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): March 31, 2015
CAVIUM, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
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| 001-33435 |
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77-0558625 |
| (Commission File No.) |
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(IRS Employer Identification No.) |
2315 N. First Street
San Jose, California 95131
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (408) 943-7100
N/A
(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 (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)) |
EXPLANATORY NOTE
On April 3, 2015, Cavium, Inc. (“the Company”) filed a Current Report on Form 8-K (the “Initial 8-K”) reporting the completion of the
first closing pursuant to the Agreement and Plan of Merger and Reorganization between the Company, Cavium Semiconductor Corporation, Cavium Networks LLC, Xpliant, Inc. (“Xpliant”), the parties identified as “Designated
Stockholders” in Exhibit A to the Merger Agreement solely for Sections 1.5, 3, and 10 of the Merger Agreement and Guy Hutchison as security holders’ agent solely for Section 10 of the Merger Agreement, as amended on October 8,
2014 and March 31, 2015 (“the Merger Agreement”). On April 29, 2015, the Company filed a Current Report on Form 8-K reporting the completion of the second and final closing of the merger pursuant to the Merger Agreement (the
“Second 8-K”). This amendment to the Initial 8-K and Second 8-K amends Item 9.01 of the Initial 8-K and Second 8-K and provides the historical financial information required pursuant to Item 9.01 (a) of Form 8-K and the pro
forma financial information required pursuant to Item 9.01(b) of Form 8-K.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
The audited
financial statements of Xpliant as of and for the years ended December 31, 2014 and 2013 and accompanying notes are included as Exhibit 99.1 hereto and are incorporated herein by reference.
The unaudited financial statements of Xpliant as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 and accompanying notes are
included as Exhibit 99.2 hereto and are incorporated herein by reference.
(b) Pro Forma Financial Information
The following Unaudited Pro Forma Combined Condensed Financial Statements required pursuant to Item 9.01(b) of Form 8-K are included as Exhibit 99.3
hereto and are incorporated herein by reference:
(i) Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 2015.
(ii) Unaudited Pro Forma Combined Condensed Statements of Operations for the year ended December 31, 2014 and for the three months ended March 31,
2015.
(iii) Notes to the Unaudited Pro Forma Combined Condensed Financial Statements
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Exhibit
No. |
|
Description |
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| 2.1 |
|
Agreement and Plan of Merger and Reorganization between the Registrant, Cavium Semiconductor Corporation, Cavium Networks LLC, and Xpliant, Inc., dated July 30, 2014 (1) |
|
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| 2.2 |
|
Amendment No. 1 to the Agreement and Plan of Merger and Reorganization between the Registrant, Cavium Semiconductor Corporation, Cavium Networks LLC, and Xpliant, Inc. dated October 8, 2014 (2) |
|
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| 2.3 |
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Amendment No. 2 to the Agreement and Plan of Merger and Reorganization between the Registrant, Cavium Semiconductor Corporation, Cavium Networks LLC, and Xpliant, Inc. dated March 31, 2015 (3) |
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| 23.1 |
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Consent of Independent Accountants (4) |
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| 99.1 |
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The audited financial statements of Xpliant, Inc. as of and for the years ended December 31, 2014 and 2013 and accompanying notes thereto (4) |
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| 99.2 |
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The unaudited financial statements of Xpliant as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 and accompanying notes thereto (4) |
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| 99.3 |
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Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 2015 and Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended December 31, 2014 and for the three months ended
March 31, 2015 and notes thereto (4) |
| (1) |
Previously filed as Exhibit 2.1 of the Company’s Current Report on Form 10-Q, filed on August 1, 2014, and incorporated herein by reference. |
| (2) |
Previously filed as Exhibit 2.2 of the Company’s Current Report on Form 10-Q, filed on October 31, 2014, and incorporated herein by reference. |
| (3) |
Previously filed as Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on April 3, 2015, and incorporated herein by reference. |
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.
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CAVIUM, INC. |
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| Dated: May 4, 2015 |
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By: |
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/s/ ARTHUR D. CHADWICK |
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Arthur D. Chadwick |
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Vice President of Finance and Administration |
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and Chief Financial Officer |
EXHIBIT INDEX
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Exhibit
No. |
|
Description |
|
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| 2.1 |
|
Agreement and Plan of Merger and Reorganization between the Registrant, Cavium Semiconductor Corporation, Cavium Networks LLC, and Xpliant, Inc., dated July 30, 2014 (1) |
|
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| 2.2 |
|
Amendment No. 1 to the Agreement and Plan of Merger and Reorganization between the Registrant, Cavium Semiconductor Corporation, Cavium Networks LLC, and Xpliant, Inc. dated October 8, 2014 (2) |
|
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| 2.3 |
|
Amendment No. 2 to the Agreement and Plan of Merger and Reorganization between the Registrant, Cavium Semiconductor Corporation, Cavium Networks LLC, and Xpliant, Inc. dated March 31, 2015 (3) |
|
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| 23.1 |
|
Consent of Independent Accountants (4) |
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| 99.1 |
|
The audited financial statements of Xpliant, Inc. as of and for the years ended December 31, 2014 and 2013 and accompanying notes thereto (4) |
|
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| 99.2 |
|
The unaudited financial statements of Xpliant as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 and accompanying notes thereto (4) |
|
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| 99.3 |
|
Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 2015 and Unaudited Pro Forma Combined Condensed Statement of Operations for the year ended December 31, 2014 and for the three months ended
March 31, 2015 and notes thereto (4) |
| (1) |
Previously filed as Exhibit 2.1 of the Company’s Current Report on Form 10-Q, filed on August 1, 2014, and incorporated herein by reference. |
| (2) |
Previously filed as Exhibit 2.2 of the Company’s Current Report on Form 10-Q, filed on October 31, 2014, and incorporated herein by reference. |
| (3) |
Previously filed as Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed on April 3, 2015, and incorporated herein by reference. |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-195663, 333-1888380, 333-181206, 333-174033,
333-166651, 333-159031, 333-149932, and 333-143094) and Form S-3 (Nos. 333-173416 and 333-164282) of Cavium, Inc. of our report dated May 4, 2015 relating to the financial statements of Xpliant, Inc., which appears in the Current Report on Form
8-K of Cavium, Inc. dated March 31, 2015.
/s/ PricewaterhouseCoopers LLP
San Jose, California
May 4, 2015
Exhibit 99.1
Xpliant, Inc.
(A development stage enterprise)
Financial Statements
As of and for the years
ended
December 31, 2014 and 2013
Xpliant, Inc.
(A development stage enterprise)
Index
As of and for the years ended December 31, 2014 and 2013
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Page(s) |
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| Independent Auditors Report |
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1 |
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| Financial Statements |
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| Balance Sheets |
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2 |
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| Statements of Operations |
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3 |
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| Statements of Cash Flows |
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4 |
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| Statements of Stockholders’ Deficit |
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5 |
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| Notes to Financial Statements |
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6-13 |
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Independent Auditors Report
To the Board of Directors of Xpliant, Inc.
We
have audited the accompanying financial statements of Xpliant, Inc. (a development stage company), which comprise the balance sheets as of December 31, 2014 and 2013, and the related statements of operations, cash flows, and stockholders’
deficit for the years then ended.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of the 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 financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits 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 financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s
preparation and fair presentation of the 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 Company’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall
presentation of the 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
financial statements referred to above present fairly, in all material respects, the financial position of Xpliant, Inc. (a development stage company) as of December 31, 2014 and 2013, and the results of its operations and its cash flows for
the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 7 of Notes to Financial Statements, pursuant to the Agreement and Plan of Merger and Reorganization between the Company
and Cavium, Inc., a first closing occurred on March 31, 2015 by Cavium paying $2.5 million to the Company’s stockholders with respect to approximately 70% of the Company’s stock outstanding and a second and final closing occurred on
April 29, 2015 by Cavium paying $1.1 million to the Company’s stockholders with respect to the then remaining approximately 30% of the Company’s stock outstanding.
/s/ PricewaterhouseCoopers LLP
San Jose, California
May 4, 2015
1
Xpliant, Inc.
(A development stage enterprise)
Balance Sheets (in
thousands, except share and per share data)
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As of December 31, |
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2014 |
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2013 |
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| Assets |
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| Current assets: |
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| Cash |
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$ |
393 |
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$ |
1,902 |
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| Prepaid expenses and other current assets |
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210 |
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178 |
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| Total current assets |
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603 |
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2,080 |
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| Property and equipment, net |
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8,675 |
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6,610 |
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| Intangible assets, net |
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42 |
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83 |
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| Total assets |
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$ |
9,320 |
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$ |
8,773 |
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| Liabilities and Stockholders’ Deficit |
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| Current liabilities: |
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| Accounts payable |
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$ |
16,586 |
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$ |
3,128 |
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| Accrued expenses and other current liabilities |
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1,911 |
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|
1,028 |
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| Notes payable and other |
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62,772 |
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18,512 |
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| Current portion of long-term liabilities |
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2,782 |
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3,863 |
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| Total current liabilities |
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84,051 |
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26,531 |
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| Long-term liabilities |
|
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— |
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2,410 |
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| Total liabilities |
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|
84,051 |
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28,941 |
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| Commitments and contingencies (Note 5) |
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| Stockholders’ deficit |
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| Common stock, par value $0.0001: |
|
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| 30,000,000 shares authorized; 10,000,000 shares issued and outstanding |
|
|
1 |
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1 |
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| Accumulated deficit |
|
|
(74,732 |
) |
|
|
(20,169 |
) |
|
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| Total stockholders’ deficit |
|
|
(74,731 |
) |
|
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(20,168 |
) |
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| Total liabilities and stockholders’ deficit |
|
$ |
9,320 |
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$ |
8,773 |
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The accompanying notes are an integral part of these financial statements.
2
Xpliant, Inc.
(A development stage enterprise)
Statements of
Operations (in thousands)
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| |
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Year Ended December 31, |
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| |
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2014 |
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2013 |
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| Operating expenses: |
|
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| Research and development |
|
$ |
33,596 |
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|
$ |
14,914 |
|
| Sales, general and administrative |
|
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3,959 |
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|
234 |
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| Total operating expenses |
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37,555 |
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|
15,148 |
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| Loss from operations |
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(37,555 |
) |
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(15,148 |
) |
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| Other expense, net: |
|
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| Interest expense |
|
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(2,120 |
) |
|
|
(761 |
) |
| Change in fair value of notes payable and other |
|
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(14,888 |
) |
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— |
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| Other, net |
|
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— |
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2 |
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| Total other expense, net |
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(17,008 |
) |
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(759 |
) |
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| Net loss |
|
$ |
(54,563 |
) |
|
$ |
(15,907 |
) |
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The accompanying notes are an integral part of these financial statements.
3
Xpliant, Inc.
(A development stage enterprise)
Statements of Cash
Flows (in thousands)
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Year Ended December 31, |
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2014 |
|
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2013 |
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| Cash flows from operating activities: |
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| Net loss |
|
$ |
(54,563 |
) |
|
$ |
(15,907 |
) |
| Adjustments to reconcile net loss to net cash used in operating activities: |
|
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| Depreciation and amortization |
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3,835 |
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|
762 |
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| Change in fair value of notes payable and other |
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14,888 |
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— |
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| Changes in assets and liabilities: |
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| Prepaid expenses and other current assets |
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(32 |
) |
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276 |
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| Accounts payable |
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13,458 |
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3,120 |
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| Accrued expenses and other current liabilities |
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882 |
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|
859 |
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| Net cash used in operating activities |
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(21,532 |
) |
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(10,890 |
) |
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| Cash flows from investing activities: |
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| Purchases of property and equipment |
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(677 |
) |
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(321 |
) |
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| Net cash used in investing activities |
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(677 |
) |
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(321 |
) |
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| Cash flows from financing activities: |
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| Principal payment of current and long-term liabilities |
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(8,672 |
) |
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(523 |
) |
| Proceeds from notes payable and other |
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59,172 |
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|
10,500 |
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| Repayment of notes payable |
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(29,800 |
) |
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(1,000 |
) |
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| Net cash provided by financing activities |
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20,700 |
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|
8,977 |
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| Net decrease in cash |
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(1,509 |
) |
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|
(2,234 |
) |
| Cash, beginning of period |
|
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1,902 |
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|
4,136 |
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| Cash, end of period |
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$ |
393 |
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$ |
1,902 |
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| Supplemental disclosure of cash flow information: |
|
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| Cash paid for interest |
|
$ |
1,167 |
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$ |
93 |
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| Supplemental disclosure of cash flow from financing activities: |
|
|
|
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|
|
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| Property and equipment acquired included in current and long-term liabilities |
|
|
319 |
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|
5,996 |
|
The accompanying notes are an integral part of these financial statements.
4
Xpliant, Inc.
(A development stage enterprise)
Statements of
Stockholders’ Deficit (in thousands, except share data)
|
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Common Stock |
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Accumulated |
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Total Stockholders’ |
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| |
|
Shares |
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Amount |
|
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Deficit |
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|
Deficit |
|
| Balance at December 31, 2012 |
|
|
10,000,000 |
|
|
$ |
1 |
|
|
$ |
(4,262 |
) |
|
$ |
(4,261 |
) |
| Net loss |
|
|
|
|
|
|
— |
|
|
|
(15,907 |
) |
|
|
(15,907 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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| Balance at December 31, 2013 |
|
|
10,000,000 |
|
|
|
1 |
|
|
|
(20,169 |
) |
|
|
(20,168 |
) |
| Net loss |
|
|
|
|
|
|
— |
|
|
|
(54,563 |
) |
|
|
(54,563 |
) |
|
|
|
|
|
|
|
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|
|
|
|
|
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| Balance at December 31, 2014 |
|
|
10,000,000 |
|
|
$ |
1 |
|
|
$ |
(74,732 |
) |
|
$ |
(74,731 |
) |
|
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The accompanying notes are an integral part of these financial statements.
5
Xpliant, Inc.
(A development stage enterprise)
Notes to Financial
Statements
December 31, 2014 and 2013
| 1. |
Organization and Basis of Presentation |
Xpliant, Inc. (“the Company”) is a
privately funded semiconductor company engaged in designing, developing and marketing next generation software defined network switches. The Company was incorporated in Delaware on November 14, 2011 and commenced operations in 2012 but has not
derived any revenues from planned principal operations. The Company’s activities have consisted primarily of developing its technology and raising capital. Accordingly, the Company is considered to be in the development stage as of
December 31, 2014.
As of December 31, 2014, the Company had an accumulated deficit of $74.7 million and has incurred operating
losses and negative cash flows since inception in 2011. As of December 31, 2014, the Company has cash of $0.4 million. The Company has a limited operating history and its prospects are subject to risks, expenses and uncertainties frequently
encountered by companies in this stage of development and industry. These risks included, but were not limited to, the availability of additional financing, limited management resources, intense competition, dependence on the acceptance of the
product in development and the uncertainty of achieving future profitability. With the consummation of the Agreement and Plan of Merger and Reorganization (“the Merger Agreement”) between the Company and Cavium, Inc. (“Cavium”)
as discussed in detail in Note 7 of Notes to Financial Statements, the accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
| 2. |
Summary of Significant Accounting Policies |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts reported in its financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions it believes to be
reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities. Actual results could differ from those estimates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk are its cash. Substantially all of the
Company’s cash is held by one financial institution that management believes is of high credit quality. Such deposits may, at times, exceed federally insured limits.
Research and Development
Research and development costs consist primarily of compensation and related costs for personnel, materials, supplies, and equipment
depreciation. All research and development costs are expensed as incurred.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the
assets, as noted below. Maintenance and repairs are charged to expense as incurred, and improvements and betterments 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.
|
|
|
| |
|
Estimated
Useful Lives |
| Test equipment |
|
3 years |
| Software, computer and other equipment |
|
1 to 3 years |
6
Xpliant, Inc.
(A development stage enterprise)
Notes to Financial
Statements
December 31, 2014 and 2013
Accounting for Long-Lived Assets
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the fair market value. There have been no such impairments of long-lived assets as of December 31, 2014 and 2013.
Accounting for Stock-based Compensation
The Company applies the fair value recognition provisions of stock-based compensation. The Company recognizes the fair value of the awards on a
straight-line basis over the options vesting period. The Company estimates the grant date fair value of stock option awards using the Black-Scholes option valuation model. The model requires management to make a number of assumptions including
expected volatility, expected life, risk-free interest rate and expected dividends. The expected stock price volatility assumptions for the Company’s stock options were determined by examining the historical volatilities for industry peers, as
the Company does not have any trading history for its common stock. The expected life of the options is based on the average period the stock options are expected to remain outstanding based on the option’s vesting and contractual terms as the
Company does not have sufficient historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior. The risk-free interest rate assumption is based on published interest rates
for U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected life assumed at the date of grant appropriate for the terms of the Company’s stock options. The dividend yield assumption is based on the Company’s
history and expectation of dividend payouts. In addition, forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Income Taxes
The Company
accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company’s assets and liabilities and their
financial statement reported amounts. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. A valuation allowance is provided against deferred tax
assets unless it is more likely than not that they will be realized.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and
circumstances from non-owner sources. To date, the Company has not had any transactions that are required to be reported in comprehensive loss other than its net loss.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board, or FASB issued accounting guidance on development stage entities which is the
elimination of certain financial reporting requirements, including an amendment to variable interest entities guidance on consolidations. The new update removes all incremental financial reporting requirements regarding development-stage entities.
In addition, the updated guidance adds an example disclosure in risks and uncertainties to illustrate one way that an entity that has not begun planned operations could provide information about risks and uncertainties related to the company’s
current activities. This update also removes an exception provided to development-stage entities in consolidations for determining whether an entity is a variable interest entity. Effective the fiscal year ending December 31, 2015, the
presentation and disclosure requirements of this existing guidance will no longer be required. The revisions to consolidation are effective in the fiscal year ended December 31, 2017. Early adoption is permitted. The Company has elected to
early adopt this guidance as it relates to all incremental financial reporting requirements regarding development-stage entities.
7
Xpliant, Inc.
(A development stage enterprise)
Notes to Financial
Statements
December 31, 2014 and 2013
| 3. |
Fair Value Measurement |
The carrying amounts of the Company’s financial instruments
including accounts payable and accrued expenses approximate fair value due to their relatively short maturities.
See Note 6 of the Notes
to Financial Statements for related discussions of Level 3 fair value hierarchy measurements.
| 4. |
Balance Sheet Components |
Property and equipment, net
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| |
|
(in thousands) |
|
| Test equipment |
|
$ |
11,149 |
|
|
$ |
5,860 |
|
| Software, computer and other equipment |
|
|
2,061 |
|
|
|
1,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
13,210 |
|
|
|
7,352 |
|
| Less: accumulated depreciation and amortization |
|
|
(4,535 |
) |
|
|
(742 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
8,675 |
|
|
$ |
6,610 |
|
|
|
|
|
|
|
|
|
|
The increase in property and equipment mainly relates to the purchase of test equipment. See Note 5 of the
Notes to Financial Statements for further discussions. In January 2015, the Company purchased and recorded design tools with a three-year term from a third party vendor amounting to $2.4 million.
Depreciation and amortization expense was $3.8 million and $0.7 million for the years ended December 31, 2014 and 2013, respectively.
Accounts payable
Accounts payable as of December 31, 2014 includes payable to Cavium of $14.2 million. See Note 8 of Financial Statements for further
discussions. Other components of accounts payable balance consisted mainly of invoiced research and development consulting services.
Accrued expenses and other current liabilities
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| |
|
(in thousands) |
|
| Accrued interest |
|
$ |
1,854 |
|
|
$ |
792 |
|
| Accrued accounts payable |
|
|
57 |
|
|
|
194 |
|
| Others |
|
|
— |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,911 |
|
|
$ |
1,028 |
|
|
|
|
|
|
|
|
|
|
| 5. |
Commitments and Contingencies |
The Company leases office space with Cavium under a
month-to-month operating lease for its operating facility located in San Jose, California. Rent expense for the years ended December 31, 2014 and 2013 was $0.7 million and $0.2 million, respectively.
8
Xpliant, Inc.
(A development stage enterprise)
Notes to Financial
Statements
December 31, 2014 and 2013
In September 2013, the Company entered into a purchase agreement with a third party vendor to
purchase certain test equipment amounting to $6.1 million, payable in installments over two years. In 2014, the Company purchased additional test equipment and additional parts to the test equipment totaling $5.2 million, payable in installments
over two years and at a due date specified in the non-cancellable purchase orders. The related test equipment and additional parts to the test equipment were recorded when received. The present value of the future installment payments were
capitalized and were included within property and equipment and the related liabilities were recorded within current and long-term liabilities on the balance sheets. The Company has an agreement with Cavium and the third party vendor, whereby Cavium
guaranteed the payment of the test equipment in the event the Company defaults on such payment obligation. The remaining liability related to these purchase agreements as of December 31, 2014 and 2013 was $2.6 million and $6.1 million,
respectively. In March 2015, all the remaining liability to the related third party vendor was fully settled.
On March 30, 2015, the
Company exercised its option to purchase the manufacturing rights to accelerate the take-over of manufacturing, and to relieve the Company from any further obligation to purchase product quantities from the Company’s specific integrated
circuit, or ASIC, vendor. In consideration for this, the Company agreed to pay a $7.5 million manufacturing rights licensing fee and a per-unit royalty fee for certain ASIC products sold to certain customers for a limited time. The manufacturing
rights licensing fee will be payable in 4 equal quarterly payments, with the first installment payment due 30 days from effective date of the exercise of option to purchase the manufacturing rights and each of the subsequent three installment
payments being due on the first day of the following calendar quarter. The royalty shall be payable within 30 days after the end of each calendar quarter following the sale.
The Company is not currently a party to any legal proceedings that management believes would have a material adverse effect on the financial
position, results of operations or cash flows of Company.
| 6. |
Notes payable and other |
Between May 2012 and December 2014, the Company entered into
several note purchase agreements and promissory notes with Cavium to provide cash advances. As of December 31, 2014, the Company received cash advances from Cavium of $62.8 million, consisting of $10.0 million under nine convertible notes,
which, as amended, matured on August 31, 2014 and $52.8 million which mature between April 2015 and March 2016. The outstanding convertible notes and promissory notes bear an annual interest rate of 6%. Two of the convertible notes held by
Cavium are collateralized by a lien on the Company’s assets.
In addition to the funding received by the Company from Cavium, between
May 2012 and January 2014, certain third party investors made cash advances of $13.0 million under fifteen convertible notes which, as amended, matured on August 31, 2014. All of the convertible notes bore interest at a rate of 6%, payable at
maturity. Two of the convertible notes held by a third party investor with a principal amount of $1.0 million matured and were paid by the Company in December 2013.
Pursuant to the convertible notes, in the event the Company closes a corporate transaction, as defined in the convertible notes, the holders
of the convertible notes were entitled to receive two times the outstanding principal plus any unpaid accrued interest.
In December 2013,
a third party investor exchanged its convertible note with a principal of $1.4 million and invested additional cash of $1.5 million with the Company for a $2.9 million convertible security which had the same features as the convertible notes, with
the exception of the requirement for repayment, interest and maturity. The Company determined that for accounting purposes, the convertible security had derivative features, and as such, the Company estimated the fair value of the derivative
features based on the market approach using Level 3 inputs. The assumptions used in the fair value estimate were related to the probability of the capital scenarios pursuant to the convertible notes. Based on the probability of the occurrence of
certain assumptions as determined by management, the fair value of the derivative feature of the convertible security at the issuance date was approximately the same as the principal amount. Accordingly, the Company classified the $2.9 million
convertible security as a derivative liability within notes payable and other on the consolidated balance sheets.
All of the convertible
notes, promissory notes and derivative features of the convertible security are Level 3 liabilities within the fair value hierarchy and therefore they are all measured and presented at fair value in the financial statements at each reporting period.
The valuation of the convertible notes and the derivative features of the convertible security held by third party investors and Cavium ranged from its principal amount to two times the principal amount of these instruments. The convertible
9
Xpliant, Inc.
(A development stage enterprise)
Notes to Financial
Statements
December 31, 2014 and 2013
notes held by Cavium were not valued at two times the principal amount as they will be forgiven as part of the total consideration at the acquisition. The carrying amount of the promissory notes
held by Cavium approximated its fair value due to their short-term maturities and will also be forgiven as part of the total consideration of the acquisition.
In June 2014, pursuant to the option to acquire the Company by Cavium as set forth in one of the convertible notes, Cavium provided notice to
the Company of its election to exercise the purchase option. As a result, the fair value estimation of the convertible notes and derivative feature of convertible security held by the third party investors as of the second quarter of 2014 changed
significantly compared to the previous reporting periods. As such, the estimated fair value of the convertible notes and derivative feature of the convertible security held by the third party investors as of the second quarter of 2014 was close to
two times the outstanding principal amount, factoring in the time value of money through settlement at maturity date. The change in estimated fair value recognized in the statements of operations for the year ended December 31, 2014 amounted to
$14.9 million.
Pursuant to the Merger Agreement and in connection with the transaction contemplated by the Merger Agreement with Cavium,
in October 2014, a portion of the cash advances made by Cavium to the Company were used to settle all outstanding convertible notes, related accrued interest and convertible security held by the third party investors. See related discussions in Note
7 of Notes to Financial Statements.
The following table summarizes the activity within convertible notes and convertible security for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, 2013 |
|
| |
|
Fair Value at
Beginning of
the Year |
|
|
Additions |
|
|
Exchange |
|
|
Change in
estimated fair
value
recognized in
statements of
operations |
|
|
Repayment |
|
|
Fair Value
at End of
the Year |
|
| |
|
(in thousands) |
|
| Cavium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Convertible notes |
|
$ |
4,000 |
|
|
$ |
1,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
5,000 |
|
| Promissory notes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Third party investors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Convertible notes |
|
|
5,012 |
|
|
|
8,000 |
|
|
|
(1,400 |
) |
|
|
— |
|
|
|
(1,000 |
) |
|
|
10,612 |
|
| Derivative feature of convertible security |
|
|
— |
|
|
|
1,500 |
|
|
|
1,400 |
|
|
|
— |
|
|
|
— |
|
|
|
2,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total notes payable and other |
|
$ |
9,012 |
|
|
$ |
10,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1,000 |
) |
|
$ |
18,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, 2014 |
|
| |
|
Fair Value at
Beginning of
the Year |
|
|
Additions |
|
|
Exchange |
|
|
Change in
estimated fair
value
recognized in
statements of
operations |
|
|
Repayment |
|
|
Fair Value
at End of
the Year |
|
| |
|
(in thousands) |
|
| Cavium |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Convertible notes |
|
$ |
5,000 |
|
|
$ |
5,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
10,000 |
|
| Promissory notes |
|
|
— |
|
|
|
52,772 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
52,772 |
|
| Third party investors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Convertible notes |
|
|
10,612 |
|
|
|
1,400 |
|
|
|
— |
|
|
|
11,988 |
|
|
|
(24,000 |
) |
|
|
— |
|
| Derivative feature of convertible security |
|
|
2,900 |
|
|
|
|
|
|
|
— |
|
|
|
2,900 |
|
|
|
(5,800 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total notes payable and other |
|
$ |
18,512 |
|
|
$ |
59,172 |
|
|
$ |
— |
|
|
$ |
14,888 |
|
|
$ |
(29,800 |
) |
|
$ |
62,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In January 2015 and March 2015, Cavium extended additional loans to the Company totaling $23.0 million in
exchange for promissory notes that bear annual interest rate of 6% that mature between January 2016 and March 2016. This funding was primarily used to settle certain outstanding liabilities and operating expenses of the Company.
10
Xpliant, Inc.
(A development stage enterprise)
Notes to Financial
Statements
December 31, 2014 and 2013
| 7. |
Acquisition of the Company |
On July 30, 2014, the Company entered into an Agreement
and Plan of Merger and Reorganization, which was amended on October 8, 2014 and March 31, 2015 (the “Merger Agreement”) with Cavium. Under the terms of the Merger Agreement, as amended, Cavium paid approximately $3.6 million in
total cash consideration in exchange for all outstanding securities held by the Company’s stockholders. Pursuant to the Merger Agreement, as amended, a first closing occurred on March 31, 2015 by Cavium paying $2.5 million to the
Company’s stockholders with respect to approximately 70% of the Company’s stock outstanding and a second and final closing occurred on April 29, 2015 by Cavium paying $1.1 million to the Company’s stockholders with respect to the
then remaining approximately 30% of the Company’s stock outstanding.
Pursuant to the Merger Agreement and in connection with the
transaction contemplated by the Merger Agreement, in October 2014, a portion of the cash advances made by Cavium to the Company in exchange for convertible notes and promissory notes as discussed above were used to settle all outstanding convertible
notes, related accrued interest and convertible security held by certain third party investors of $30.8 million. Additionally, $1.7 million was used to make cash payments to the employees of the Company in exchange for their outstanding stock
options. In October 2014, the Company terminated the employment of its employees and those employees were hired by Cavium.
| 8. |
Related Party Disclosures |
Cavium
The Company considers Cavium as a related party considering the investment relationship as discussed above. The Company entered into several
convertible note and promissory note agreements with Cavium as discussed in Notes 6 and 7 of the Notes to Financial Statements. The outstanding accrued interest payable to Cavium related to the issuance of these convertible notes and promissory
notes as of December 31, 2014 and 2013 was $1.7 million and $0.3 million, respectively.
The Company also entered into an agreement
with Cavium to guarantee the payment of the purchase of certain test equipment from a third party vendor. See related discussions in Note 5 of Notes to Financial Statements.
The Company has existing engineering and professional service agreements with Cavium. Total engineering service charges from Cavium recorded
in research and development expense for the years ended December 31, 2014 and 2013 amounted to $13.7 million and $0.4 million, respectively. Total professional service charges from Cavium recorded in the sales, general and administrative
expenses for the year ended December 31, 2014 was $1.9 million. There were no professional service charges from Cavium for the year ended December 31, 2013. Included in the engineering service and professional service charges for the year
ended December 31, 2014 were charges related to the stock-based compensation and taxes of $8.8 million and $1.1 million, respectively. These charges were related to the restricted stock units issued to the former employees of the Company upon
employment with Cavium in October 2014.
The Company also leases a facility from Cavium located in San Jose California. See Note 5 of
Notes to Financial Statements for related discussions.
There was no outstanding liability to Cavium related to engineering and
professional service charges and leasing of facility as of December 31, 2013. Total liability included in accounts payable in the financial statements related to the engineering and professional service charges and leasing of facility with
Cavium as of December 31, 2014 amounted to $14.2 million.
In February 2015, the Company and Cavium International, a subsidiary of
Cavium, entered into an Exclusive License Agreement (“License Agreement”). Under the terms of the license agreement, Cavium International shall pay a lump sum of $15.0 million in exchange for an irrevocable, perpetual and exclusive license
technology of the Company in its Asia territory. Subject to the terms of the license agreement, Cavium International issued written promissory note to the Company for the entire royalty amount. The promissory note bears interest at a rate of 2.64%
compounded quarterly which matures in February 2025.
11
Xpliant, Inc.
(A development stage enterprise)
Notes to Financial
Statements
December 31, 2014 and 2013
Other Third Party
In April 2013, two of the Company’s board members and a family member of one of the board members entered into note purchase agreements
with the Company and provided total cash of $300,000 in exchange for convertible notes. The convertible notes issued to these board members and a family member of one of the board members has the same terms and features with the convertible notes
issued to other third party investors as discussed in Note 6 of Notes to Financial Statements. These convertible notes and the related accrued interest were settled in October 2014.
The components of net deferred tax assets are as follows:
|
|
|
|
|
|
|
|
|
| |
|
As of December 31, |
|
| |
|
2014 |
|
|
2013 |
|
| |
|
(in thousands) |
|
| Deferred tax assets |
|
|
|
|
|
|
|
|
| Net operating loss carryforwards |
|
$ |
23,909 |
|
|
$ |
2,699 |
|
| Tax credit carryforwards |
|
|
1,880 |
|
|
|
292 |
|
| Capitalized research and development |
|
|
4,647 |
|
|
|
5,228 |
|
| Other |
|
|
367 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
| Gross deferred tax assets |
|
|
30,803 |
|
|
|
8,233 |
|
| Less: valuation allowance |
|
|
(30,803 |
) |
|
|
(8,233 |
) |
|
|
|
|
|
|
|
|
|
| Deferred tax assets - net of valuation allowance |
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
The Company has established a full valuation allowance against its net deferred tax assets due to the
uncertainty surrounding the realization of such assets. The Company has net operating loss carryforwards of approximately $58.8 million and $57.9 million for federal and state income tax purposes, respectively, as of December 31, 2014. If not
utilized, these federal and state carryforwards will begin to expire in 2032, respectively. As of December 31, 2014, the Company also has research and development tax credit carryforwards of approximately $2.0 million and $2.0 million for
federal and state income tax purposes, respectively. If not utilized, the federal carryforwards will expire in various amounts beginning in 2032, and the state credits can be carried forward indefinitely.
Utilization of the net operating loss and research credit carryforwards may be subject to an annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of the net operating loss and research credit carryforwards before utilization.
The Company adopted the accounting guidance relating to uncertain tax position as of January 1, 2012. The cumulative effect of the
adoption resulted in no impact as of January 1, 2012. No liability related to uncertain tax positions is recorded in the financial statements. There was no interest or penalties accrued at the adoption date and as of December 31, 2014 and
2013.
The Company files income tax returns in the US federal jurisdiction and in the state of California. All of the Company’s tax
years remain open for examination by the federal and state authorities.
In February 2012, the Company established its 2012 Stock Incentive
Plan (‘the Plan”) which provided for the granting of stock options to employees and consultants of the Company. Options granted under the Plan may be either incentive stock options (“ISO”) or nonqualified stock options
(“NSO”). The maximum number of the shares that may be issued pursuant to the exercise of the ISO and NSO grants under the Plan is equal to 20,000,000 shares.
12
Xpliant, Inc.
(A development stage enterprise)
Notes to Financial
Statements
December 31, 2014 and 2013
Options under the Plan may be granted for periods of up to ten years except for any ISO
grants to a 10% shareholder whereas the maximum period is five years. All options issued to date have had a 10-year contractual life. The exercise price of an ISO and NSO shall not be less than 100% of the estimated fair market value of the shares
on the date of grant, provided however, the exercise price per share of an ISO granted to a 10% shareholder shall not be less than 110% of the fair market value of the shares on the grant date. The exercise price of the stock options granted is
determined by the Company’s Board of Directors. To date, options granted generally vest over four years and vest at a rate of 25% at each anniversary of the commencement date.
The activity under Company’s stock option plans is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Shares Available for
Grant |
|
|
Number of Shares
Outstanding |
|
|
Weighted Average
Exercise Price |
|
| Balance as of December 31, 2012 |
|
|
8,270,000 |
|
|
|
11,730,000 |
|
|
$ |
0.0001 |
|
| Options granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Options exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Options cancelled and forfeited |
|
|
550,000 |
|
|
|
(550,000 |
) |
|
|
0.0001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as of December 31, 2013 |
|
|
8,820,000 |
|
|
|
11,180,000 |
|
|
|
0.0001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Options exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Options cancelled and forfeited |
|
|
11,180,000 |
|
|
|
(11,180,000 |
) |
|
|
0.0001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance as of December 31, 2014 |
|
|
20,000,000 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of shares outstanding as of December 31, 2013 relates to the stock options granted during the
year ended December 31, 2012, where the weighted average grant date fair value was $0.0001. As such, the related stock-based compensation cost was not significant.
The number of options outstanding was cancelled and forfeited during the year ended December 31, 2014 pursuant to the termination of
employment of the Company’s employees in October 2014. See related discussions in Note 7 of Notes to Financial Statements.
For its financial statements as of December 31, 2014 and 2013
and for the years then ended, the Company evaluated subsequent events through May 4, 2015, the date on which these financial statements were issued. See Notes 4, 5, 6, 7 and 8 of Notes to Financial Statements.
13
Exhibit 99.2
Xpliant, Inc.
(A development stage enterprise)
Financial Statements
As of March 31,
2015 and December 31, 2014
and for the three months ended March 31, 2015 and 2014
Xpliant, Inc.
(A development stage enterprise)
Index to Condensed
Financial Statements (unaudited)
|
|
|
|
|
| |
|
Page(s) |
|
|
|
| Condensed Financial Statements |
|
|
|
|
|
|
| Condensed Balance Sheets as of March 31, 2015 and December 31, 2014 |
|
|
1 |
|
|
|
| Condensed Statements of Operations for the three months ended March 31, 2015 and 2014 |
|
|
2 |
|
|
|
| Condensed Statements of Cash Flows for the three months ended March 31, 2015 and 2014 |
|
|
3 |
|
|
|
| Notes to Condensed Financial Statements |
|
|
4–8 |
|
Xpliant, Inc.
(A development stage enterprise)
Condensed Balance
Sheets (in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
| |
|
As of March 31,
2015 |
|
|
As of December 31,
2014 |
|
| Assets |
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
| Cash |
|
$ |
2,341 |
|
|
$ |
393 |
|
| Prepaid expenses and other current assets |
|
|
1,117 |
|
|
|
210 |
|
|
|
|
|
|
|
|
|
|
| Total current assets |
|
|
3,458 |
|
|
|
603 |
|
| Property and equipment, net |
|
|
9,889 |
|
|
|
8,675 |
|
| Intangible assets, net |
|
|
31 |
|
|
|
42 |
|
| Long-term notes receivable |
|
|
15,000 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
$ |
28,378 |
|
|
$ |
9,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities and Stockholders’ Deficit |
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
9,366 |
|
|
$ |
16,586 |
|
| Accrued expenses and other current liabilities |
|
|
9,301 |
|
|
|
1,911 |
|
| Notes payable |
|
|
85,772 |
|
|
|
62,772 |
|
| Current portion of long-term liabilities |
|
|
115 |
|
|
|
2,782 |
|
|
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
104,554 |
|
|
|
84,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Commitments and contingencies (Note 5) |
|
|
|
|
|
|
|
|
|
|
|
| Stockholders’ deficit |
|
|
|
|
|
|
|
|
| Common stock, par value $0.0001: |
|
|
|
|
|
|
|
|
| 30,000,000 shares authorized; 10,000,000 shares issued and outstanding |
|
|
1 |
|
|
|
1 |
|
| Accumulated deficit |
|
|
(76,177 |
) |
|
|
(74,732 |
) |
|
|
|
|
|
|
|
|
|
| Total stockholders’ deficit |
|
|
(76,176 |
) |
|
|
(74,731 |
) |
|
|
|
|
|
|
|
|
|
| Total liabilities and stockholders’ deficit |
|
$ |
28,378 |
|
|
$ |
9,320 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statements.
1
Xpliant, Inc.
(A development stage enterprise)
Condensed Statements
of Operations (in thousands)
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended March 31, |
|
| |
|
2015 |
|
|
2014 |
|
| Royalty income |
|
$ |
15,000 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
| Research and development |
|
|
13,270 |
|
|
|
4,767 |
|
| Sales, general and administrative |
|
|
2,103 |
|
|
|
286 |
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
15,373 |
|
|
|
5,053 |
|
|
|
|
|
|
|
|
|
|
| Loss from operations |
|
|
(373 |
) |
|
|
(5,053 |
) |
|
|
|
|
|
|
|
|
|
| Other income (expense), net: |
|
|
|
|
|
|
|
|
| Interest expense |
|
|
(1,124 |
) |
|
|
(369 |
) |
| Change in fair value of notes payable and other |
|
|
— |
|
|
|
(858 |
) |
| Other, net |
|
|
52 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
| Total other expense, net |
|
|
(1,072 |
) |
|
|
(1,227 |
) |
|
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(1,445 |
) |
|
$ |
(6,280 |
) |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed financial statement.
2
Xpliant, Inc.
(A development stage enterprise)
Condensed Statements
of Cash Flows (in thousands)
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended March 31, |
|
| |
|
2015 |
|
|
2014 |
|
| Cash flows from operating activities: |
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(1,445 |
) |
|
$ |
(6,280 |
) |
| Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
1,355 |
|
|
|
740 |
|
| Change in fair value of notes payable and other |
|
|
— |
|
|
|
858 |
|
| Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
| Prepaid expenses and other current assets |
|
|
(907 |
) |
|
|
66 |
|
| Accounts payable |
|
|
(7,219 |
) |
|
|
(1,754 |
) |
| Accrued expenses and other current liabilities |
|
|
7,390 |
|
|
|
510 |
|
| Royalty income included in long-term notes receivable |
|
|
(15,000 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
| Net cash used in operating activities |
|
|
(15,826 |
) |
|
|
(5,860 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from investing activities: |
|
|
|
|
|
|
|
|
| Purchases of property and equipment |
|
|
(2,559 |
) |
|
|
(230 |
) |
|
|
|
|
|
|
|
|
|
| Net cash used in investing activities |
|
|
(2,559 |
) |
|
|
(230 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| Principal payment of current and long-term liabilities |
|
|
(2,667 |
) |
|
|
(1,328 |
) |
| Proceeds from notes payable and other |
|
|
23,000 |
|
|
|
6,400 |
|
|
|
|
|
|
|
|
|
|
| Net cash provided by financing activities |
|
|
20,333 |
|
|
|
5,072 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net increase (decrease) in cash |
|
|
1,948 |
|
|
|
(1,018 |
) |
| Cash, beginning of period |
|
|
393 |
|
|
|
1,902 |
|
|
|
|
|
|
|
|
|
|
| Cash, end of period |
|
$ |
2,341 |
|
|
$ |
884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Supplemental disclosure of cash flow from financing activities: |
|
|
|
|
|
|
|
|
| Property and equipment and intangible assets acquired included in current and long-term liabilities |
|
|
— |
|
|
|
983 |
|
The accompanying notes are an integral part of these condensed financial statements.
3
Xpliant, Inc.
(A development stage enterprise)
Notes to Condensed
Financial Statements
| 1. |
Organization and Basis of Presentation |
Organization
Xpliant, Inc. (“the Company”) is a privately funded semiconductor company engaged in designing, developing and marketing next
generation software defined network switches. The Company was incorporated in Delaware on November 14, 2011 and commenced operations in 2012 but has not derived any revenues from planned principal operations. The Company’s activities have
consisted primarily of developing its technology and raising capital. Accordingly, the Company is considered to be in the development stage as of March 31, 2015.
Basis of Presentation
As of March 31, 2015, the Company had an accumulated deficit of $76.2 million and has incurred operating losses and negative cash flows
since inception in 2011. As of March 31, 2015, the Company has cash of $2.3 million. The Company has a limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in this
stage of development and industry. These risks included, but were not limited to, the availability of additional financing, limited management resources, intense competition, dependence on the acceptance of the product in development and the
uncertainty of achieving future profitability. With the consummation of the Agreement and Plan of Merger and Reorganization (“the Merger Agreement”) between the Company and Cavium, Inc. (“Cavium”) as discussed in detail in Note 6
of Notes to Condensed Financial Statements, the accompanying financial statements have been prepared assuming that the Company will continue as a going concern.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with Generally Accepted
Accounting Principles, or GAAP, in the United States have been condensed or omitted pursuant to such rules and regulations. The December 31, 2014 condensed balance sheet was derived from audited financial statements, but does not include all
disclosures required by GAAP in the United States. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed financial statements should be read in conjunction with
the audited Financial Statements and related notes included in the Company’s audited financial statements as of and for the year ended December 31, 2014.
The accompanying condensed balance sheet as of March 31, 2015, the condensed statement of operations and the condensed statement of cash
flows for the three months ended March 31, 2015 and 2014 are unaudited. The unaudited financial interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of the management,
reflect all adjustments, which include only normal recurring adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2015 and the results of operations and cash flows for the three months ended
March 31, 2015 and 2014. The financial data and other information disclosed in these notes related to the three months ended March 31, 2015 and 2014 are unaudited. The results for the three months ended March 31, 2015 are not
necessarily indicative of results to be expected for the year ending December 31, 2015, any other interim periods, or any future year or period.
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in the Company’s audited financial statements as of and for the year
ended December 31, 2014. There had been no material changes to these accounting policies.
4
Xpliant, Inc.
(A development stage enterprise)
Notes to Condensed
Financial Statements
| 2. |
Fair Value Measurement |
The carrying amounts of the Company’s financial instruments
including accounts payable and accrued expenses approximate fair value due to their relatively short maturities.
See Note 5 of the Notes
to Condensed Financial Statements for related discussions of Level 3 fair value hierarchy measurements.
| 3. |
Balance Sheet Components |
Property and equipment, net
|
|
|
|
|
|
|
|
|
| |
|
As of March 31,
2015 |
|
|
As of December 31,
2014 |
|
| |
|
(in thousands) |
|
| Test equipment |
|
$ |
11,250 |
|
|
$ |
11,149 |
|
| Software, computer and other equipment |
|
|
4,519 |
|
|
|
2,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
15,769 |
|
|
|
13,210 |
|
| Less: accumulated depreciation and amortization |
|
|
(5,880 |
) |
|
|
(4,535 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
9,889 |
|
|
$ |
8,675 |
|
|
|
|
|
|
|
|
|
|
In January 2015, the Company purchased and recorded design tools with a three-year term from a third party
vendor amounting to $2.4 million. Depreciation and amortization expense was $1.3 million and $0.7 million for the three months ended March 31, 2015 and 2014, respectively.
Accounts payable
Accounts payable as of March 31, 2015 and December 31, 2014 includes payable to Cavium, Inc. (“Cavium”) of $8.5 million and
$14.2 million, respectively. See Note 7 of Condensed Financial Statements for further discussions. Other components of accounts payable balance consisted mainly of invoiced research and development consulting services and other general and
administrative services.
Accrued expenses and other current liabilities
|
|
|
|
|
|
|
|
|
| |
|
As of March 31,
2015 |
|
|
As of December 31,
2014 |
|
| |
|
(in thousands) |
|
| Manufacturing rights payable |
|
$ |
7,500 |
|
|
$ |
— |
|
| Accrued interest |
|
|
1,737 |
|
|
|
1,854 |
|
| Accrued accounts payable |
|
|
64 |
|
|
|
57 |
|
| Others |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,301 |
|
|
$ |
1,911 |
|
|
|
|
|
|
|
|
|
|
| 4. |
Commitments and Contingencies |
The Company leases office space under a month-to-month
operating lease for its operating facility located in San Jose, California. Rent expense for the three months ended March 31, 2015 and 2014 was $0.2 million and $0.1 million, respectively.
On March 30, 2015, the Company exercised its option to purchase the manufacturing rights to accelerate the take-over of manufacturing, and to
relieve the Company from any further obligation to purchase product quantities from the Company’s specific integrated circuit, or ASIC, vendor. In consideration for this, the Company agreed to pay a $7.5 million manufacturing rights licensing
fee and a per-unit royalty fee for certain ASIC products sold to certain customers for a limited time. The manufacturing rights licensing fee will be payable in 4 equal quarterly payments, with the first installment payment due 30 days from
effective date of the exercise of option to purchase the manufacturing rights and each of the subsequent three installment payments being due on the first day of the following calendar quarter. The royalty shall be payable within 30 days after the
end of each calendar quarter following the sale. Considering the terms of the purchase of the manufacturing rights and following
5
Xpliant, Inc.
(A development stage enterprise)
Notes to Condensed
Financial Statements
the accounting guidance, the Company recorded the full amount of the manufacturing rights licensing fee within research and development expense in the condensed statements of operation for the
three months ended March 31, 2015 and the related liability was recorded within accrued expenses and other current liabilities on the condensed balance sheet as of March 31, 2015.
The Company is not currently a party to any legal proceedings that management believes would have a material adverse effect on its financial
position, results of operations or cash flows of Company.
The outstanding notes payable included in the Company’s condensed
consolidated balance sheets as of March 31, 2015 and December 31, 2014 relates to the funding received by the Company from Cavium. During the three months ended March 31, 2015, the Company received additional funding from Cavium of
$23.0 million in exchange for promissory note. As of March 31, 2015, the Company received cash advances from Cavium of $85.8 million, consisting of $10.0 million under nine convertible notes, which, as amended, matured on August 31, 2014
and $75.8 million under several promissory notes which mature between April 2015 and March 2016. The outstanding convertible notes and promissory notes bear an annual interest rate of 6%. Two of the convertible notes held by Cavium are
collateralized by a lien on the Company’s assets.
In addition to the funding received by the Company from Cavium, between May 2012
and January 2014, certain third party investors made cash advances of $13.0 million under several convertible notes which, as amended, matured on August 31, 2014 and $2.9 million under a convertible security. All of the convertible notes bore
interest at a rate of 6%, payable at maturity. Two of the convertible notes held by a third party investor with a principal amount of $1.0 million matured and were paid by the Company in December 2013. Pursuant to the convertible notes, in the event
the Company closes a corporate transaction, as defined in the convertible notes, the holders of the convertible notes were entitled to receive two times the outstanding principal plus any unpaid accrued interest. The convertible security had the
same features as the convertible notes, with the exception of the requirement for repayment, interest and maturity. For accounting purposes, the Company determined that the convertible security had derivative features and determined that the fair
value of the derivative features of the convertible security at the issuance date was approximately the same as the principal amount. All of the convertible notes and the derivative feature of convertible security were classified as Level 3
liability and were all remeasured and presented at fair value in the condensed consolidated financial statements at each reporting period. During the three months ended March 31, 2014, the Company recorded $0.9 million charge for the change in
fair value of convertible notes and derivative features of convertible security held by third party investors. Pursuant to the option to acquire the Company, in June 2014, Cavium provided notice to the Company of its decision to exercise the
purchase option. As such, the convertible notes and derivative features of convertible security held by the third party investors were valued to two times its principal amount at its maturity date. Pursuant to the Merger Agreement between the
Company and Cavium as discussed in Note 6 of Notes to Condensed Financial Statements, in October 2014, a portion of the cash advances made by Cavium to the Company were used to settle all outstanding convertible notes, related accrued interest and
convertible security held by non-controlling interest.
The convertible notes held by Cavium were not valued at two times the principal
amount as they will be forgiven as part of the total consideration at the acquisition. The carrying amount of the promissory notes held by Cavium approximated its fair value due to their short-term maturities and will also be forgiven as part of the
total consideration of the acquisition.
6
Xpliant, Inc.
(A development stage enterprise)
Notes to Condensed
Financial Statements
| 6. |
Acquisition of the Company |
On July 30, 2014, the Company entered into an Agreement
and Plan of Merger and Reorganization, which was amended on October 8, 2014 and March 31, 2015 (the “Merger Agreement”) with Cavium. Under the terms of the Merger Agreement, as amended, Cavium paid approximately $3.6 million in
total cash consideration in exchange for all outstanding securities held by the Company’s stockholders. Pursuant to the Merger Agreement, as amended, a first closing occurred on March 31, 2015 by Cavium paying $2.5 million to the
Company’s stockholders with respect to approximately 70% of the Company’s stock outstanding and a second and final closing occurred on April 29, 2015 by Cavium paying $1.1 million to the Company’s stockholders with respect to the
then remaining approximately 30% of the Company’s stock outstanding.
Pursuant to the Merger Agreement and in connection with the
transaction contemplated by the Merger Agreement, in October 2014, a portion of the cash advances made by Cavium to the Company in exchange for convertible notes and promissory notes as discussed above were used to settle all outstanding convertible
notes, related accrued interest and convertible security held by certain third party investors of $30.8 million. Additionally, $1.7 million was used to make cash payments to the employees of the Company in exchange for their outstanding stock
options. In October 2014, the Company terminated the employment of its employees and those employees were hired by Cavium.
| 7. |
Related Party Disclosures |
The Company considers Cavium as a related party considering
the investment relationship to the Company. As discussed Notes 5 and 6 of Notes to Condensed Financial Statements, the Company entered into several convertible note and promissory note agreements with Cavium. During the three months ended
March 31, 2015, the Company paid portion of the accrued interest to Cavium for certain notes that matured amounting to $1.0 million. The outstanding accrued interest payable to Cavium related to the issuance of these convertible notes and
promissory notes as of March 31, 2015 and December 31, 2014 was $1.7 million and $1.7 million, respectively.
The Company has
existing engineering and professional service agreement with Cavium. Total engineering service charges from Cavium recorded in research and development expense for the three months ended March 31, 2015 and 2014 amounted to $3.6 million and $0.6
million, respectively. Total professional service charges from Cavium recorded in the sales, general and administrative expenses for the three months ended March 31, 2015 and 2014 was $1.4 million and $0.03 million, respectively.
In February 2015, the Company and Cavium International, a subsidiary of Cavium, entered into an Exclusive License Agreement (“License
Agreement”). Under the terms of the license agreement, Cavium International shall pay a lump sum of $15.0 million in exchange for an irrevocable, perpetual and exclusive license technology of the Company in its Asia territory. Subject to the
terms of the license agreement, Cavium International issued an unsecured promissory note to the Company for the entire royalty amount. The promissory note bears interest at a rate of 2.64% compounded quarterly which matures in February 2025.
Considering the terms of the license agreement, the Company recorded the entire consideration as royalty income in its statement of operations and as long-term notes receivable on its balance sheet as of and for the three months ended March 31,
2015, respectively. In addition, pursuant to the license agreement, during the three months ended March 31, 2015, the Company billed the research and development cost sharing amount to Cavium International for $6.4 million which was recorded as
an offset against the accounts payable to Cavium within condensed balance sheet and a credit to research and development expenses within condensed statement of operations.
The Company also leases a facility from Cavium located in San Jose California. See Note 4 of Notes to Condensed Financial Statements for
related discussions.
Total payable to Cavium included in accounts payable within condensed balance sheets consisted of the outstanding
unpaid engineering and professional service charges and unpaid charges from leasing of facility, net of the receivable related to the research and development cost sharing charge as discussed above.
7
Xpliant, Inc.
(A development stage enterprise)
Notes to Condensed
Financial Statements
The Company has established a full valuation allowance against its net
deferred tax assets due to the uncertainty surrounding the realization of such assets. The Company has net operating loss carryforwards of approximately $56.5 million and $55.5 million for federal and state income tax purposes, respectively, at
March 31, 2015. If not utilized, these federal and state carryforwards will begin to expire in 2032, respectively. As of March 31, 2015, the Company also has research and development tax credit carryforwards of approximately $2.0 million
and $2.2 million for federal and state income tax purposes, respectively. If not utilized, the federal carryforwards will expire in various amounts beginning in 2032, and the state credits can be carried forward indefinitely.
Utilization of the net operating loss and research credit carryforwards may be subject to an annual limitation due to the ownership change
limitations provided by the Internal Revenue Code and similar state provisions. The annual limitation may result in the expiration of the net operating loss and research credit carryforwards before utilization.
The Company adopted the accounting guidance relating to uncertain tax position as of January 1, 2012. The cumulative effect of the
adoption resulted in no impact as of January 1, 2012. No liability related to uncertain tax positions is recorded in the financial statements. There was no interest or penalties accrued at the adoption date and as of December 31, 2014 and
March 31, 2015.
The Company files income tax returns in the US federal jurisdiction and in the state of California. All of the
Company’s tax years remain open for examination by the federal and state authorities.
For its condensed financial statements as of March 31, 2015 and
December 31, 2014 and for the three months ended March 31, 2015 and 2014, the Company evaluated subsequent events through May 4, 2015, the date on which these condensed financial statements were issued. See Note 6 of the Notes to
Condensed Financial Statements.
8
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed balance sheet as of March 31, 2015 is presented as if the acquisition of Xpliant, Inc. (“Xpliant”)
had occurred on March 31, 2015. The unaudited pro forma combined condensed statements of operations for the year ended December 31, 2014 and for the three months ended March 31, 2015 are presented as if the acquisition of Xpliant had
occurred on January 1, 2014.
The following unaudited pro forma condensed combined financial statements as of March 31, 2015 and for the year
ended December 31, 2014 and for the three months ended March 31, 2015 are based on the historical financial statements of Cavium, Inc. (“the Company”) and Xpliant as adjusted for the pro forma impact of applying the acquisition
method of accounting in accordance with Generally Accepted Accounting Principles in the United States of America. The pro forma adjustments are based upon available information and assumptions that the Company believes are reasonable. The pro forma
adjustments are preliminary and may change as additional information becomes available and have been prepared to illustrate the estimated effect of the acquisition. The unaudited pro forma condensed combined financial statements do not include any
pro forma adjustments relating to costs of integration that the combined companies may incur as such adjustments would be forward-looking. The unaudited pro forma combined condensed statements of operations do not reflect nonrecurring charges
resulting from the acquisition.
The unaudited pro forma condensed combined financial statements are prepared by management for informational purposes in
accordance with Article 11 of Regulation S-X and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisition been consummated as at the dates presented, and should not be taken as
representative of future consolidated operating results of the Company. The unaudited pro forma condensed combined financial statements do not reflect any operating efficiencies and/or cost savings that the Company may achieve, or any additional
expenses that maybe incurred, with respect to the combined companies.
The unaudited pro forma condensed combined financial statements have been derived
from and should be read in conjunction with (i) the audited financial statements and notes thereto of the Company in its Annual Report on Form 10-K as of December 31, 2014 and 2013 and for the years ended December 31, 2014, 2013
and 2012 filed with the Securities and Exchange Commission (“SEC”) on March 2, 2015, (ii) the unaudited financial statements and notes thereto of the Company in its Form 10-Q as of March 31, 2015 and for the three
months ended March 31, 2015 and 2014 filed with the SEC on May 4, 2015 (iii) the audited financial statements and notes thereto of Xpliant as of and for the years ended December 31, 2014 and 2013 included in Exhibit 99.1 to
this current report on Form 8-K and (iv) the unaudited financial statements and notes thereto of Xpliant as of March 31, 2015 and for the three months ended March 31, 2015 and 2014 included in Exhibit 99.2 to this current
report on Form 8-K.
CAVIUM, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 2015
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Historical
Cavium -
Including
Xpliant as
Reported in
Form 10-Q |
|
|
Pro Forma
Adjustments |
|
|
Pro Forma
Combined |
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
121,025 |
|
|
$ |
(1,089 |
)(a) |
|
$ |
119,936 |
|
| Accounts receivable, net of allowances |
|
|
56,817 |
|
|
|
— |
|
|
|
56,817 |
|
| Inventories |
|
|
52,312 |
|
|
|
— |
|
|
|
52,312 |
|
| Prepaid expenses and other current assets |
|
|
8,944 |
|
|
|
— |
|
|
|
8,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total current assets |
|
|
239,098 |
|
|
|
(1,089 |
) |
|
|
238,009 |
|
| Property and equipment, net |
|
|
58,828 |
|
|
|
— |
|
|
|
58,828 |
|
| Intangible assets, net |
|
|
37,532 |
|
|
|
— |
|
|
|
37,532 |
|
| Goodwill |
|
|
71,478 |
|
|
|
— |
|
|
|
71,478 |
|
| Other assets |
|
|
1,935 |
|
|
|
— |
|
|
|
1,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
$ |
408,871 |
|
|
$ |
(1,089 |
) |
|
$ |
407,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities and Stockholder’s Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable |
|
$ |
25,100 |
|
|
$ |
— |
|
|
$ |
25,100 |
|
| Other accrued expenses and other current liabilities |
|
|
15,945 |
|
|
|
160 |
(b) |
|
|
16,105 |
|
| Deferred revenue |
|
|
6,047 |
|
|
|
— |
|
|
|
6,047 |
|
| Capital lease and technology license obligations |
|
|
16,324 |
|
|
|
— |
|
|
|
16,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total current liabilities |
|
|
63,416 |
|
|
|
160 |
|
|
|
63,576 |
|
| Capital lease and technology license obligations, net of current portion |
|
|
20,788 |
|
|
|
— |
|
|
|
20,788 |
|
| Deferred tax liability |
|
|
2,997 |
|
|
|
— |
|
|
|
2,997 |
|
| Other non-current liabilities |
|
|
2,819 |
|
|
|
— |
|
|
|
2,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities |
|
|
90,020 |
|
|
|
160 |
|
|
|
90,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock |
|
|
55 |
|
|
|
— |
|
|
|
55 |
|
| Additional paid-in capital |
|
|
505,039 |
|
|
|
(1,089 |
)(a) |
|
|
503,950 |
|
| Accumulated deficit |
|
|
(186,243 |
) |
|
|
(160 |
)(b) |
|
|
(186,403 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total stockholders’ equity |
|
|
318,851 |
|
|
|
(1,249 |
) |
|
|
317,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities and stockholders’ equity |
|
$ |
408,871 |
|
|
$ |
(1,089 |
) |
|
$ |
407,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAVIUM, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Historical Cavium
- Including Xpliant
as Reported in
Form 10-K |
|
|
Pro Forma
Adjustments |
|
|
Pro Forma
Combined |
|
| Net revenue |
|
$ |
372,978 |
|
|
$ |
— |
|
|
$ |
372,978 |
|
| Cost of revenue |
|
|
138,359 |
|
|
|
— |
|
|
|
138,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
|
234,619 |
|
|
|
— |
|
|
|
234,619 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| Research and development |
|
|
171,690 |
|
|
|
— |
|
|
|
171,690 |
|
| Sales, general and administrative |
|
|
70,404 |
|
|
|
160 |
(b) |
|
|
70,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
242,094 |
|
|
|
160 |
|
|
|
242,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from operations |
|
|
(7,475 |
) |
|
|
(160 |
) |
|
|
(7,635 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
|
(1,472 |
) |
|
|
517 |
(d) |
|
|
(955 |
) |
| Change in estimated fair value of notes payable and other |
|
|
(14,888 |
) |
|
|
14,888 |
(e) |
|
|
— |
|
| Other, net |
|
|
(347 |
) |
|
|
— |
|
|
|
(347 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total other expense, net |
|
|
(16,707 |
) |
|
|
15,405 |
|
|
|
(1,302 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before income taxes |
|
|
(24,182 |
) |
|
|
15,245 |
|
|
|
(8,937 |
) |
| Provision for income taxes |
|
|
1,633 |
|
|
|
— |
|
|
|
1,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
(25,815 |
) |
|
|
15,245 |
|
|
|
(10,570 |
) |
| Net loss attributable to non-controlling interest |
|
|
(10,520 |
) |
|
|
10,520 |
(c) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss attributable to the Company |
|
$ |
(15,295 |
) |
|
$ |
4,725 |
|
|
$ |
(10,570 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per common share, basic and diluted |
|
$ |
(0.29 |
) |
|
|
|
|
|
$ |
(0.20 |
) |
| Weighted average shares used in computing basic and diluted net loss per common share |
|
|
53,451 |
|
|
|
|
|
|
|
53,451 |
|
CAVIUM, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2015
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Historical
Cavium -
Including Xpliant
as Reported in
Form 10-Q |
|
|
Pro Forma
Adjustments |
|
|
Pro Forma
Combined |
|
| Net revenue |
|
$ |
101,778 |
|
|
$ |
— |
|
|
$ |
101,778 |
|
| Cost of revenue |
|
|
35,799 |
|
|
|
— |
|
|
|
35,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
|
65,979 |
|
|
|
— |
|
|
|
65,979 |
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
| Research and development |
|
|
58,422 |
|
|
|
— |
|
|
|
58,422 |
|
| Sales, general and administrative |
|
|
20,671 |
|
|
|
— |
|
|
|
20,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total operating expenses |
|
|
79,093 |
|
|
|
— |
|
|
|
79,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss from operations |
|
|
(13,114 |
) |
|
|
— |
|
|
|
(13,114 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other expense, net: |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest expense |
|
|
(410 |
) |
|
|
— |
|
|
|
(410 |
) |
| Other, net |
|
|
(66 |
) |
|
|
— |
|
|
|
(66 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total other expense, net |
|
|
(476 |
) |
|
|
— |
|
|
|
(476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before income taxes |
|
|
(13,590 |
) |
|
|
— |
|
|
|
(13,590 |
) |
| Provision for income taxes |
|
|
301 |
|
|
|
— |
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
$ |
(13,891 |
) |
|
$ |
— |
|
|
$ |
(13,891 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per common share, basic and diluted |
|
$ |
(0.25 |
) |
|
|
|
|
|
$ |
(0.25 |
) |
| Weighted average shares used in computing basic and diluted net loss per common share |
|
|
54,882 |
|
|
|
— |
|
|
|
54,882 |
|
CAVIUM, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
| 1. |
BASIS OF PRO FORMA PRESENTATION |
The unaudited pro forma condensed combined condensed balance sheet as
of March 31, 2015 was based on the historical financial statements of the Company and Xpliant after giving effect the acquisition adjustments resulting from the acquisition of Xpliant. The unaudited pro forma combined balance sheet as of
March 31, 2015 was presented as if the acquisition of Xpliant had occurred on March 31, 2015.
The unaudited pro forma combined statements of
operations for the year ended December 31, 2014 and for the three months ended March 31, 2015 are based on the historical financial statements of the Company and Xpliant for the periods then ended after giving effect to the acquisition
adjustments resulting from the acquisition of Xpliant. The unaudited pro forma combined statements of operations are presented as if the acquisition of Xpliant had occurred on January 1, 2014.
Between May 2012 and March 2015, the Company entered into several note purchase
agreements and promissory notes with Xpliant to provide cash advances. Xpliant is a Delaware incorporated and privately held company, engaged in the design and development of next generation software defined network switch chips. Prior to the first
closing of the Agreement and Plan of Merger and Reorganization between the Company, Cavium Semiconductor Corporation, Cavium Networks LLC, Xpliant, the parties identified as “Designated Stockholders” in Exhibit A to the Merger Agreement
solely for Sections 1.5, 3, and 10 of the Merger Agreement and Guy Hutchison as securityholders’ agent solely for Section 10 of the Merger Agreement, as amended on October 8, 2014 and March 31, 2015 (“the Merger
Agreement”) as discussed in detail below, the Company concluded that Xpliant was a variable interest entity as the Company was its primary beneficiary due to the Company’s involvement with Xpliant and the Company’s purchase option to
acquire Xpliant. As such, the Company has included the accounts of Xpliant in the consolidated financial statements.
As of March 31, 2015, the
Company had made cash advances of $85.8 million, consisting of $10.0 million under nine convertible notes receivable which, as amended, matured on August 31, 2014 and $75.8 million under several promissory notes which mature between April 2015
and March 2016. The outstanding convertible notes and promissory notes bear an annual interest rate of 6%.
In addition to the funding received by Xpliant
from the Company, between May 2012 and January 2014, certain third party investors (“non-controlling interest”) made cash advances of $13.0 million under several convertible notes receivable which, as amended, matured on August 31,
2014 and $2.9 million under a convertible security. All of the convertible notes bore interest at a rate of 6%, payable at maturity. Two of the convertible notes held by a third party investor with a principal amount of $1.0 million matured and were
paid by Xpliant in December 2013. Pursuant to the convertible notes, in the event Xpliant closes a corporate transaction, as defined in the convertible notes, the holders of the convertible notes were entitled to receive two times the outstanding
principal plus any unpaid accrued interest. The convertible security had the same features as the convertible notes, with the exception of the requirement for repayment, interest and maturity. For accounting purposes, the Company determined that the
convertible security had derivative features and determined that the fair value of the derivative features of the convertible security at the issuance date was approximately the same as the principal amount. All of the convertible notes and the
derivative feature of convertible security were classified as Level 3 liability and were all remeasured and presented at fair value in the consolidated financial statements at each reporting period. Pursuant to the option to acquire Xpliant, in June
2014, the Company provided notice to Xpliant of its decision to exercise the purchase option. As such, the convertible notes and derivative features of convertible security were valued to two times its principal amount at its maturity date. Pursuant
to the Merger Agreement between the Company and Xpliant as discussed in detail below, in October 2014, a portion of the cash advances made by the Company to Xpliant were used to settle all outstanding convertible notes, related accrued interest and
convertible security held by non-controlling interest.
On July 30, 2014, the Company entered into the Merger Agreement, which was amended on October 8, 2014
and March 31, 2015 with Xpliant. Under the terms of the Merger Agreement, as amended, the Company paid approximately $3.6 million in total cash consideration in exchange for all outstanding securities held by Xpliant’s stockholders.
Pursuant to the Merger Agreement, as amended, a first closing occurred on March 31, 2015 with the Company paying $2.5 million to Xpliant’s stockholders with respect to approximately 70% of the Xpliant stock outstanding and a second and
final closing occurred on April 29, 2015 with the Company paying $1.1 million to Xpliant’s stockholders with respect to the then remaining approximately 30% of the Xpliant stock outstanding. Based on the substance of the transaction, the
Company recorded the payments of cash consideration to Xpliant stockholders as a decrease to the Company’s additional paid-in capital within stockholders’ equity.
Pursuant to the Merger Agreement and in connection with the transaction contemplated by the Merger Agreement, in October 2014, a portion of the cash advances
made by the Company to Xpliant were used to settle all outstanding convertible notes, related accrued interest and the convertible security held by non-controlling interest of $30.8 million. Additionally, $1.7 million was used to make cash payments
to the employees of Xpliant. Further, per the Merger Agreement, in October 2014, the Company issued RSU’s of approximately 193,000 shares with a fair value of $8.7 million based on the Company’s closing stock price at the grant date to the
employees of Xpliant.
| (3) |
PRO FORMA ADJUSTMENTS |
The historical financial information has been adjusted to give effect to pro
forma events that are (i) directly attributable to the acquisition, (ii) factually supportable, and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results of the companies. The
following pro forma adjustments are included in the unaudited pro forma condensed combined financial statements:
| |
(a) |
To record the settlement in cash amounting to the equity shareholders of Xpliant of $1.1 million pursuant to the Merger Agreement. |
| |
(b) |
To record the estimated third party transaction costs to be incurred by the Company of approximately $0.2 million. |
| |
(c) |
To eliminate the non-controlling interest. |
| |
(d) |
To eliminate the interest expense on the outstanding convertible notes held by the non-controlling interest. |
| |
(e) |
To eliminate the loss related to the change in the fair value of the convertible notes and convertible security held by the non-controlling interest of $14.9 million during the year ended December 31, 2014.
|
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