UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
September 8, 2015
Date of Report (Date of earliest event reported)
CAPNIA, INC.
(Exact name of registrant as specified in its charter)
Delaware | 001-36593 | 77-0523891 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification Number) |
1235 Radio Road, Suite 110 Redwood City, CA |
94065 | |||
(Address of principal executive offices) | (Zip Code) |
(650) 213-8444
(Registrants telephone number, including area code)
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 (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Section 8 Other Events
Item 8.01 | Other Events |
As previously disclosed, on September 8, 2015, Capnia, Inc. (Capnia, us or we) through its wholly-owned subsidiary, NeoForce Acquisition, Inc., entered into an asset purchase agreement to purchase substantially all of the assets of NeoForce Group, Inc. and NeoForce Innovations, LLC (collectively NeoForce). This Current Report on Form 8-K/A (the Amended Report) updates the Current Report on Form 8-K filed on September 14, 2015 (the Original Report) to include the audited financial statements of NeoForce and the unaudited pro forma financial information in accordance with Item 9.01 of Form 8-K. No other amendments to the Original Report are being made by the Amended Report.
On September 16, 2015, NeoForce Acquisition, Inc. amended its Certificate of Incorporation to change its name to NeoForce, Inc.
Section 9 Financial Statements and Exhibits
Item 9.01 | Financial Statements and Exhibits |
(a) Financial Statements of Business Acquired.
The audited consolidated financial statements of NeoForce for the fiscal years ended December 31, 2014 and 2013 are attached hereto as Exhibit 99.1 and are incorporated by reference into this Item 9.01(a) and made a part hereof.
The unaudited interim condensed consolidated financial statements of NeoForce for the six months ended June 30, 2015 are attached hereto as Exhibit 99.2 and are incorporated by reference into this Item 9.01(a) and made a part hereof.
(b) Pro Forma Financial Information.
The unaudited pro forma financial information of Capnia is attached hereto as Exhibit 99.3 and is incorporated by reference into this Item 9.01(b) and made a part hereof: (i) unaudited condensed combined pro forma balance sheet at June 30, 2015 and notes thereto, and (ii) unaudited condensed combined pro forma statements of operations for the six months ended June 30, 2015 and the fiscal year ended December 31, 2014 and notes thereto.
(d) Exhibits.
99.1 Audited consolidated financial statements of NeoForce for the years ended December 31, 2014 and 2013.
99.2 Unaudited interim condensed consolidated financial statements of NeoForce for the six months ended June 30, 2015.
99.3 Unaudited condensed combined Pro Forma balance sheet at June 30, 2015 and notes thereto, and unaudited condensed combined pro forma statements of operations for the six months ended June 30, 2015 and the fiscal year ended December 31, 2014 and notes thereto.
-2-
SIGNATURES
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.
CAPNIA, INC. | ||
By: | /s/ David OToole | |
David OToole | ||
Chief Financial Officer |
Date: November 24, 2015
-3-
Exhibit 99.1
FINANCIAL STATEMENTS
NEOFORCE GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm |
Consolidated Balance Sheets |
Consolidated Statements of Operations Consolidated Statements of Shareholders/Members Deficit |
Consolidated Statements of Cash Flows |
Notes to Consolidated Financial Statements |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
of NeoForce Group, Inc.
We have audited the accompanying consolidated balance sheets of NeoForce Group, Inc. and affiliate (the Company) as of December 31, 2014 and 2013, and the related consolidated statements of operations, shareholders/members deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NeoForce Group, Inc. and affiliate, as of December 31, 2014 and 2013, and the results of their operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Marcum LLP
Marcum LLP
San Francisco, CA
November 24, 2015
NEOFORCE GROUP INC. AND AFFILIATE
CONSOLIDATED BALANCE SHEETS
December 31, 2014 |
December 31, 2013 |
|||||||
Assets |
||||||||
Current assets |
||||||||
Cash |
$ | 39,192 | $ | 59,434 | ||||
Accounts receivable |
126,974 | 112,945 | ||||||
Inventory |
60,071 | 59,743 | ||||||
|
|
|
|
|||||
Total current assets |
226,237 | 232,122 | ||||||
Long-term assets |
||||||||
Property and equipment, net |
58,708 | 87,797 | ||||||
Security Deposit |
4,000 | 4,000 | ||||||
|
|
|
|
|||||
Total assets |
$ | 288,945 | $ | 323,919 | ||||
|
|
|
|
|||||
Liabilities and shareholders/members deficit |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 18,912 | $ | 905 | ||||
Accrued liabilities |
80,531 | 82,944 | ||||||
Loan payable |
236,000 | 236,000 | ||||||
Shareholder loan |
| 34,305 | ||||||
|
|
|
|
|||||
Total current liabilities |
335,443 | 354,154 | ||||||
|
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|
|
|||||
Shareholders/Members Deficit |
||||||||
Common stock, no par value, 100 shares authorized and outstanding |
100 | 100 | ||||||
Retained earnings |
492,530 | 460,293 | ||||||
Controlling interest in NeoForce Innovations |
(269,564 | ) | (245,314 | ) | ||||
|
|
|
|
|||||
Total controlling shareholders equity (deficit) |
222,966 | 214,979 | ||||||
Non-controlling interest in NeoForce Innovations |
(269,564 | ) | (245,314 | ) | ||||
|
|
|
|
|||||
Total accumulated deficit |
(46,598 | ) | (30,335 | ) | ||||
|
|
|
|
|||||
Total shareholders/members deficit |
(46,498 | ) | (30,235 | ) | ||||
|
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|
|
|||||
Total liabilities and shareholders/members deficit |
$ | 288,945 | $ | 323,919 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements
NEOFORCE GROUP INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended December 31, |
||||||||
2014 | 2013 | |||||||
Revenue |
$ | 987,853 | $ | 1,219,859 | ||||
Cost of goods sold |
484,784 | 604,433 | ||||||
|
|
|
|
|||||
Gross profit |
503,069 | 615,426 | ||||||
Operating expenses |
500,453 | 514,387 | ||||||
|
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|||||
Operating income |
2,616 | 101,039 | ||||||
Interest expense |
(18,879 | ) | (21,279 | ) | ||||
|
|
|
|
|||||
Net income (loss) |
(16,263 | ) | 79,760 | |||||
Net loss attributable to non-controlling interest |
(24,250 | ) | (26,023 | ) | ||||
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|
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|
|||||
Net income attributable to controlling interest |
$ | 7,987 | $ | 105,783 | ||||
|
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|
|
See accompanying notes to consolidated financial statements.
NEOFORCE GROUP, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF SHAREHOLDERS/MEMBERS DEFICIT
NeoForce Innovations, LLC. | ||||||||||||||||||||||||
Common Stock | Retained | Controlling | Non-controlling | Total | ||||||||||||||||||||
Shares | Amount | Earnings | Interest | Interest | Deficit | |||||||||||||||||||
Balance - January 1, 2013 |
100 | $ | 100 | $ | 328,487 | ($ | 219,291 | ) | ($ | 219,292 | ) | ($ | 109,995 | ) | ||||||||||
Net income (loss) |
| | 131,806 | (26,023 | ) | (26,023 | ) | 79,760 | ||||||||||||||||
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|||||||||||||
Balance - December 31, 2013 |
100 | 100 | 460,293 | (245,314 | ) | (245,314 | ) | (30,235 | ) | |||||||||||||||
Net income (loss) |
| | 32,237 | (24,250 | ) | (24,250 | ) | (16,263 | ) | |||||||||||||||
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|||||||||||||
Balance -December 31, 2014 |
100 | $ | 100 | $ | 492,530 | ($ | 269,564 | ) | ($ | 269,564 | ) | ($ | 46,498 | ) | ||||||||||
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See accompanying notes to consolidated financial statements
NEOFORCE GROUP, INC. AND AFFILIATE
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended December 31, |
||||||||
2014 | 2013 | |||||||
Cash flows from operating activities: |
| |||||||
Net income (loss) |
$ | (16,263 | ) | $ | 79,760 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation |
29,089 | 29,089 | ||||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable |
(14,029 | ) | (25,529 | ) | ||||
Inventory |
(328 | ) | 6,912 | |||||
Accounts payable |
18,007 | (10,598 | ) | |||||
Accrued liabilities |
(2,413 | ) | (7,787 | ) | ||||
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|
|||||
Net cash provided by operating activities |
14,063 | 71,847 | ||||||
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Cash flows from financing activities: |
||||||||
Repayment of shareholder loan |
(34,305 | ) | (10,000 | ) | ||||
Repayment of long term debt |
| (100,000 | ) | |||||
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|
|||||
Net cash used in financing activities |
(34,305 | ) | (110,000 | ) | ||||
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Net decrease in cash |
(20,242 | ) | (38,153 | ) | ||||
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Cash, beginning of period |
59,434 | 97,587 | ||||||
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Cash, end of period |
$ | 39,192 | $ | 59,434 | ||||
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Cash paid during the years for: |
||||||||
Interest |
$ | 22,499 | $ | 29,900 | ||||
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|
See accompanying notes to consolidated financial statements.
Neoforce Group, Inc.
December 31, 2014 and 2013
Notes to Consolidated Financial Statements
Note 1. Description of Business
Neoforce Group, Inc. (NeoForce) was incorporated in the State of Delaware on August 1, 2005, and is located in Ivyland, Pennsylvania. NeoForce develops and distributes innovative pulmonary resuscitation solutions for neonates and leverages its technology platform to expand into the broader pediatric and adult markets. NeoForces products include the NeoPIP Infant T-Piece Resuscitator and the CPRNome Resuscitation Timer. NeoForce made a valid election to be taxed as an S-corporation.
NeoForce Innovations, LLC (Innovations) was incorporated in the State of Delaware on November 19, 2007, and is located in Ivyland, Pennsylvania. NeoForce initially owned a 50% member interest, and an unrelated third party owned the remaining 50%. NeoForce transferred its 50% member interest to its one shareholder in 2012. Innovations is treated as a partnership for tax purposes. Innovations was established to design and patent a device (Ispira) leveraging NeoForces neonatal resuscitation product platform to provide effective rescue breaths to pediatric and adult patients in conjunction with integrated cardiac defibrillators
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with GAAP and include the accounts of NeoForce and its affiliate Innovations, collectively the Company. (See Note 3) All intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of expenses in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates included in the consolidated financial statements include the allowances for accounts receivable and inventory.
Concentrations
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash at two commercial banks that management believes are of high credit quality. Cash deposited with these commercial banks did not exceed the Federal Deposit Insurance Corporation insurable limit at December 31, 2014 and 2013.
For the year ended December 31, 2013, two customers contributed 48% of the Companys total revenue. These two customers accounted for 38% of the accounts receivable balance as of December 31, 2013. For the year ended December 31, 2014, no one customer accounted for greater than 10% of the Companys total revenue.
Accounts Receivable
Accounts receivable as of December 31, 2014 and December 31, 2013 consist of balances due from customers in the normal course of business. The Company did not record an allowance for doubtful accounts as this balance was deemed fully collectible.
Inventory
Inventory as of December 31, 2014 and December 31, 2013 consists of finished goods. Inventory is stated at the lower of cost or market determined under the first-in, first-out (FIFO) method.
Property and Equipment, Net
Property and equipment are stated at cost net of accumulated depreciation and depreciated using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or the term of the lease. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized.
Revenue Recognition
The Company recognizes revenue when all of the following criteria are met:
| persuasive evidence of an arrangement exists; |
| the sales price is fixed or determinable; |
| collection of the relevant receivable is probable at the time of sale; and |
| delivery has occurred or services have been rendered. |
For a majority of sales, where the Company delivers its product to hospitals or medical facilities, the Company recognizes revenue upon delivery, which represents satisfaction of the required revenue recognition criteria. The Company does not offer rights of return or price protection and it has no post-delivery obligations. The Company provides a limited one-year warranty to most customers. Estimated warranty obligations are recorded at the time of sale and to date, warranty costs have been insignificant
Income Taxes
NeoForce has elected S corporation status for federal and state income tax purposes. NeoForce and Innovations are pass-through entities which file income tax returns as an S-corporation and a partnership, respectively. Consequently, taxable income flows through and is taxed to the shareholders/members on their personal income tax returns. Accordingly, no provision for federal or state income taxes is included in the consolidated financial statements.
In accordance with the Financial Accounting Standards Board (FASB) guidance on Accounting for Uncertainty in Income Taxes, NeoForce utilizes a two-step approach to recognizing and measuring uncertain tax positions by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. For the years ended December 31, 2014 and 2013, there were no liabilities recorded for unrecognized tax benefits related to tax positions taken in the current period. NeoForce considers many factors when evaluating and estimating its tax position and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.
In accordance with the FASB guidance, NeoForce has elected to include interest and penalties related to its tax contingencies in income tax expense. There were no accruals for interest and penalties related to uncertain tax positions for the years ended December 31, 2014 and 2013.
NeoForce files U.S. federal tax returns and Pennsylvania state tax returns. The tax years of 2011 through 2014 remain open and subject to examination by the appropriate governmental agencies in the United States and Pennsylvania.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB, and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Companys consolidated financial position or results of operations upon adoption.
Note 3. Variable Interest Entity
The Company follows FASB Accounting Standards Codification (ASC) 810, Consolidation, relating to consolidation of certain variable interest entities (VIEs).
The Company consolidates a VIE in which it is deemed to have a controlling financial interest as a result of having the power to direct the activities that most significantly impact the VIEs economic performance, and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. If the Company has a controlling financial interest in a VIE, the assets, liabilities, and results of operations of the VIE are included in the Companys consolidated financial statements.
One of Innovations two equity members is the sole shareholder of NeoForce and owns 50% of innovations. Further, NeoForce is the guarantor of Innovations long term debt with a financial institution.
The Companys consolidated financial statements include the accounts and operations of Innovations although it has less than a majority ownership. The Company determined it is the primary beneficiary of Innovations since the Company has the power to direct or cause the direction of activities that most significantly impact the entity on a day-to-day basis. The carrying amounts of the assets and liabilities of Innovations included in the accompanying consolidated financial statements are $34,598 and $573,727, respectively, at December 31, 2014 and $51,897 and $542,525, respectively, at December 31, 2013. The assets and liabilities consist primarily of property and balances due to Neoforce (which are eliminated in consolidation), and long term debt with a financial institution. The Company believes its maximum exposure to risk represents the obligations under the loan payable that has an outstanding balance of $236,000 as of December 31, 2014 and is guaranteed by NeoForce.
Note 4. Fair Value of Financial Instruments
The carrying value of the Companys cash, accounts receivable, and accounts payable, approximate fair value due to the short-term nature of these items. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the shareholder loan and loan payable approximates their fair value, as of December 31, 2014 and 2013.
Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:
| Level I | Unadjusted quoted prices in active markets for identical assets or liabilities; | ||
| Level II | Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and | ||
| Level III | Unobservable inputs that are supported by little or no market activity for the related assets or liabilities. |
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Note 5. Property and Equipment, Net
Property and equipment consisted of the following:
December 31, 2014 |
December 31, 2013 |
|||||||
Furniture and fixtures |
$ | 6,511 | $ | 6,511 | ||||
Machinery and Equipment |
117,296 | 117,296 | ||||||
Computer hardware |
26,279 | 26,279 | ||||||
Leasehold improvements |
51,937 | 51,937 | ||||||
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202,023 | 202,023 | |||||||
Less accumulated depreciation and amortization |
(143,315 | ) | (114,226 | ) | ||||
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Total |
$ | 58,708 | $ | 87,797 | ||||
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|
Depreciation expense was $29,089 for each of the fiscal years ended December 31, 2013 and December 31, 2014.
Note 6. Shareholder loan
On August 1, 2006 the Company received an advance of $30,000 from a former shareholder of the Company. The loan had an original maturity date of April 1, 2007 and bore an interest rate of 6.25% per annum. As of December 31, 2013 the shareholder loan was in default. The outstanding principal and accrued interest were paid in full in July 2014.
Note 7. Current loan payable
In December 2007, Innovations entered into a Seed Capital Funding Agreement (Agreement) with Ben Franklin Technology Partners of Southeastern Pennsylvania (BFTP) to fund up to $300,000 for verification of clinical indications to support procedural effectiveness, regulatory user fees and costs associated with intellectual property assessments and clinical studies. Innovations borrowed $236,000 under the terms of the Agreement at a rate of 8% per annum with the aggregate principal and accrued interest due and payable on December 31, 2013.
As additional compensation for BFTP entering into the Agreement, Innovations issued a warrant to BFTP. The warrant had a term of nine years. The warrant was exercisable into an equity interest in Innovations based on a formula that would be determined and contingent on the pricing of subsequent issuances of equity interests by Innovations. There have been no issuances of equity interests by Innovations since inception of the Agreement and therefore the Company has determined that the warrant had an immaterial fair value as of December 31, 2014 and December 31, 2013.
During December 2011, the Company entered into a consent and waiver agreement with BFTP which provided for NeoForce to subordinate its loan to Innovations and for NeoForce to become a guarantor of the debt Agreement between BFTP and Innovations. The principal balance due pursuant to the Agreement is $236,000 as of December 31, 2014 and 2013. Accrued interest of $77,494 and $73,874 are included in accrued expenses on the balance sheets as of December 31, 2014 and 2013, respectively.
Starting on June 28, 2013, and ending on July 8, 2015, the Company made interest payments on a monthly basis of $2,500, which totaled $57,000 over that period. No principal payments were made during this period. The original loan balance plus accrued interest was settled and paid in full on September 8, 2015.
As of December 31, 2013, the BFTP loan was classified as a current liability, as it had an original maturity date of December 31, 2013. As of December 31, 2014, the BFTP loan was in default and therefore classified as a current liability on the balance sheet.
Note 8. Long term debt
On April 22, 2012, Innovations entered into a loan agreement with Katherine Crothall for $100,000. The loan had an original maturity date of April 1, 2014 and bore an interest rate of 10% per annum. Accrued and unpaid interest was payable upon the maturity of the note.
During 2013, Innovations repaid the loan in equal installments of $50,000 on January 17, 2013 and July 23, 2013, plus accrued interest of $2,000 and $7,400, respectively.
Note 9. Commitments
Facility Leases
The Company leases office space under a month to month leasing arrangement. Total rent expense was $28,525 and $27,580 for the years ended December 31, 2014 and 2013, respectively.
Note 10. Subsequent Events
On September 4, 2015, Innovations entered into an Intellectual Property Assignment Agreement with NeoForce, in which it assigned, transferred and conveyed to NeoForce all of its rights, title and interest to its intellectual property rights, including the patents.
On September 8, 2015, the Company entered into an Asset Purchase Agreement with NeoForce Acquisition, Inc., a wholly owned subsidiary of Capnia, Inc. to sell substantially all of its assets, in exchange for an upfront payment of $1.0 million and royalties on future sales. The assets sold consisted primarily of tangible assets, customer contracts and patents.
The Company repaid all principal and accrued interest due on the outstanding BFTP loan payable on September 8, 2015.
Exhibit 99.2
FINANCIAL STATEMENTS
NEOFORCE GROUP, INC.
INDEX TO FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets (unaudited) |
Condensed Consolidated Statements of Operations (unaudited) |
Condensed Consolidated Statements of Cash Flows (unaudited) |
Notes to Condensed Consolidated Financial Statements (unaudited) |
NEOFORCE GROUP, INC. AND AFFILIATE
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited) June 30, 2015 |
December 31, 2014 |
|||||||
Assets |
||||||||
Current assets |
||||||||
Cash |
$ | 41,793 | $ | 39,192 | ||||
Accounts receivable |
94,009 | 126,974 | ||||||
Inventory |
73,440 | 60,071 | ||||||
|
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|
|
|||||
Total current assets |
209,241 | 226,237 | ||||||
Long-term assets |
||||||||
Property and equipment, net |
44,166 | 58,708 | ||||||
Security Deposit |
4,000 | 4,000 | ||||||
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|
|||||
Total assets |
$ | 257,407 | $ | 288,945 | ||||
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Liabilities and shareholders/members deficit |
||||||||
Current liabilities |
||||||||
Accounts payable |
$ | 37,001 | $ | 18,912 | ||||
Accrued liabilities |
78,330 | 80,531 | ||||||
Loan payable |
236,000 | 236,000 | ||||||
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|
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Total current liabilities |
351,332 | 335,443 | ||||||
|
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|
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Shareholders/Members deficit |
||||||||
Common stock, no par value, 100 shares authorized and outstanding |
100 | 100 | ||||||
Retained earnings |
469,965 | 492,530 | ||||||
Controlling interest in NeoForce Innovations |
(281,995 | ) | (269,564 | ) | ||||
|
|
|
|
|||||
Total controlling shareholders equity (deficit) |
187,970 | 222,966 | ||||||
Non-controlling interest in NeoForce Innovations |
(281,995 | ) | (269,564 | ) | ||||
|
|
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|
|||||
Total accumulated deficit |
(94,025 | ) | (46,598 | ) | ||||
|
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|
|||||
Total shareholders/members deficit |
(93,925 | ) | (46,498 | ) | ||||
|
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|||||
Total liabilities and shareholders/members deficit |
$ | 257,407 | $ | 288,945 | ||||
|
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|
|
See accompanying notes to condensed consolidated financial statements
NEOFORCE GROUP, INC. AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended June 30, |
||||||||
2015 | 2014 | |||||||
Revenue |
$ | 390,825 | $ | 500,357 | ||||
Cost of goods sold |
185,140 | 221,685 | ||||||
|
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|
|||||
Gross profit |
205,685 | 278,672 | ||||||
Operating expenses |
243,868 | 254,416 | ||||||
|
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|
|||||
Operating income |
(38,182 | ) | 24,255 | |||||
Interest expense |
(9,245 | ) | (9,362 | ) | ||||
|
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|
|||||
Net income (loss) |
$ | (47,427 | ) | $ | 14,893 | |||
Net loss attributable to non-controlling interest |
(12,431 | ) | (12,087 | ) | ||||
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|
|||||
Net income (loss) attributable to controlling interest |
$ | (34,996 | ) | $ | 26,980 | |||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
NEOFORCE GROUP, INC. AND AFFILIATE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended June 30, |
||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: |
| |||||||
Net income (loss) |
$ | (47,427 | ) | $ | 14,893 | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Depreciation |
14,544 | 14,544 | ||||||
Change in operating assets and liabilities: |
||||||||
Accounts receivable |
32,965 | (33,316 | ) | |||||
Inventory |
(13,369 | ) | (3,980 | ) | ||||
Accounts payable |
18,089 | 11,175 | ||||||
Accrued liabilities |
(2,201 | ) | 7,011 | |||||
|
|
|
|
|||||
Net cash provided by operating activities and net increase in cash |
2,601 | 10,327 | ||||||
|
|
|
|
|||||
Cash, beginning of period |
39,192 | 59,434 | ||||||
|
|
|
|
|||||
Cash, end of period |
$ | 41,793 | $ | 69,761 | ||||
|
|
|
|
|||||
Cash paid during the periods for: |
||||||||
Interest |
$ | 12,000 | $ | 7,500 | ||||
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
NEOFORCE GROUP, INC. AND AFFILIATE
JUNE 30, 2015
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Description of Business
Neoforce Group, Inc. (NeoForce) was incorporated in the State of Delaware on August 1, 2005, and is located in Ivyland, Pennsylvania. NeoForce develops and distributes innovative pulmonary resuscitation solutions for neonates and leverages its technology platform to expand into the broader pediatric and adult markets. NeoForces products include the NeoPIP Infant T-Piece Resuscitator and the CPRNome Resuscitation Timer. NeoForce made a valid election to be taxed as an S-corporation.
NeoForce Innovations, LLC (Innovations) was incorporated in the State of Delaware on November 19, 2007, and is located in Ivyland, Pennsylvania. NeoForce initially owned a 50% member interest, and an unrelated third party owned the remaining 50%. NeoForce transferred its 50% member interest to its one shareholder in 2012. Innovations is treated as a partnership for tax purposes. Innovations was established to design and patent a device (Ispira) leveraging NeoForces neonatal resuscitation product platform to provide effective rescue breaths to pediatric and adult patients in conjunction with integrated cardiac defibrillators.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and, in the opinion of management, reflect all adjustments of a normal recurring nature considered necessary to present fairly the Companys financial position as of June 30, 2015 and results of its operations for the six months ended June 30, 2015 and 2014, and cash flows for the six months ended June 30, 2015 and 2014. The interim results are not necessarily indicative of the results for any future interim period or for the entire year.
The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2014 and December 31, 2013.
Principles of Consolidation
The condensed consolidated financial statements have been prepared in accordance with GAAP and include the accounts of NeoForce and its affiliate Innovations, collectively the Company. (See Note 3) All intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of expenses in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Key estimates included in the consolidated financial statements include the allowances for accounts receivable and inventory.
Concentrations
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash at two commercial banks that management believes are of high credit quality. Cash deposited with these commercial banks did not exceed the Federal Deposit Insurance Corporation insurable limit at June 30, 2015 and December 31, 2014.
For the six months ended June 30, 2014, two customers accounted for 28% of the Companys total revenue and neither had a balance in accounts receivable as of June 30, 2014. For the six months ended June 30, 2015 one customer accounted for 12% of the Companys revenue and had a balance in accounts receivable representing 17% of the balance as of June 30, 2015.
Accounts Receivable
Accounts receivable as of June 30, 2015 and December 31, 2014 consist of balances due from customers in the normal course of business. The Company did not record an allowance for doubtful accounts as this balance was deemed fully collectible.
Inventory
Inventory as of June 30, 2015 and December 31, 2014 consists of finished goods. Inventory is stated at the lower of cost or market determined under the first-in, first-out (FIFO) method.
Property and Equipment, Net
Property and equipment are stated at cost net of accumulated depreciation and depreciated using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or the term of the lease. Maintenance and repairs are charged to
expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized.
Revenue Recognition
The Company recognizes revenue when all of the following criteria are met:
| persuasive evidence of an arrangement exists; |
| the sales price is fixed or determinable; |
| collection of the relevant receivable is probable at the time of sale; and |
| delivery has occurred or services have been rendered. |
For a majority of sales, where the Company delivers its product to hospitals or medical facilities, the Company recognizes revenue upon delivery, which represents satisfaction of the required revenue recognition criteria. The Company does not offer rights of return or price protection and it has no post-delivery obligations. The Company provides a limited one-year warranty to most customers. Estimated warranty obligations are recorded at the time of sale and to date, warranty costs have been insignificant
Income Taxes
NeoForce has elected S corporation status for federal and state income tax purposes. NeoForce and Innovations are pass-through entities which file income tax returns as an S-corporation and a partnership, respectively. Consequently, taxable income flows through and is taxed to the shareholders/members on their personal income tax returns. Accordingly, no provision for federal or state income taxes is included in the consolidated financial statements.
In accordance with the Financial Accounting Standards Board (FASB) guidance on Accounting for Uncertainty in Income Taxes, NeoForce utilizes a two-step approach to recognizing and measuring uncertain tax positions by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. For the years ended December 31, 2014 and 2013, there were no liabilities recorded for unrecognized tax benefits related to tax positions taken in the current period. NeoForce considers many factors when evaluating and estimating its tax position and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.
In accordance with the FASB guidance, NeoForce has elected to include interest and penalties related to its tax contingencies in income tax expense. There were no accruals for interest and penalties related to uncertain tax positions for the years ended December 31, 2014 and 2013.
NeoForce files U.S. federal tax returns and Pennsylvania state tax returns. The tax years of 2011 through 2014 remain open and subject to examination by the appropriate governmental agencies in the United States and Pennsylvania.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB, and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Companys consolidated financial position or results of operations upon adoption.
Note 3. Variable Interest Entity
The Company follows FASB Accounting Standards Codification (ASC) 810, Consolidation, relating to consolidation of certain variable interest entities (VIEs).
The Company consolidates a VIE in which it is deemed to have a controlling financial interest as a result of having the power to direct the activities that most significantly impact the VIEs economic performance, and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. If the Company has a controlling financial interest in a VIE, the assets, liabilities, and results of operations of the VIE are included in the Companys consolidated financial statements.
One of Innovations two equity members is the sole shareholder of NeoForce and owns 50% of innovations. Further, NeoForce is the guarantor of Innovations long term debt with a financial institution.
The Companys consolidated financial statements include the accounts and operations of Innovations although it has less than a majority ownership. The Company determined it is the primary beneficiary of Innovations since the Company has the power to direct or cause the direction of activities that most significantly impact the entity on a day-to-day basis. The carrying amounts of the assets and liabilities of Innovations included in the accompanying consolidated financial statements are $25,950 and 589,940, respectively at June 30, 2015 and $34,598 and $573,727, respectively, at December 31, 2014. The assets and liabilities consist primarily of property and balances due to NeoForce (which are eliminated in consolidation), and long term debt with a financial institution. The Company believes its maximum exposure to risk represents the obligations under the loan payable that has an outstanding balance of $236,000 as of June 30, 2015 and is guaranteed by NeoForce.
Note 4. Fair Value of Financial Instruments
The carrying value of the Companys cash, and receivable, and accounts payable, approximate fair value due to the short-term nature of these items. Based on the borrowing rates currently available to the Company for debt with similar terms and consideration of default and credit risk, the carrying value of the shareholder loan and loan payable approximates their fair value, as of June 30, 2015 and December 31, 2014.
Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:
| Level I | Unadjusted quoted prices in active markets for identical assets or liabilities; | ||
| Level II | Inputs other than quoted prices included within Level I that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and | ||
| Level III | Unobservable inputs that are supported by little or no market activity for the related assets or liabilities. |
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Note 5. Property and Equipment, Net
Property and equipment consisted of the following:
June 30, 2015 |
December 31, 2014 |
|||||||
Furniture and fixtures |
$ | 6,511 | $ | 6,511 | ||||
Machinery and Equipment |
117,296 | 117,296 | ||||||
Computer hardware |
26,279 | 26,279 | ||||||
Leasehold improvements |
51,937 | 51,937 | ||||||
|
|
|
|
|||||
202,024 | 202,024 | |||||||
Less accumulated depreciation and amortization |
(157,858 | ) | (143,315 | ) | ||||
|
|
|
|
|||||
Total |
$ | 44,166 | $ | 58,708 | ||||
|
|
|
|
Depreciation expense was $14,544 for each of the six month periods ended June 30, 2015 and June 30, 2014.
Note 6. Shareholder loan
On August 1, 2006 the Company received an advance of $30,000 from a former shareholder of the Company. The loan had an original maturity date of April 1, 2007 and bore an interest rate of 6.25% per annum. The shareholder loan was in default from April 2, 2007 until the outstanding principal and accrued interest were paid in full in July 2014.
Note 7. Current loan payable
In December 2007, Innovations entered into a Seed Capital Funding Agreement (Agreement) with Ben Franklin Technology Partners of Southeastern Pennsylvania (BFTP) to fund up to $300,000 for verification of clinical indications to support procedural effectiveness, regulatory user fees and costs associated with intellectual property assessments and clinical studies. Innovations borrowed $236,000 under the terms of the Agreement at a rate of 8% per annum with the aggregate principal and accrued interest due and payable on December 31, 2013.
As additional compensation for BFTP entering into the Agreement, Innovations issued a warrant to BFTP. The warrant had a term of nine years. The warrant was exercisable into an equity interest in Innovations based on a formula that would be determined and contingent on the pricing of subsequent issuances of equity interests by Innovations. There have been no issuances of equity interests by Innovations since inception of the Agreement and therefore the Company has determined that the warrant had an immaterial fair value as of June 30, 2015 and December 31, 2014.
During December 2011, the Company entered into a consent and waiver agreement with BFTP which provided for NeoForce to subordinate its loan to Innovations and for NeoForce to become a guarantor of the debt Agreement between BFTP and Innovations. The principal balance due pursuant to the Agreement is $236,000 as of June 30, 2015 and December 31, 2014. Accrued interest of $77,494 and $73,874 are included in accrued expenses on the balance sheets as of June 30, 2015 and December 31, 2014, respectively.
Starting on June 28, 2013, and ending on July 8, 2015, the Company made interest payments on a monthly basis of $2,500, which totaled $57,000 over that period. No principal payments were made during this period. The original loan balance plus accrued interest was settled and paid in full on September 8, 2015.
The BFTP loan was in default as of the year ended December 31, 2014 and the six months ended June 30, 2015 and was classified as a current liability on the balance sheets. The BFTP loan balance and accrued interest was paid in full in September 2015.
Note 8. Commitments
Facility Leases
The Company leases office space under a month to month leasing arrangement. Total rent expense was $12,617 for each of the six months periods ended June 30, 2015 and June 30, 2014.
Note 9. Subsequent Events
On September 4, 2015, Innovations entered into an Intellectual Property Assignment Agreement with NeoForce, in which it assigned, transferred and conveyed to NeoForce all of its rights, title and interest to its intellectual property rights, including the patents.
On September 8, 2015, the Company entered into an Asset Purchase Agreement with NeoForce Acquisition, Inc., a wholly owned subsidiary of Capnia, Inc. to sell substantially all of its assets, in exchange for an upfront payment of $1.0 million and royalties on future sales. The assets sold consisted primarily of tangible assets, customer contracts and patents.
The Company repaid all principal and accrued interest due on the outstanding BFTP loan payable on September 8, 2015.
Exhibit 99.3
Capnia, Inc.
Unaudited Pro Forma Condensed Combined Financial Statements
On September 2, 2015, Capnia, Inc. (the Company) established NeoForce Acquisition, Inc., or NFI, a wholly owned subsidiary incorporated in the State of Delaware. On September 8, 2015, NFI acquired substantially all of the assets of an unrelated privately held company NeoForce Group, Inc., or NeoForce Group, in exchange for an upfront cash payment of $1.0 million and royalties on future sales. Included in the assets acquired were intellectual property rights, including the patents, that NeoForce Innovations, LLC, an affiliate of NeoForce Group, assigned, transferred and conveyed to NeoForce Group on September 4, 2015. The following unaudited pro forma condensed combined balance sheet as of June 30, 2015 is based on the historical consolidated financial statements of the Company and the impact that the addition of the assets on the Companys financial position. The unaudited pro forma condensed combined statements of income present the combined results of the Companys operations with NeoForce Group as if the acquisition of the assets had occurred at the beginning of each of the periods presented and include adjustments that are directly attributable to the acquisition, are expected to have a continuing impact on the combined results, and are factually supportable. The unaudited pro forma condensed combined financial statements are not necessarily indicative of what our financial position or results of operations actually would have been had we completed the acquisition of the assets at the dates indicated. In addition, the unaudited pro forma condensed combined financial information does not purport to project the future financial position or operating results of the combined company.
These Unaudited Pro Forma Condensed Financial Statements should be read in conjunction with the:
| Separate historical financial statements of the Company as of and for the year ended December 31, 2014 included in the Companys Annual Report on Form 10-K; and |
| Separate historical financial statements of the Company as of and for the six months ended June 30, 2015 included in the Companys Quarterly Report on Form 10-Q for the six month period ended June 30, 2015. |
The transaction has been accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible assets and identifiable intangible assets acquired have been recorded at fair value, with the remaining purchase price recorded as goodwill, based on a valuation performed by an independent valuation firm. The fair value of current assets approximated their book value. The fair value of acquired assets and liabilities were determined using several significant unobservable inputs for projected cash flows and a discount rate. The Companys historical consolidated financial information has been adjusted to give effect to the impact of the consideration paid in connection with the acquisition. The amounts allocated to the assets in the Unaudited Pro Forma Condensed Combined Balance Sheet are based on an independent valuation of the fair value of the assets as of September 8, 2015. The Company did not assume any liabilities that would be recorded on the Unaudited Pro Forma Condensed Combined Balance Sheet.
Capnia, Inc.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year Ended December 31, 2014
(In thousands, except share and per share data)
(unaudited)
Proforma | ||||||||||||||||
Capnia | NeoForce | Adjustments (Note 3) |
Pro Forma Combined |
|||||||||||||
Revenue |
$ | | $ | 988 | $ | | $ | 988 | ||||||||
Cost of product revenue |
| 485 | | 485 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
| 503 | | 503 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Expenses |
||||||||||||||||
Research and development |
2,242 | | | 2,242 | ||||||||||||
Sales and marketing |
252 | | | 252 | ||||||||||||
General and administrative |
2,665 | 500 | 53 | (a) | 3,218 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
5,159 | 500 | 53 | 5,712 | ||||||||||||
Operating income (loss) |
(5,159 | ) | 3 | (53 | ) | (5,209 | ) | |||||||||
Interest expense |
(4,131 | ) | (19 | ) | | (4,150 | ) | |||||||||
Other income (expense) |
(3,949 | ) | | | (3,949 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other income (expense), net |
(8,080 | ) | (19 | ) | | (8,099 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (13,239 | ) | $ | (16 | ) | $ | (53 | ) | $ | (13,308 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per common share: |
||||||||||||||||
Basic and diluted |
$ | (10.42 | ) | | | $ | (10.48 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average common shares outstanding used to calculate net loss per common share: |
||||||||||||||||
Basic and diluted |
1,270,033 | | | 1,270,033 | ||||||||||||
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma combined financial statements
Capnia, Inc.
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Six Months Ended June 30, 2015
(In thousands, except share and per share data)
(unaudited)
Proforma | ||||||||||||||||
Capnia | NeoForce | Adjustments (Note 3) |
Pro Forma Combined |
|||||||||||||
Government grant revenue |
$ | 65 | $ | | $ | | $ | 65 | ||||||||
Product revenue |
54 | 391 | | 445 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
119 | 391 | | 510 | ||||||||||||
Cost of product revenue |
40 | 185 | | 225 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit |
79 | 206 | | 285 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Expenses |
||||||||||||||||
Research and development |
2,059 | | | 2,059 | ||||||||||||
Sales and marketing |
772 | | | 772 | ||||||||||||
General and administrative |
2,718 | 244 | 27 | (a) | 2,989 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total expenses |
5,549 | 244 | 27 | 5,820 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Operating loss |
(5,470 | ) | (38 | ) | (27 | ) | (5,535 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Interest and expense |
(1 | ) | (9 | ) | | (10 | ) | |||||||||
Change in fair value of warrants liabilities |
(1,249 | ) | | | (1,249 | ) | ||||||||||
Inducement charge for Series C warrants |
(3,050 | ) | | | (3,050 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other income (expense), net |
(4,300 | ) | (9 | ) | | (4,309 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Net loss |
$ | (9,770 | ) | $ | (47 | ) | $ | (27 | ) | $ | (9,844 | ) | ||||
|
|
|
|
|
|
|
|
|||||||||
Net loss per common share: |
||||||||||||||||
Basic and diluted |
$ | (1.35 | ) | | | $ | (1.36 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted-average common shares outstanding used to calculate net loss per common share: |
||||||||||||||||
Basic and diluted |
7,243,164 | | | 7,243,164 | ||||||||||||
|
|
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed combined financial statements
Capnia, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of June 30, 2015
(In thousands, except share data)
(unaudited)
Proforma | ||||||||||||
Capnia | Adjustments (Note 3) |
Pro Forma Combined |
||||||||||
Assets |
||||||||||||
Current assets |
||||||||||||
Cash and cash equivalents |
$ | 7,530 | $ | (1,000 | )(b) | $ | 6,530 | |||||
Accounts receivable |
12 | | 12 | |||||||||
Restricted cash |
35 | | 35 | |||||||||
Inventory |
277 | | 277 | |||||||||
Prepaid expenses and other current assets |
311 | | 311 | |||||||||
|
|
|
|
|
|
|||||||
Total current assets |
8,165 | (1,000 | ) | 7,165 | ||||||||
Long-term assets |
||||||||||||
Property and equipment, net |
43 | 39 | (b) | 82 | ||||||||
Other assets |
| 0 | ||||||||||
Goodwill |
0 | 718 | (b) | 718 | ||||||||
Other intangible assets, net |
562 | 316 | (b)(c) | 878 | ||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 8,770 | $ | 73 | $ | 8,843 | ||||||
|
|
|
|
|
|
|||||||
Liabilities and stockholders deficit |
||||||||||||
Current liabilities |
||||||||||||
Accounts payable |
$ | 989 | $ | | $ | 989 | ||||||
Accrued compensation and other current liabilities |
1,223 | 42 | (d) | 1,265 | ||||||||
Common Stock Issuable |
112 | | 112 | |||||||||
Series B warrant liability |
11,025 | | 11,025 | |||||||||
Line of credit and accrued interest |
| | 0 | |||||||||
|
|
|
|
|
|
|||||||
Total current liabilities |
13,349 | 42 | 13,391 | |||||||||
Long-term liabilities |
||||||||||||
Series A warrant liability |
2,159 | | 2,159 | |||||||||
Series B warrant liability |
| | 0 | |||||||||
Series C warrant liability |
894 | | 894 | |||||||||
Other liabilities |
| 111 | (d) | 111 | ||||||||
|
|
|
|
|
|
|||||||
Total long-term liabilities |
3,053 | 111 | 3,164 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
16,402 | 153 | 16,555 | |||||||||
|
|
|
|
|
|
|||||||
Stockholders deficit |
||||||||||||
Common stock, $0.001 par value, 100,000,000 shares authorized at June 30, 2015; 7,595,175 shares issued and outstanding at June 30, 2015 |
8 | | 8 | |||||||||
Additional paid-in-capital |
72,469 | | 72,469 | |||||||||
Accumulated deficit |
(80,109 | ) | (80 | )(c) | (80,189 | ) | ||||||
|
|
|
|
|
|
|||||||
Total stockholders deficit |
(7,632 | ) | (80 | ) | (7,712 | ) | ||||||
|
|
|
|
|
|
|||||||
Total liabilities and stockholders deficit |
$ | 8,770 | $ | 73 | $ | 8,843 | ||||||
|
|
|
|
|
|
See accompanying notes to unaudited pro forma condensed combined financial statements
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Note 1: Description of transaction and basis of presentation
On September 2, 2015, Capnia, Inc. (the Company) established NeoForce Acquisition, Inc., or NFI, a wholly owned subsidiary incorporated in the State of Delaware. On September 8, 2015, NFI acquired substantially all of the assets of an unrelated privately held company NeoForce Group, Inc., or NeoForce Group, in exchange for an upfront cash payment of $1.0 million and royalties on future sales.
Note 2: Purchase price
For the purposes of this pro forma analysis, the purchase price has been allocated to the tangible assets and identifiable intangible assets acquired based on their respective fair values, with the remaining purchase price recorded as goodwill.
The aggregate purchase price consideration was as follows (in thousands):
Cash consideration |
$ | 1,000 | ||
Fair value of contingent consideration |
153 | |||
|
|
|||
Total purchase price consideration |
$ | 1,153 |
The agreement to pay the annual royalty resulted in the recognition of a contingent consideration, which is recognized at the inception of the transaction, and subsequent changes to the estimated amounts of contingent consideration to be paid will be recognized as charges or credits in the statement of operations. The fair value of the contingent consideration is based on preliminary cash flow projections, growth in expected product sales and other assumptions. Based on the assumptions, the fair value of the royalty was determined to be $153,000 at September 8, 2015, the date of acquisition. The fair value of the royalty was determined by applying the income approach, using several significant unobservable inputs for projected cash flows and a discount rate of 20% commensurate with the Companys cost of capital and expectation of the revenue growth for products at their life cycle stage.
The fair values of assets acquired at the transaction date are summarized below:
Net tangible assets acquired |
$ | 39 | ||
Customer contracts |
260 | |||
Patents |
136 | |||
Goodwill |
718 | |||
|
|
|||
Net Assets Acquired |
$ | 1,153 |
Note 3: Pro Forma Adjustments
Pro forma adjustments are necessary to reflect the estimated purchase price and the fair valuation of acquired assets. The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:
(a) | The adjustment for the amortization of customer contracts over a 5 year life and patents over a 10 year life, assuming that the acquisition of the assets occurred as of January 1, 2014. |
(b) | The adjustment for the cash purchase price of $1.0 million and to record the estimated fair value of the assets acquired. (See Note 2). |
(c) | The adjustment to reduce the acquired intangible assets (patents and customer contracts) of $396,000 by the accumulated amortization of $80,000 from January 1, 2014 through June 30, 2015. Increase in accumulated deficit by the accumulated amortization of $80,000. |
(d) | The adjustment to record the current royalty payable under the purchase agreement, which provides for an annual royalty of 3% on sales up to $1 million. The reclassification to current liability the amount of contingent consideration of $30,000 and $12,000 due for year ended December 31, 2014 and the six months ended June 2015, respectively. |