO AG held by the Company’s founder. Principle and interest at 6.0% per annum due December 31, 2018. The note was fully repaid in January 2019.

 

 

 

1,150,000

 

Unsecured note payable to related party (shareholder). Principle and interest at 6.0% per annum due June 30, 2018. The note was fully repaid in January 2019.

 

 

 

100,000

 

Unsecured note payable to third party. Principle and interest at 6.0% per annum due June 30, 2018. The note was fully repaid in January 2019.

 

 

 

360,000

 

Unsecured note payable to third party. Principle and interest at 6.0% per annum due December 30, 2018. The note was fully repaid in January 2019.

 

 

 

500,000

 

Subordinated unsecured note payable to related party (shareholder). The note does not bear interest and is due January 1, 2022.

 

 

 

200,000

 

Unsecured note payable to a private foundation. Principle and interest at 10.0% per annum due June 30, 2017. The note was fully repaid in January 2019.

 

 

 

10,000

 

Note payable to a commercial bank, guaranteed by an export insurance organization. Principle due April 30, 2018. Interest at LIBOR plus 1.5% due monthly. The note was fully repaid in January 2019.

 

 

 

1,095,717

 

Subordinated note payable to Control4 Corporation. The purpose of the note was to pay off operational debts until the signing of the share purchase agreement, whereby Control4 Corporation. intends to purchase 100% of the shares of the Company. Principle and interest at 3.0% per annum due the earlier of January 21, 2021 or the conversion date. The note shall automatically convert into shares of the Company upon a qualified financing round based on the price of shares issued to new investors or, at the option of Control4 Corporation, upon a change of control whereby the note may be converted into shares of the Company at the price of the last financing round. These redemption features were assessed as embedded put options under ASC 815 and determined to be clearly and closely related to the debt host and therefore not bifurcated.

 

 

 

1,626,570

 

 

 

 

 

5,330,490

 

Less current portion

 

 

 

(3,533,920

)

 

 

 

 

 

 

Long-term debt, net of current portion

 

CHF

 

1,796,570

 

 

16


 

NEEO AG

 

Notes to Consolidated Financial Statements

 

Future scheduled maturities of long-term debt are as follows:

 

Years Ending December 31,

 

Amount

 

 

 

 

 

 

2019

 

CHF

3,533,920

 

2020

 

 

60,000

 

2021

 

 

1,706,570

 

2022

 

 

30,000

 

 

 

 

 

 

 

 

CHF

5,330,490

 

 

7.              Income Taxes

 

The components of loss before income taxes are as follows:

 

Year Ended December 31,

 

2018

 

 

 

 

 

 

Switzerland

 

CHF

4,178,294

 

Foreign

 

 

207,922

 

 

 

 

 

 

Loss before income taxes

 

CHF

4,386,216

 

 

Income taxes related the Company are as follows:

 

Year Ended December 31,

 

2018

 

 

 

 

 

 

Switzerland

 

CHF

1,224

 

Foreign

 

 

2,515

 

 

 

 

 

 

Income tax expense

 

CHF

3,739

 

 

Income tax at the Swiss statutory rate compared to the Company’s income tax expense as reported are as follows:

 

Year Ended December 31,

 

2018

 

 

 

 

 

 

Loss before income taxes

 

CHF

4,386,216

 

Tax rate

 

 

21

%

Expected income tax benefit

 

 

(921,105

)

Income tax expense

 

 

3,739

 

Change in valuation allowance

 

 

929,337

 

Permanent difference

 

 

(8,231

)

 

 

 

 

 

Income tax expense

 

CHF

3,739

 

 

17


 

NEEO AG

 

Notes to Consolidated Financial Statements

 

The Company assesses the recoverability of its deferred tax assets and, to the extent recoverability does not satisfy the “more likely than not” recognition criterion under ASC 740, records a valuation allowance against its deferred tax assets. The Company considered its recent operating results and anticipated future taxable income in assessing the need for its valuation allowance.

 

The Company’s deferred tax assets and liabilities consist of the following:

 

December 31,

 

2018

 

Deferred tax assets

 

 

 

 

Warranty accrual

 

CHF

13,617

 

Intangible assets

 

 

2,203

 

Note payable to related party

 

 

60,375

 

Consigned inventory liability

 

 

58,569

 

Intercompany balances

 

 

33

 

Pension liability

 

 

101,707

 

Net operating loss

 

 

2,583,332

 

Total deferred tax assets

 

 

2,819,836

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

Inventory

 

 

(98,633

)

Prepaid expenses

 

 

(695

)

Related party payable

 

 

(21,069

)

Total deferred tax liabilities

 

 

(120,397

)

 

 

 

 

 

Net deferred tax assets

 

 

2,699,439

 

 

 

 

 

 

Valuation allowance

 

 

(2,699,439

)

 

 

 

 

 

Total deferred income taxes

 

CHF

 

 

At December 31, 2018, the Company has accumulated loss carry-forwards of CHF 12,331,753, which expire in the following years:

 

Years Ending December 31,

 

Amount

 

 

 

 

 

 

2022

 

CHF

1,619,318

 

2023

 

 

2,801,861

 

2024

 

 

3,543,026

 

2025

 

 

4,367,548

 

 

 

 

 

 

 

 

CHF

12,331,753

 

 

The 2017 and 2018 tax years remain subject to examination.

 

18


 

NEEO AG

 

Notes to Consolidated Financial Statements

 

8.              Pension Plan

 

The Company maintains a passive pension plan covering all employees in Switzerland; it is considered a defined benefit plan and accounted for in accordance with ASC 715 Compensation - Retirement Benefits. This model allocates pension costs over the service period of employees in the plan. The underlying principle is that employees render services ratably over this period, and therefore, the statement of comprehensive loss effects of pensions should follow a similar pattern. ASC 715 requires recognition of the funded status, or difference between the fair value of plan assets and the projected benefit obligations of the pension plan on the balance sheet, by recording a corresponding expense in net loss. If the projected benefit obligation exceeds the fair value of plan assets, then that difference or unfunded status represents the pension liability.

 

The Company records a net periodic pension cost in the statement of comprehensive loss. The liabilities and annual income or expense of the pension plan is determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the long-term rate of asset return (based on the market-related value of assets). Future benefits, to the extent that they are based on compensation, include salary increases consistent with past experiences and estimates of future increases in the Swiss labor market. The fair values of plan assets are determined based on prevailing market prices.

 

The following table reflects changes in the pension benefit obligation and plan assets for the year ended December 31, 2018:

 

 

 

2018

 

Change in benefit obligation:

 

 

 

 

Benefit obligation at beginning of year

 

CHF

629,641

 

Service cost

 

 

112,229

 

Interest cost

 

 

4,855

 

Employee contributions

 

 

67,557

 

Premiums paid

 

 

(35,353

)

Net transfer in

 

 

34,283

 

Actuarial loss

 

 

73,570

 

Projected benefit obligation at end of year

 

 

886,782

 

Changes in plan assets:

 

 

 

 

Fair value of plan assets at beginning of year

 

 

365,065

 

Actual return on plan assets

 

 

(97,833

)

Company contributions

 

 

67,557

 

Employee contributions

 

 

67,557

 

Premiums paid

 

 

(35,353

)

Net transfer in

 

 

34,283

 

Fair value of plan assets at end of year

 

 

401,276

 

Funded status at end of year

 

CHF

(485,506

)

 

Net long-term pension liability of CHF 485,506 is recognized in the consolidated balance sheet as of December 31, 2018. The accumulated benefit obligation at December 31, 2018 was CHF 729,896.

 

19


 

NEEO AG

 

Notes to Consolidated Financial Statements

 

Accumulated other comprehensive loss consists of the following:

 

 

 

2018

 

 

 

 

 

 

Net prior service cost

 

CHF

264,576

 

Net loss

 

 

177,220

 

Amortization of prior service cost

 

 

(28,534

)

Accumulated other comprehensive loss

 

CHF

413,262

 

 

The components of net periodic pension cost and other amounts recognized in other comprehensive loss before taxes are as follows:

 

 

 

2018

 

Components of net periodic pension cost:

 

 

 

 

Service cost

 

CHF

112,229

 

Interest cost

 

 

4,855

 

Expected return on plan assets

 

 

(5,817

)

Amortization of prior service cost

 

 

28,534

 

Net periodic pension cost

 

CHF

139,801

 

Other amounts recognized in other comprehensive loss:

 

 

 

 

Loss on value of plan assets

 

CHF

103,650

 

Actuarial loss on benefit obligation

 

 

73,570

 

Amortization of prior service cost

 

 

(28,534

)

Total loss recognized in other comprehensive loss

 

CHF

148,686

 

Total loss recognized in net periodic pension cost and other comprehensive loss

 

CHF

288,487

 

 

The components of net periodic benefit cost other than the service cost component are included in the line item “other components of defined benefit plans, net” in the income statement.

 

Assumptions used to determine the benefit obligation and net periodic pension cost are as follows:

 

 

 

2018

 

Weighted-average assumptions used:

 

 

 

 

Discount rate

 

 

0.80

%

Rate of compensation increase

 

 

3.00

%

Expected long-term return on plan assets

 

 

1.50

%

 

Under Swiss law, pension funds are legally independent from the employer and all the contributions are invested with regulated entities. The Company has a contract with PAX Collective Foundation (the “Foundation”) to manage its Swiss pension fund. Multiple employers contract with the Foundation to manage the employers’ respective pension plans. The Foundation manages the pension plans of its contracted employers as a collective entity. The investment strategy is determined by the Foundation and applies to all members of the collective Foundation. There are no separate financial statements for each employer contract. The pension plan assets of all the

 

20


 

NEEO AG

 

Notes to Consolidated Financial Statements

 

employers that contract with the Foundation are comingled. They are considered multiple-employer plans under ASC 715 and therefore accounted for as single-employer plans.

 

As there are no separate financial statements for each employer contract, there are no individual investments that can be directly attributed to the Company’s pension plan assets. However, the funds contributed by an employer are specifically earmarked for its employees and the total assets of the plan allocable to the Company’s employees are separately tracked by the Foundation. The lack of visibility into the specific investments of the plan assets and how they are valued is a significant unobservable input, therefore, the Company considers the plan assets collectively to be Level 3 assets under the fair value hierarchy.

 

The table below sets forth the fair value of plan assets at December 31, 2018, and the related activity:

 

 

 

Insurance
Contracts
(Level 3)

 

Beginning balance at January 1, 2018

 

365,065

 

Actual return on plan assets

 

(97,833

)

Purchases, sales and settlement

 

134,044

 

Fair value of plan assets at end of year

 

401,276

 

 

The Company expects to contribute approximately CHF 78,300 to the pension plan in 2019.

 

No pension benefit payments are expected to be paid over the next five years.

 

9.              Related Parties

 

During the year ended December 31, 2018, the Company entered into the following related party transactions with shareholders of the Company:

 

·                  Borrowed CHF 1,535,000 from shareholders, of which CHF 285,000 was repaid during 2018. Refer to Note 6. for details of notes payable outstanding to related parties as of December 31, 2018.

·                  Recorded a reduction to research and development expense in the amount of CHF 448,667 under a collaborative arrangement. The offset was recorded against related party payable to reduce the amount payable to the shareholder.

 

10.       Commitments and Contingencies

 

Legal Proceedings

 

The Company is from time to time involved in ordinary routine litigation incidental to the conduct of its business. The Company regularly reviews all pending litigation matters in which it is involved and establishes reserves deemed appropriate for such litigation matters. Management believes that no presently pending litigation matters are likely to have a material adverse effect on the Company’s consolidated financial statements or results of operations.

 

21


 

NEEO AG

 

Notes to Consolidated Financial Statements

 

11.       Subsequent Events

 

On February 1, 2019, Control4 Corporation acquired all of the outstanding shares of common stock of NEEO AG.

 

Refer to Note 6. for notes payable repaid subsequent to year end.

 

The Company has evaluated subsequent events through the date on which the consolidated financial statements were available to be issued.

 

22


Exhibit 99.2

 

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

 

On February 1, 2019, Control4 Corporation (“Control4” or the “Company”), completed its acquisition of NEEO, AG, a company organized and headquartered in Switzerland (“NEEO”), for $11.0 million in cash, pursuant to a Stock Purchase Agreement (the “Purchase Agreement”) dated January 11, 2019, by and among Control4, NEEO and all of the shareholders of NEEO.

 

The unaudited pro forma condensed combined balance sheet for the year ended December 31, 2018 is based on the historical financial statements of the Company and NEEO after giving effect to the Company’s acquisition of NEEO and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2018, combines the Company’s historical results with NEEO’s historical results for the calendar year ended December 31, 2018 after giving effect to the Company’s acquisition of NEEO and the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements.

 

The unaudited pro forma condensed combined balance sheet is presented as if the acquisition of NEEO had occurred on December 31, 2018. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2018 is presented as if the acquisition of NEEO had occurred on January 1, 2018.

 

The preliminary allocation of the consideration transferred used in the unaudited pro forma condensed combined financial statements is based upon preliminary estimates. The preliminary allocation of consideration transferred is 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.

 

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 acquisition. 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 acquisition 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, 2018 and the Cautionary Note Regarding Forward-Looking Statements provided therein, and NEEO’s historical financial statements and notes thereto as of and for the year ended December 31, 2018, included as Exhibit 99.1 in this Current Report on Form 8–K/A.

 


 

CONTROL4 CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF DECEMBER 31, 2018

 

(in thousands)

 

 

 

Historical

 

Pro forma

 

Adjustment

 

Pro forma

 

 

 

Control4

 

NEEO AG

 

Adjustments

 

Reference

 

Combined

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

40,395

 

$

243

 

$

(11,000

)

(A)

 

$

29,638

 

Restricted cash

 

259

 

 

 

 

 

259

 

Short-term investments

 

52,794

 

 

 

 

 

52,794

 

Accounts receivable, net

 

33,016

 

26

 

 

 

 

33,042

 

Inventories

 

42,684

 

851

 

 

 

 

43,535

 

Prepaid expenses and other current assets

 

6,100

 

558

 

(1,654

)

(B)

 

5,004

 

Total current assets

 

175,248

 

1,678

 

(12,654

)

 

 

164,272

 

Property and equipment, net

 

9,663

 

58

 

 

 

 

9,721

 

Intangible assets, net

 

20,651

 

 

6,384

 

(C)

 

27,035

 

Goodwill

 

21,530

 

 

12,812

 

(D)

 

34,342

 

Other assets

 

25,456

 

 

 

 

 

25,456

 

Total assets

 

$

252,548

 

$

1,736

 

$

6,542

 

 

 

$

260,826

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

26,213

 

$

906

 

$

 

 

 

$

27,119

 

Accrued liabilities

 

9,142

 

1,290

 

398

 

(E)

 

10,830

 

Deferred revenue

 

5,507

 

 

 

 

 

5,507

 

Current portion of notes payable

 

 

3,690

 

 

 

 

3,690

 

Total current liabilities

 

40,862

 

5,886

 

398

 

 

 

47,146

 

Notes payable

 

 

1,826

 

(1,654

)

(B)

 

172

 

Other long-term liabilities

 

5,339

 

494

 

1,726

 

(F)

 

7,559

 

Total liabilities

 

46,201

 

8,206

 

470

 

 

 

54,877

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

3

 

502

 

(502

)

(G)

 

3

 

Treasury stock

 

 

 

 

 

 

 

Additional paid-in capital

 

235,529

 

6,319

 

(6,319

)

(G)

 

235,529

 

Accumulated deficit

 

(28,385

)

(12,871

)

12,473

 

(G),(E)

 

(28,783

)

Accumulated other comprehensive loss

 

(800

)

(420

)

420

 

(G)

 

(800

)

Total stockholders’ equity (deficit)

 

206,347

 

(6,470

)

6,072

 

 

 

205,949

 

Total liabilities and stockholders’ equity

 

$

252,548

 

$

1,736

 

$

6,542

 

 

 

$

260,826

 

 

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

 


 

CONTROL4 CORPORATION

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2018

 

(in thousands, except per share data)

 

 

 

Historical

 

Pro forma

 

Adjustment

 

Pro forma

 

 

 

Control4

 

NEEO AG

 

Adjustments

 

Reference

 

Combined

 

Revenue

 

$

272,458

 

$

920

 

$

 

 

 

$

273,378

 

Cost of revenue

 

130,455

 

1,145

 

7

 

(K)

 

131,607

 

Gross margin

 

142,003

 

(225

)

(7

)

 

 

141,771

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

43,605

 

427

 

3,446

 

(H),(I),(K)

 

47,478

 

Sales and marketing

 

50,834

 

 

607

 

(K)

 

51,441

 

General and administrative

 

26,399

 

3,320

 

(2,479

)

(K),(L)

 

27,240

 

Litigation settlement

 

 

 

 

 

 

 

Total operating expenses

 

120,838

 

3,747

 

1,574

 

 

 

126,159

 

Income (loss) from operations

 

21,165

 

(3,972

)

(1,581

)

 

 

15,612

 

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

Interest, net

 

1,222

 

(380

)

 

 

 

842

 

Other components of defined benefit plans, net

 

 

(28

)

 

 

 

(28

)

Other income (expense), net

 

(1,538

)

(79

)

1

 

(K)

 

(1,616

)

Total other income (expense), net

 

(316

)

(487

)

1

 

 

 

(802

)

Income (loss) before income taxes

 

20,849

 

(4,459

)

(1,580

)

 

 

14,810

 

Income tax expense (benefit)

 

(22,991

)

4

 

(332

)

(J)

 

(23,319

)

Net income (loss)

 

$

43,840

 

$

(4,463

)

$

(1,248

)

 

 

$

38,129

 

Net income per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.67

 

 

 

 

 

 

 

$

1.45

 

Diluted

 

$

1.60

 

 

 

 

 

 

 

$

1.39

 

Weighted-average number of shares:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

26,235

 

 

 

 

 

 

 

26,235

 

Diluted

 

27,484

 

 

 

 

 

 

 

27,484

 

 

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

 


 

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 the fair value of consideration transferred over the fair value of identifiable assets acquired and 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. 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 NEEO 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, 2018 and NEEO’s historical financial statements and notes thereto as of and for the year ended December 31, 2018.

 

2. NEEO Acquisition

 

On February 1, 2019, Control4 Corporation (“Control4” or the “Company”), completed its acquisition of NEEO, AG, a company organized and headquartered in Switzerland (“NEEO”), pursuant to a Stock Purchase Agreement (the “Purchase Agreement”) dated January 11, 2019, by and among Control4, NEEO and all of the shareholders of NEEO.

 

The total purchase price for Control4’s acquisition of NEEO was $11,000,000 in cash.

 

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. The Company believes that the acquisition of NEEO was a talent and technology investment that will allow the Company to accelerate its leadership in delivering remotes, touch panels, keypads, and other smart home devices. 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 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. 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 NEEO is as follows (in thousands):

 

 

 

Estimated Fair Value

 

Cash

 

$

442

 

Accounts receivable

 

17

 

Inventory

 

572

 

Other assets acquired

 

484

 

Property and equipment, net

 

61

 

Intangible assets

 

6,384

 

Goodwill

 

10,898

 

Total assets acquired

 

18,858

 

Deferred tax liability

 

1,726

 

Assumed liabilities

 

6,132

 

Total net assets acquired

 

$

11,000

 

 

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 NEEO stockholders.

 

(B)                                Adjustment to eliminate amounts due from NEEO to Control4.

 

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

 

 

 

Intangible Asset

 

 

 

Amount

 

Remote control technology

 

$

5,755,000

 

Internally developed technologies

 

629,000

 

Total

 

$

6,384,000

 

 

(D)                                Adjustment to record goodwill.

 

(E)                                 Adjustment to accrue for estimated transaction costs expected to be incurred in closing the transaction that have not been expensed in the historical statement of operations.

 

(F)                                  Adjustment to record the deferred tax liability resulting from Control4’s acquisition of NEEO.

 

(G)                                Adjustments to record the elimination of NEEO’s historical stockholders’ deficit.

 

(H)                               Adjustments to record the amortization expense related to the intangible assets acquired as if the acquisition had occurred on January 1, 2018. 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

 

Remote control technology

 

$

5,755,000

 

5 years

 

$

1,151,000

 

Internally developed technologies

 

629,000

 

2-3 years

 

299,500

 

Total

 

$

6,384,000

 

 

 

$

1,450,500

 

 

(I)                                    Adjustment to record stock-based compensation expense of $480,000 associated with RSU grants issued to continuing employees of NEEO as part of the Purchase Agreement as if the acquisition had occurred on January 1, 2019.

 


 

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

 

(K)                                Adjustment to reclassify expenses to conform to Control4’s accounting policies.

 

(L)                                 Represents the elimination of nonrecurring transaction costs of $351,000 incurred during the year ended December 31, 2018, that are directly related to the acquisition of NEEO AG.