SEC Filing | MACOM Technology Solutions Holdings, Inc.

M/A-COM TECHNOLOGY SOLUTIONS HOLDINGS, INC.

Dated: February 2, 2015

/s/ Robert J. McMullan

Robert J. McMullan

Senior Vice President and Chief Financial Officer

View:

Download DOC

Download PDF

Download XLS

Form 8-K/A

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): December 15, 2014

M/A-COM Technology Solutions Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware

001-35451

27-0306875

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

100 Chelmsford Street

Lowell, Massachusetts

01851

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (978) 656-2500

Not Applicable

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

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

¨	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))

Item 9.01.

Financial Statements and Exhibits.

As previously reported on a Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on December 17, 2014 (the “Initial Form 8-K”), M/A-COM Technology Solutions Inc. (“MACOM”), a Delaware corporation and a wholly-owned subsidiary of M/A-COM Technology Solutions Holdings, Inc. (the “Company”), completed the acquisition of BinOptics Corporation (“BinOptics”) on December 15, 2014 pursuant to an Agreement and Plan of Merger, dated November 17, 2014, among MACOM, BinOptics, Borealis Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of MACOM (“Merger Sub”), and Ithaca Stockholders’ Agent, LLC, as stockholders’ agent, pursuant to which Merger Sub merged with and into BinOptics, with BinOptics surviving the merger as a wholly-owned subsidiary of MACOM (the “BinOptics Acquisition”). This Amendment No. 1 to the Initial Form 8-K is being filed to provide the audited financial statements and pro forma financial information required by Item 9.01 of Form 8-K relating to the BinOptics Acquisition. The pro forma financial information for the Company’s fiscal year ended October 3, 2014 attached hereto also gives pro forma effect to the Company’s acquisition of Mindspeed Technologies, Inc. on December 18, 2013 as previously disclosed.

(a)	Financial Statements of Business Acquired.

The audited financial statements of BinOptics as of and for the years ended December 31, 2013 and 2012 are filed as Exhibit 99.1 hereto. The unaudited financial statements of BinOptics as of and for the nine months ended September 30, 2014 and 2013 are filed as Exhibit 99.2 hereto.

(b)	Pro Forma Financial Information.

The unaudited pro forma condensed combined financial information for the fiscal year ended October 3, 2014 and for the three months ended January 2, 2015, and notes related thereto, is filed as Exhibit 99.3 hereto.

(d)	Exhibits.


Exhibit No.		Description

23.1		Consent of Sciarabba Walker & Co., LLP, independent auditors for BinOptics Corporation.

99.1		Audited financial statements of BinOptics as of and for the years ended December 31, 2013 and 2012.

99.2		Unaudited financial statements of BinOptics as of and for the nine months ended September 30, 2014 and 2013.

99.3		Unaudited pro forma condensed combined financial information for the fiscal year ended October 3, 2014 and the three months ended January 2, 2015.

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.

EXHIBIT INDEX


Exhibit No.		Description

23.1		Consent of Sciarabba Walker & Co., LLP, independent auditors for BinOptics Corporation.

99.1		Audited financial statements of BinOptics as of and for the years ended December 31, 2013 and 2012.

99.2		Unaudited financial statements of BinOptics as of and for the nine months ended September 30, 2014 and 2013.

99.3		Unaudited pro forma condensed combined financial information for the fiscal year ended October 3, 2014 and the three months ended January 2, 2015.

EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in Registration Statements No. 333-180219 and No. 333-193098 on Form S-8 and Registration Statement No. 333-188728 on Form S-3 of M/A-COM Technology Solutions Holdings, Inc. of our report dated March 6, 2014, relating to the consolidated financial statements of BinOptics Corporation as of December 31, 2013 and 2012, and for each of the years then ended, appearing elsewhere in this Amendment No. 1 to Form 8-K.

/s/ Sciarabba Walker & Co., LLP

Ithaca, New York

February 2, 2015

EX-99.1

Exhibit 99.1

FINANCIAL STATEMENTS OF

BINOPTICS CORPORATION AND

ITS WHOLLY-OWNED SUBSIDIARY

BINOPTICS (HONG KONG) LIMITED

Years Ended

December 31, 2013 and 2012

LOGO

INDEPENDENT AUDITOR’S REPORT

March 6, 2014

To the Board of Directors

BinOptics Corporation

Ithaca, New York 14850

We have audited the accompanying consolidated financial statements of BinOptics Corporation, which comprise the consolidated balance sheets as of December 31, 2013 and 2012 and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.

Management’s Responsibility for the Financial Statements

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

Auditor’s Responsibility

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

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


410 East Upland Road	28 North Main Street
Ithaca, New York 14850	Cortland, New York 13045
607-272-5550 / 607-273-6357 (Fax)		www.swcllp.com

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

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BinOptics Corporation, as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Sciarabba Walker & Co., LLP

- 2 -

BINOPTICS CORPORATION

CONSOLIDATED BALANCE SHEETS

December 31,

ASSETS


	2013		2012
CURRENT ASSETS:
Cash and cash equivalents	$	3,018,356	$	4,873,954
Accounts receivable		4,252,393		2,206,941
Inventory		7,113,905		5,126,023
Prepaid expenses and other current assets		80,887		55,469
Deferred tax asset - current portion		2,138,499		—

TOTAL CURRENT ASSETS		16,604,040		12,262,387

PROPERTY AND EQUIPMENT:
Clean room		877,051		721,806
Office equipment and computers		516,499		342,694
Construction in progress		1,119,841		552,048
Laboratory equipment		4,888,955		2,462,442

TOTAL PROPERTY AND EQUIPMENT		7,402,346		4,078,990
Less: accumulated depreciation		2,622,768		1,956,329

PROPERTY AND EQUIPMENT, net		4,779,578		2,122,661

OTHER ASSETS:
Loan origination fees (net of accumulated amortization of $67,686 and $63,371 in 2013 and 2012, respectively)		7,452		5,000
Patent application costs		271,260		211,573
Patents (net of accumulated amortization of $266,134 and $205,612 in 2013 and 2012, respectively)		664,698		692,776

TOTAL OTHER ASSETS		943,410		909,349


TOTAL ASSETS	$	22,327,028	$	15,294,397

See accompanying notes.

LIABILITIES AND STOCKHOLDERS’ EQUITY


	2013			2012
CURRENT LIABILITIES:
Accounts payable	$	2,461,533		$	2,383,377
Accrued liabilities		350,854			433,154
Accrued interest		9,845			1,786
Accrued income tax		14,300			—
Current portion of capital leases		627,691			227,221
Current portion of long-term debt		458,333			—

TOTAL CURRENT LIABILITIES		3,922,556			3,045,538

ACCRUED RENT OBLIGATION		13,000			6,500

CAPITALIZED LEASES, net of current portion		1,439,443			445,711

LONG-TERM DEBT, net of current portion		1,041,667			—

DEFERRED TAX LIABILITY		638,499			—

STOCKHOLDERS’ EQUITY:
Common stock, $.001 par value, 446,000,000 shares authorized, and 39,322,786 shares outstanding at 2013, 439,000,000 shares authorized and 39,309,369 shares outstanding at 2012		39,323			39,309
Series 1 Preferred stock, $.01 par value, 185,000,000 shares authorized at 2013, 178,000,000 shares authorized at 2012, 176,558,115 shares outstanding at 2013 and 2012		1,765,581			1,765,581
Series 2 Preferred stock, $.01 par value, 178,000,000 shares authorized, 177,552,675 shares outstanding at 2013 and 2012		1,775,527			1,775,527
Additional paid in capital		46,579,629			46,470,877
Deficit		(34,888,197	)		(38,254,646	)

TOTAL STOCKHOLDERS’ EQUITY		15,271,863			11,796,648


TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	22,327,028		$	15,294,397

- 3 -

BINOPTICS CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31,


	2013			2012

SALES, net	$	19,305,098		$	14,370,863
COST OF GOODS SOLD		11,314,456			10,723,044


GROSS PROFIT		7,990,642			3,647,819

RESEARCH AND DEVELOPMENT COSTS		2,705,148			2,356,088
SELLING AND ADMINISTRATIVE EXPENSES		3,253,434			2,822,536


INCOME (LOSS) FROM OPERATIONS		2,032,060			(1,530,805	)

OTHER INCOME (EXPENSES):
Gain on sale of fixed assets		138			33,110
Loss on impairment of patent application costs		—			(32,202	)
Interest income		192			3,612
Interest expense		(150,841	)		(32,931	)

TOTAL OTHER EXPENSES		(150,511	)		(28,411	)


INCOME (LOSS) BEFORE INCOME TAX		1,881,549			(1,559,216	)

INCOME TAX BENEFIT (EXPENSE)		1,484,900			(1,100	)


NET INCOME (LOSS)	$	3,366,449		$	(1,560,316	)

See accompanying notes.

- 4 -

BINOPTICS CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the period January 1, 2012 to December 31, 2013


	Date of Transaction	Number of Common Shares		Number of Series 1 Preferred Shares		Number of Series 2 Preferred Shares

BEGINNING BALANCE JANUARY 1, 2012			39,302,078		176,558,115		131,127,420

Exercise of stock options ($.13 per share)	Jan-12		7,291		—		—
Sale of Series 2 Preferred Stock ($.09 per share)	Dec-12		—		—		46,425,255
Stock issuance costs			—		—		—
Stock option compensation			—		—		—
Net loss for the year ended December 31, 2012			—		—		—


ENDING BALANCE DECEMBER 31, 2012			39,309,369		176,558,115		177,552,675


Exercise of stock options ($.02 per share)	Jan-13		2,500		—		—
Exercise of stock options ($.02 per share)	Jun-13		500		—		—
Exercise of stock options ($.07 per share)	Sep-13		10,417		—		—
Stock issuance costs
Stock option compensation			—		—		—
Net loss for the year ended December 31, 2013			—		—		—


ENDING BALANCE DECEMBER 31, 2013			39,322,786		176,558,115		177,552,675

See accompanying notes.


Common Stock Amount		Series 1 Preferred Stock Amount		Series 2 Preferred Stock Amount		Additional Paid-in Capital			Deficit			Total

$	39,302	$	1,765,581	$	1,311,274	$	42,854,366		$	(36,694,330	)		9,276,193

	7		—		—		942			—			949
	—		—		464,253		3,535,747			—			4,000,000
	—		—		—		(7,191	)		—			(7,191	)
	—		—		—		87,013			—			87,013
	—		—		—		—			(1,560,316	)		(1,560,316	)


$	39,309	$	1,765,581	$	1,775,527	$	46,470,877		$	(38,254,646	)	$	11,796,648


	3		—		—		47			—			50
	1		—		—		9			—			10
	10		—		—		719			—			729
							(23,009	)					(23,009	)
	—		—		—		130,986			—			130,986
	—		—		—		—			3,366,449			3,366,449


$	39,323	$	1,765,581	$	1,775,527	$	46,579,629		$	(34,888,197	)	$	15,271,863

- 5 -

BINOPTICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,


	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	3,366,449		$	(1,560,316	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Deferred income tax benefit		(1,500,000	)		—
Depreciation and amortization		733,560			502,476
Gain on sale of equipment		(138	)		(33,110	)
Impairment loss on patent application costs		—			32,202
Employee stock option compensation		130,986			87,013
(Increase) decrease in assets:
Accounts receivable		(2,045,452	)		(386,110	)
Inventory		(1,987,882	)		(1,884,308	)
Prepaid expenses and other current assets		(25,418	)		23,037
(Decrease) increase in liabilities:
Accounts payable		78,156			314,435
Accrued liabilities		(82,300	)		(19,477	)
Accrued interest		8,059			475
Accrued income tax		14,300			—
Accrued rent obligation		6,500			6,500

CASH USED IN OPERATING ACTIVITIES		(1,303,180	)		(2,917,183	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Cash received from sale of equipment		—			8,650
Cash paid for purchases of fixed assets		(1,571,426	)		(548,343	)
Payment of loan origination fees		(6,766	)		(5,000	)
Payment of patent application costs		(92,131	)		(95,175	)

CASH USED IN INVESTING ACTIVITIES		(1,670,323	)		(639,868	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock		789			4,000,949
Payment of stock issuance costs		(23,009	)		(7,191	)
Proceeds from short-term debt		850,000			1,000,000
Proceeds from long-term debt		1,500,000			—
Principal payments on short-term debt		(850,000	)		(1,000,000	)
Principal payments on capital leases		(359,875	)		(267,575	)

CASH PROVIDED BY FINANCING ACTIVITIES		1,117,905			3,726,183


NET (DECREASE) INCREASE IN CASH		(1,855,598	)		169,132
CASH, beginning of year		4,873,954			4,704,822

CASH, end of year	$	3,018,356		$	4,873,954

- 6 -

BINOPTICS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

Years Ended December 31,


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	2013		2012
Cash paid during the year for:
Interest	$	142,782	$	32,456
Taxes		1,050		1,100

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITY:

During 2013 the Company entered into three equipment leases totaling $1,754,077. This amount has been excluded from the consolidated statement of cash flows.

During 2012 the Company entered into two equipment leases totaling $646,028. This amount has been excluded from the consolidated statement of cash flows.

- 7 -

BINOPTICS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2013 and 2012

A.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Nature of Business – BinOptics Corporation (the Company), a Delaware C Corporation, was incorporated on December 21, 2000. Principal operations began in January 2001. The Company was formed to address the component requirements for the very rapidly growing optics industry. The Company is focused on the development, manufacturing, and marketing of integrated optoelectronic components based on indium phosphide and other semiconductor materials.

BinOptics Corporation is the parent company and owns 100% of its subsidiary, BinOptics (Hong Kong) Limited, incorporated in Hong Kong on July 23, 2009.

Principles of Consolidation – The consolidated financial statements include the accounts of BinOptics Corporation and its wholly owned subsidiary, BinOptics (Hong Kong) Limited. All significant intercompany accounts and transactions have been eliminated in the consolidated statements.

Basis of Accounting – The Company’s financial statements are presented on the accrual basis of accounting in accordance with generally accepted accounting principles.

Cash and Cash Equivalents – The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.

Accounts Receivable – The Company considers accounts receivable to be fully collectible; accordingly, no allowance for doubtful accounts is required. If amounts become uncollectible, they will be charged to operations when that determination is made.

Inventory – The Company’s inventory consists of the following:


	2013		2012

Raw materials	$	3,162,438	$	2,465,862
Finished goods		3,951,467		2,660,161

	$	7,113,905	$	5,126,023

Inventory is valued at the lower of cost or market using a specific identification method for wafers and gratings inventory and a first-in, first-out (FIFO) cost method for the remaining categories.

- 8 -

Property and Equipment – Property and equipment is recorded at cost less depreciation. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. The depreciable lives for office equipment, computers, and laboratory equipment are primarily 5 to 7 years. The depreciable life of the clean room leasehold improvement is 39 years. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments are capitalized. Dispositions and abandonments are recorded at the time of the disposition. Depreciation expense for the years ending December 31, 2013 and 2012 was $668,724 and $444,094, respectively.

Other Assets – Loan origination fees are being amortized on a straight-line basis over the terms of the loans, with range from 12 to 30 months. Patent application costs include professional and application fees related to attempting to obtain patents for technology used by the Company. Upon granting of a patent such costs are amortized on the straight-line basis over 15 years, assessed annually for impairment. If the patent application is unsuccessful, such costs are expensed in the period the application is denied or abandoned. During the years ended December 31, 2013 and 2012, the Company capitalized patent application costs of $92,131 and $95,175, respectively. The Company expensed $0 and $32,202 of costs associated with abandoned applications for years 2013 and 2012, respectively. Amortization expense for the years ending December 31, 2013 and 2012 was $64,836 and $58,382, respectively. Estimated aggregate amortization expense for the next 5 years is $61,400 annually.

Research and Development Costs – Research and development costs are expensed in the year incurred.

10.

Income Taxes – The Company accounts for income taxes in accordance with Accounting for Income Taxes (ASC 740 Income Taxes). The guidance prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. Accounting for Income Taxes (ASC 740 Income Taxes) provides for a liability approach under which deferred income taxes are provided for based on enacted laws and rates applicable to the periods in which the taxes become payable. As described in Note G, the Company’s net deferred tax asset has been reduced to $1,500,000 through the use of a valuation allowance at December 31, 2013.

The Company evaluated its tax positions and concluded that all of the positions taken by the Company would more likely than not be sustained upon examination, based on the technical merits. The income tax returns of the Company for 2010, 2011, 2012 and 2013 are subject to examination by tax authorities, generally for three years after they were filed.

11.

Concentration of Credit Risk – The Company’s revenues are derived from sales to customers located worldwide. Concentration of credit risk with accounts receivable is normally limited, due to the nature of the Company’s customers.

During the course of the year, the Company will have cash on deposit with financial institutions, in excess of $250,000. All deposits up to that amount are insured by FDIC; however, any amounts exceeding $250,000 are uninsured. Cash balances in excess of FDIC limits were $2,503,904 at December 31, 2013.

- 9 -

12.

Concentration of Business Risk – In 2013, approximately 76 percent of total Company revenue was derived from five major customers and approximately 35 percent of all purchases were made from three vendors. All of the Company sales were made to customers located in foreign countries.

13.

Stock-Based Compensation – The Company is accounting for stock options under the provisions of ASC 718 Stock Compensation. For options granted in 2013 and 2012, compensation expense is recognized over the requisite service periods of the option agreements based on their fair value computed under an option-pricing model.

14.

Estimates and Assumptions – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period reported. Actual results could differ from these estimates.

15.

Reclassifications – Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to confirm with the presentation in the current-year financial statements.

B.	LINE OF CREDIT:

In November of 2011 the Company obtained a line of credit with a borrowing capacity of, at any point in time, the lesser of $2,500,000 or 85% of eligible accounts receivable, at an interest rate of overnight LIBOR plus 4%. The interest rate at December 31, 2013 was 4.125%. The line of credit had a zero balance at December 31, 2013 and 2012. The line is secured by all assets and intangibles (excluding intellectual property) owned by the Company.

C.	CAPITAL LEASE OBLIGATIONS:

The Company had the following capital leases at December 31:


	2013		2012

Lease payable with monthly payments of $1,066, including principal and interest at 11.62%. The lease was secured by test equipment and matured in July 2013.	$	—	$	7,181

Lease payable with monthly payments of $992 including principal and interest at 12.89%. The lease was secured by Newport Test Equipment and Logitech Wafer Bonder and matured in March 2013.		—		2,914

- 10 -


Lease payable with monthly installments of $2,040 including principal and interest at 11.15%. The lease was secured by Loomis Scriber/Cleaver and matured in November 2013.		—		17,534

Lease payable with monthly installments of $2,280 including principal and interest at 11.99%. The lease is secured by Laurier Die Sorter and matures in March 2014.		6,705		31,611

Lease payable with monthly installments of $3,901 including principal and interest at 7.06%. The lease is secured by various equipment and matures in December 2014.		45,074		87,083

Lease payable with monthly installments of $12,638 including principal and interest at 4.07%. The lease is secured by various equipment and matures in September 2016.		393,929		526,609

Lease payable with monthly installments of $22,425 including principal and interest at 4.28%. The lease is secured by various equipment and matures in August 2017.		911,675		—

Lease payable with monthly installments of $15,012 including principal and interest at 3.5% above 30-day LIBOR. The lease is secured by various equipment and matures in November 2017.		614,890		—

Lease payable with quarterly installments of $12,631 including principal and interest at 5.68%. The lease is secured by various equipment and matures in November 2015.		94,861		—

		2,067,134		672,932
Less: current portion		627,691		227,221

	$	1,439,443	$	445,711

- 11 -

Future minimum annual lease payments are as follows:


2014	$	705,084
2015		651,400
2016		562,999
2017		342,810

		2,262,293
Less: amount representing interest		195,159

Present value of minimum lease payments	$	2,067,134

The net book value of assets held under capital lease obligations is as follows at December 31, 2013:


Office equipment	$	38,996
Laboratory equipment		2,533,215
Leasehold improvements		191,244

		2,763,455
Less: accumulated depreciation		463,795

	$	2,299,660

D.	LONG-TERM DEBT:

The Company’s long-term debt consists of the following at December 31:


	2013		2012
Loan with monthly interest only payments at 6.5% through January 2014; with monthly principal payments of $41,667 plus interest through January 2015; increasing to 10% per annum through July 2015, with a balloon payment of $791,667 due at that time. The loan is secured by various business assets of the Company.	$	1,500,000	$	—

		1,500,000		—
Less: current portion		458,333		—

	$	1,041,667	$	—

Future minimum annual lease payments are as follows:


2014	$	458,333
2015		1,041,667

	$	1,500,000

- 12 -

E.	RELATED PARTY TRANSACTIONS:

The Company licensed four patents from Ulexus Corporation (Ulexus), a related party that is wholly-owned by an officer/shareholder of BinOptics Corporation. Since 2004, due to a Series B financing, these patents have been licensed directly from the Cornell Research Foundation and Ulexus is no longer a party to the licensing agreement. In conjunction with obtaining the use of these patents from Ulexus, the Company issued 100,000 shares of common stock to Ulexus. In the event that the Company obtains a fair market value equal to, or greater than, $200 million and again $1 billion, additional shares of common stock would be issuable to Ulexus based on the predetermined formula.

A managing member of Ithaca B&T Associates, LLC (formerly Nine Brown Road Associates, LLC), an entity from which the Company leases certain office and laboratory space, is a member of the BinOptics Corporation’s board. The annual rent and related charges paid under the terms of the lease for the years ended December 2013 and 2012 was $157,794 and $158,052, respectively.

For the years ended December 31, 2013 and 2012, consulting service fees in the amount of $91,500 and $88,000 were paid to a Board member, respectively. The Company also reimbursed the member for his out-of-pocket expenses in performing such consulting services.

F.	COMMITMENTS AND CONTINGENCIES:

The Company leases certain office and laboratory spaces under various operating leases. Rent expense for the year ending December 2013 and 2012 was $415,621 and $352,002, respectively.

Future minimum annual lease payments are as follows:


2014	$	438,453
2015		413,707
2016		384,113
2017		161,497
2018		143,000
Thereafter		440,917

	$	1,981,687

G.	INCOME TAXES:

The net deferred tax asset at December 31, 2013 and 2012 is as follows:


	2013			2012
Total of all deferred tax assets	$	12,931,169		$	12,036,208
Total of all deferred tax liabilities		(638,622	)		(348,983	)
Total valuation of allowance		(10,792,547	)		(11,687,225	)

Net deferred tax asset	$	1,500,000		$	—

- 13 -

The primary types of temporary differences that create the deferrals are related to net operating loss carry forwards and federal and state tax credits. A valuation allowance was placed on the deferred tax assets in 2013 and 2012, due to uncertainty regarding the Company’s ability to realize all of the benefit from the assets.

The income tax provision consists of the following at December 31:


	2013			2012
Current tax expense:
Federal	$	14,000		$	—
State		1,100			1,100
Deferred tax benefit:
Federal		(1,500,000	)		—
State		—			—

Tax benefit	$	(1,484,900	)	$	1,100

The Company has approximately $37,120,000, $37,180,000, and $1,115,000 in net operating losses to offset future Federal, New York State, and California State taxable income, respectively. The net operating losses expire beginning in 2023 through 2033. The Company has approximately $1,514,000 and $450,000 in Federal and New York State tax credits to offset future income tax. The Federal credits expire beginning in 2022 through 2034, the New York State credits expire beginning in 2027 through 2032.

H.	PREFERRED STOCK:

On December 31, 2013 and 2012 the Company authorized the issuance of 363,000,000 shares and 356,000,000 shares of Preferred Stock, $0.01 par value per share, respectively. 185,000,000 shares are designated as Series 1 Convertible Preferred Stock (“Series 1 Preferred Stock”), and 178,000,000 shares are designated as Series 2 Convertible Preferred Stock (“Series 2 Preferred Stock”), at 2013 and 2012, respectively. The Series 1 Preferred Stock and Series 2 Preferred Stock are collectively referred to as the “New Preferred Stock”.

On August 31, 2011 the Company recapitalized its equity structure, cancelling all previously authorized and issued Series A, Series B, Series C, and Series D preferred stock (“Old Preferred Stock”) and re-issued either Common Stock or Series 1 Preferred Stock in its place. The securities issued in the recapitalization were dependent upon the existing shareholders participation in their pro-rata share of the Company’s initial $4,000,000 offering of Series 2 Preferred Stock. Fully participating holders of Series A, Series B, and Series C preferred stock converted their original investment plus a one-time liquidation preference into Series 1 Preferred stock, while holders of Series D preferred stock converted their original investment plus a 3 times liquidation preference into shares of Series 1 Preferred Stock of similar value. Partial or non-participation in the Company’s initial $4,000,000 offering of Series 2 Preferred Stock resulted in the conversion of the old Preferred Stock, including the above mentioned liquidation preference, into common stock based upon a ratio of their participation to their 100 percent pro-rata share.

- 14 -

The holders of the New Preferred Stock are entitled to such votes per share equal to the number of shares of common stock into which each share of New Preferred Stock are then convertible. The New Preferred Stock is convertible at any time, at the option of the holder. Initially, each share of New Preferred Stock is convertible into one share of common stock, but that conversion ratio will automatically adjust to account for, among other things, future issuances of certain classes of stock and the issue prices of such stock, and certain future dilution events, as defined. Upon election of the holders of shares of New Preferred Stock representing at least 55 percent of the votes represented by the outstanding shares of New Preferred Stock, and without payment of any additional consideration, all of the outstanding shares of New Preferred Stock shall be converted into common stock at the applicable conversion rate.

The holders of shares of Series 2 Preferred Stock, in preference to any other holders of Series 1 Preferred Stock or Common Stock, are entitled to receive noncumulative dividends at the rate of $0.0068928 (8%) per annum on each outstanding share of Series 2 Preferred Stock payable when and as declared by the Board of Directors. Following the payment of the Series 2 Preferred Stock dividend, holders of shares of Series 1 Preferred Stock, in preference to any holders of Common Stock, are entitled to receive noncumulative dividends at the rate of $0.0068928 (8%) per annum on each outstanding share of Series 1 Preferred Stock payable when and as declared by the Board of Directors. Following the payment of the foregoing dividends on the Series 1 and Series 2 Preferred Stock described above, the Corporation may, if declared by the Board of Directors, declare and distribute dividends or similar distributions among all holders of outstanding shares of Series 1 Preferred Stock, Series 2 Preferred Stock, and Common Stock pro rata based on the number of shares of Common Stock held by each, determined on an as-if converted basis. At December 31, 2013 and 2012 there were no dividends in arrears.

Additionally, each share of New Preferred Stock is automatically converted to common stock upon the completion of a qualified public offering with minimum price per share of common stock of not less than $0.4308, appropriately adjusted for stock splits and stock dividends, that yields the Company gross proceeds of not less than $30 million, and the Common Stock is traded on either the New York Stock Exchange, the American Stock Exchange or the NASDAQ Global Market.

In the event of a voluntary or involuntary liquidation, dissolution, winding-up of the Company, consolidation or merger of the Company, or sale of a majority of its assets, the Series 2 Preferred Stockholders would be entitled to a preferred distribution equal to their liquidation preference (Series 2 Preference) prior to any distribution of assets to holders of Common Stock or Series 1 Preferred stock. The Series 2 Preference is equal to 100% of the original purchase price ($0.08616; as adjusted appropriately for subsequent stock dividends, stock splits, combinations, recapitalizations and the like) plus an amount equal to all declared and unpaid dividends on Series 2 Preferred Stock, if any. Once the Series 2 Preference is satisfied, the Series 1 Preferred Stockholders would be entitled to a preferred distribution equal to their liquidation preference (Series 1 Preference) prior to any distribution of assets to holders of Common Stock. The Series 1 Preference is equal to 150% of the original purchase price ($0.12924; as adjusted appropriately for subsequent stock dividends, stock splits, combinations, recapitalizations and the like) plus an amount equal to all declared and unpaid dividends on Series 1 Preferred Stock, if any. Once the Series 2 Preference Amount and Series 1 Preference Amount are satisfied, the remaining assets of the Company legally available for distribution are to be distributed among the common stockholders and the New Preferred Stockholders on a pro rata basis on an as-converted-into-common-stock basis.

- 15 -

On August 31, 2011 the Company issued 176,558,115 shares of Series 1 Preferred Stock and 33,849,508 shares of Common Stock as a result of cancelling 8,099,999 shares of Series A Convertible Preferred Stock, 26,476,049 shares of Series B Convertible Preferred Stock, 31,627,912 shares of Series C Convertible Preferred Stock, and 8,139,535 shares of Series D Convertible Preferred Stock. The Company also issued 998,142 warrants to purchase Series 1 Preferred Stock for $0.01 per share as a result of cancelling 200,000 warrants to purchase Series D Convertible Preferred Stock. The Company issued 86,552,568 shares of Series 2 Preferred Stock at $0.08616 per share, and 18,206 warrants to purchase Series 2 Preferred Stock for $0.01 per share, by converting a total of $4,802,187 of subordinated convertible promissory notes received in 2010 and 2011 plus accrued interest of $347,257, converting $800,000 of Bridge Notes Payable received in 2011 plus accrued interest of $6,222, and receiving $1,359,430 of net cash proceeds.

In November 2011 the Company received shareholder approval for the issuance of an additional 38,881,149 shares of Series 2 Preferred Stock at $0.08616 per share for total net proceeds of $3,350,000.

In December 2011 the Company received shareholder approval for the issuance of an additional 5,693,703 shares of Series 2 Preferred Stock at $0.08616 per share for total net proceeds of $490,569.

In December 2012 the Company received shareholder approval for the issuance of an additional 46,425,255 shares of Series 2 Preferred Stock at $0.08616 per share for total net proceeds of $4,000,000.

I.	WARRANTS:

At December 31, 2013 the following warrants were outstanding:

•

A warrant dated October 6, 2009, issued to Enhanced Capital New York Fund II, LLC to purchase 124,768 shares of Series 1 Preferred Stock for a price of $0.01 per share. The warrant expires on October 6, 2019.

•

A warrant dated October 6, 2009, issued to Enhanced Capital New York Fund II, LLC to purchase 249,535 shares of Series 1 Preferred Stock for a price of $0.01 per share. The warrant expires on October 6, 2019.

•

A warrant dated October 6, 2009, issued to Enhanced Capital New York Fund III, LLC to purchase 124,768 shares of Series 1 Preferred Stock for a price of $0.01 per share. The warrant expires on October 6, 2019.

•

- 16 -

•

A warrant dated October 6, 2009, issued to Enhanced Capital New York Fund III, LLC to purchase 249,535 shares of Series 1 Preferred Stock for a price of $0.01 per share. The warrant expires on October 6, 2019.

•

A warrant dated August 31, 2011, issued to Draper Fisher Jurvetson Fund VII, L.P. to purchase 17,478 shares of Series 2 Preferred Stock for a price of $0.01 per share. The warrant expires on August 31, 2021.

•

A warrant dated August 31, 2011, issued to Draper Associates Riskmasters Fund, LLC to purchase 473 shares of Series 2 Preferred Stock for a price of $0.01 per share. The warrant expires on August 31, 2021.

•

A warrant dated August 31, 2011, issued to Draper Fisher Jurvetson Partners VII, LLC to purchase 255 shares of Series 2 Preferred Stock for a price of $0.01 per share. The warrant expires on August 31, 2021.

J.	STOCK OPTION PLAN:

Under the Company’s 2007 Stock Option Plan (the Plan), the Company, at the discretion of the plan administrator, may issue incentive stock options, nonqualified stock options, and stock purchase rights for shares of the Company’s common stock. All employees, directors, consultants, and independent contractors of the Company shall be eligible. The plan administrator may, in its discretion, determine restrictions and conditions on the exercisability of the stock options and stock purchase rights. No option shall be exercisable after expiration of ten years from the date it was granted. The Plan was amended effective June 2012, to increase the number of shares of common stock reserved for issuance under the Plan from 19,100,000 to 43,100,000. At December 31, 2013, 2,346,077 shares were available for grant of options as determined by the plan administrator.

The price of common stock covered by any option granted under the Plan shall be determined by the plan administrator at the time such option is granted; provided, however, that in the case of incentive stock options the option price shall not be less than the fair market value of the common stock on the date of grant. No options have been granted for less than 100% of the fair market value of common shares at the date of option grant.

Stock purchase rights may be issued either alone, in addition to, or in tandem with other awards granted under the Plan. The offeree will be informed, in writing, of the terms, conditions, and restrictions relating to the offer, including the number of shares of common stock that such person shall be entitled to purchase, the price to be paid, and the time within which such person must accept the offer. The Company has a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser’s employment with the Company for any reason. The repurchase option shall lapse at such rate as the plan administrator may determine in its sole and absolute discretion. There were no grants of stock purchase rights during 2013.

- 17 -

The Company’s calculation for the employee grants under its stock-based compensation arrangements was made using the Black-Scholes-Merton model using the following assumptions:


	2013			2012
Dividend yield		0	%		0	%
Volatility		61.38	%		65.87	%
Discount rate		2.00	%		2.50	%
Expected life		6 years			6 years
Fair value of common stock per share	$	0.015		$	0.02

Total compensation cost related to nonvested awards not yet recognized is $189,162 as of December 31, 2013. It is expected to be recognized over the weighted-average period of 2.46 years.

A summary of the status of the Company’s stock option plan as of December 31, 2013 is presented below:


Fixed Options	Shares			Weighted Average Exercise Price
January 01, 2012		6,136,428		$	0.10
Granted		34,182,200		$	0.02
Exercised		(7,291	)	$	0.13
Expired		—
Forfeited		(137,333	)	$	0.05

December 31, 2012		40,174,004		$	0.03
Granted		686,917		$	0.02
Exercised		(13,417	)	$	0.05
Expired		(40,000	)	$	0.10
Forfeited		(216,333	)	$	0.02

December 31, 2013		40,591,171		$	0.03


Exercisable:
December 31, 2013		21,361,287

Weighted average fair value of options granted in 2013	$	0.0078

- 18 -

Information regarding fixed stock options outstanding at December 31, 2013 is presented below:


	Outstanding Options	Exercisable Options
Range of exercise prices	$0.02 to $0.13	$0.02 to $0.13
Weighted-average remaining contractual life	7.93

K.	NON-STATUTORY STOCK OPTIONS

During the 2013 the Company issued non-statutory stock options for shares of Series 1 Convertible Preferred Stock to two Board members, in consideration for their services on the Board. The total number of options outstanding as of December 31, 2013 was 6,963,788. The total number of options exercisable at December 31, 2013 was 4,642,525. The remaining options vest quarterly over the next two years. The exercise price of the options is $0.08616 and the expiration date is February, 2023. The fair value of the options at the grant date was estimate at $0.0016. The Company recognized $7,500 of compensation cost related to options vested as of December 31, 2013 Total compensation cost related to nonvested options not yet recognized is $3,700 as of December 31, 2013.

L.	RETIREMENT PLAN:

All employees are eligible to participate in the defined contribution retirement plan. The Company matches 100% of the first 3% of contributions, and 50% of the next 2% of contributions to the Plan. Company contributions to the plan totaled $127,506 and $114,777 in 2013 and 2012, respectively.

M.	CHANGE IN ACCOUNTING PRINCIPLE:

On December 31, 2012, the Company elected to change its inventory valuation method for wafers and gratings inventory from the first-in, first-out (FIFO) method to specific identification method. The new method of accounting for inventory was adopted because management believes the specific identification method provides a more meaningful presentation of its financial position as it results in a better matching of current costs with current revenues. It was impracticable to determine the cumulative effect of this accounting change and the retroactive application of the specific identification method to prior years, because the Company’s accounting records do not provide sufficient information to apply the new method. As a result, the effect of the change has been applied prospectively in 2012.

N.	SUBSEQUENT EVENTS:

Management has evaluated subsequent events through March 6, 2014 the date the financial statements were available.

- 19 -

EX-99.2

Exhibit 99.2

UNAUDITED FINANCIAL STATEMENTS OF

BINOPTICS CORPORATION AND

ITS WHOLLY-OWNED SUBSIDIARY

BINOPTICS (HONG KONG) LIMITED

Nine Months Ended September 30, 2014 and

Year Ended December 31, 2013

BINOPTICS CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS

As of September 30, 2014 and December 31, 2013


	2014		2013
Current Assets
Cash and cash equivalents	$	9,778,672	$	3,018,356
Accounts receivable		10,259,320		4,252,393
Inventory		10,060,306		7,113,905
Prepaid expenses and other current assets		225,323		80,887
Deferred tax assets - current portion		5,055,000		2,138,499

Total Current Assets		35,378,621		16,604,040

Property and equipment
Clean room		884,501		877,051
Office equipment and computers		556,143		516,499
Construction in progress		2,683,686		1,119,841
Laboratory equipment		6,050,187		4,888,955

Total Property and Equipment		10,174,517		7,402,346
Less: Accumulated depreciation		3,367,980		2,622,768

Property and Equipment, net		6,806,537		4,779,578

Other Assets
Patent application costs		329,353		278,712
Patents (net of accumulated amortization of $312,967 at September 30, 2014 and $266,134 at December 31, 2013)		689,082		664,698
Deferred tax assets - long-term portion		3,551,201		—

Total other assets		4,569,636		943,410


TOTAL ASSETS	$	46,754,794	$	22,327,028

See accompanying notes.

- 2 -

BINOPTICS CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEETS (continued)

As of September 30, 2014 and December 31, 2013


	2014			2013
Current Liabilities
Account payable		5,055,144			2,461,533
Accrued liabilities		1,171,902			350,854
Accrued interest		7,504			9,845
Accrued income tax		321,264			14,300
Current portion of capital leases		601,394			627,691
Current portion of long-term debt		1,166,667			458,333

Total Current Liabilities		8,323,875			3,922,556

Accrued rent obligation		21,364			13,000

Capital leases, net of current portion		995,312			1,439,443

Long-term debt, net of current portion		—			1,041,667

Deferred tax liability		—			638,499

Commitments and contingencies (Note F)

Stockholders’ Equity
Common stock, $.001 par value, 446,000,000 shares authorized, and 39,356,036 shares outstanding at September 30, 2014, $.001 par value, 446,000,000 shares authorized, and 39,322,786 shares outstanding at December 31, 2013		39,356			39,323
Series 1 Preferred stock, $.01 par value, 185,000,000 shares authorized, and 176,558,115 shares outstanding at September 30, 2014 and December 31, 2013		1,765,581			1,765,581
Series 2 Preferred stock, $.01 par value, 178,000,000 shares authorized, and 177,552,675 shares outstanding at September 30, 2014 and December 31, 2013		1,775,526			1,775,527
Additional Paid-in-Capital		46,580,661			46,579,629
Deficit		(12,746,881	)		(34,888,197	)

Total Stockholders’ Equity		37,414,243			15,271,863


TOTAL LIABILITIES & EQUITY	$	46,754,794		$	22,327,028

See accompanying notes.

- 3 -

BINOPTICS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

Nine Months Ended September 30,


	2014		2013

Sales, net	$	38,653,413	$	12,695,223
Cost of goods sold		16,984,810		7,702,811


Gross profit		21,668,603		4,992,412

Research and development costs		2,056,060		2,050,452
Selling and administrative expenses		4,132,813		2,342,513


Income from operations		15,479,730		599,447

Other (income) expenses:
Interest expense		125,041		101,876


Income before income tax		15,354,688		497,570

Income tax benefit (expense)		6,786,628		(250	)


Net income	$	22,141,316	$	497,320

See accompanying notes.

- 4 -

BINOPTICS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF

SHAREHOLDERS’ EQUITY

For the period January 1, 2013 to September 30, 2014


	Date of Transaction		Number of Common Shares		Number of Series 1 Preferred Shares		Number of Series 2 Preferred Shares

BEGINNING BALANCE December 31, 2012				39,309,369		176,558,115		177,552,675

Exercise of stock options ($.02 per share)		Jan-13		2,500		—		—
Exercise of stock options ($.02 per share)		Jan-13		500		—		—
Exercise of stock options ($.07 per share)		Sep-13		10,417		—		—
Stock issuance costs				—		—		—
Stock option compensation				—		—		—
Net income for the period ended December 31, 2013				—		—		—


ENDING BALANCE December 31, 2013				39,322,786		176,558,115		177,552,675


Exercise of stock options ($.07 per share)		Mar-14		30,750		—		—
Exercise of stock options ($.07 per share)		Sep-14		2,500		—		—
Net income for the period ended September 30, 2014				—		—		—


ENDING BALANCE September 30, 2014				39,356,036		176,558,115		177,552,675

See accompanying notes.

- 5 -


Common Stock Amount		Series 1 Preferred Stock Amount		Series 1 Preferred Stock Amount		Additional Paid-in Capital			Deficit			Total

$	39,309	$	1,765,581	$	1,775,527	$	46,470,877		$	(38,254,646	)	$	11,796,648

	3		—		—		47			—			50
	1		—		—		9			—			10
	10		—		—		719			—			729
	—		—		—		(23,009	)		—			(23,009	)
	—		—		—		130,986			—			130,986
	—		—		—		—			3,366,449			3,366,449


$	39,323	$	1,765,581	$	1,775,527	$	46,579,629		$	(34,888,197	)	$	15,271,863


	31		—		—		860			—			891
	3		—		—		172			—			175
	—		—		—		—			22,141,316			22,141,316


$	39,356	$	1,765,581	$	1,775,526	$	46,580,661		$	(12,746,881	)	$	37,414,243

See accompanying notes.

- 6 -

BINOPTICS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended September 30,


	2014			2013
Cash flows from operating activities:
Net income (loss)	$	22,141,316		$	497,320
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Deferred income tax benefit		(6,799,237	)		—
Depreciation and amortization		800,201			501,177
Employee stock option compensation		—			92,615
Changes in operating assets and liabilities:
Accounts receivable		(6,006,927	)		(1,183,934	)
Inventory		(2,946,401	)		(2,017,248	)
Prepaid expenses		(144,436	)		(152,522	)
Accounts payable		2,593,611			(527,111	)
Accrued liabilities		827,071			(168,552	)

Net cash provided by (used in) operating activities		10,465,198			(2,958,255	)

Cash flows from investing activities:
Cash paid for purchases of fixed assets		(2,765,175	)		(1,922,274	)
Payment of loan origination fees		—			(5,353	)
Purchase of Intangibles (software & patents)		(137,010	)		(139,875	)

Net cash used in investing activities		(2,902,185	)		(2,067,502	)

Cash flows from financing activities:
Payment of stock issuance costs		—			(23,009	)
Proceeds from short-term debt		—			1,183,333
Proceeds from long-term debt		—			1,166,667
Principal payments on short-term debt		(333,333	)		(450,000	)
Principal payments on capital leases		(470,428	)		(227,221	)
Proceeds from exercise of stock options		1,065			789

Net cash provided by (used in) financing activities		(802,696	)		1,650,559

Net increase (decrease) in cash and cash equivalents		6,760,317			(3,375,198	)
Cash, beginning of year		3,018,356			4,873,954

Cash, end of year	$	9,778,672		$	1,498,756

See accompanying notes.

- 7 -

BINOPTICS CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)

Nine Months Ended September 30,

Supplemental Disclosures of Cash Flow Information:


	2014		2013

Cash paid during the year for:
Interest	$	125,041	$	101,876
Taxes		12,418		250

Supplemental Disclosures of Non-Cash Investing and Financing Activity:

During 2013 the Company entered into two equipment leases totaling $1,115,445. This amount has been excluded from the consolidated statement of cash flows.

See accompanying notes

- 8 -

BINOPTICS CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended September 30, 2014 and Year Ended December 31, 2013

A.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BinOptics Corporation is the parent company and owns 100% of its subsidiary, BinOptics (Hong Kong) Limited, incorporated in Hong Kong on July 23, 2009.

Principles of Consolidation – The consolidated financial statements include the accounts of BinOptics Corporation and its wholly owned subsidiary, BinOptics (Hong Kong) Limited. All intercompany accounts and transactions have been eliminated in the consolidated statements.

Basis of Accounting – The Company’s financial statements are presented on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the full fiscal year 2014.

Revenue Recognition – We recognize revenue when: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the price is fixed or determinable; and (iv) collectability is reasonably assured.

Cash and Cash Equivalents – The Company considers all short-term investments with an original maturity of three months or less to be cash equivalents.

- 9 -

Inventory – The Company’s inventory consists of the following:


	September 30,		December 31,
	2014		2013

Raw Materials	$	5,490,524	$	3,162,438
Finished Goods		4,569,782		3,951,467

	$	10,060,306	$	7,113,905

Inventory is valued at the lower of cost or market using a specific identification method for wafers and gratings inventory and a first-in, first-out (FIFO) cost method for the remaining categories.

Property and Equipment – Property and equipment is recorded at cost less depreciation. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. The depreciable lives for office equipment, computers, and laboratory equipment are primarily 5 to 7 years. The depreciable life of the clean room leasehold improvement is 39 years. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments are capitalized. Dispositions and abandonments are recorded at the time of the disposition. Depreciation expense for the nine months ended September 30, 2014 and the year ended December 31, 2013 was $749,838 and $668,724, respectively.

Other Assets – Loan origination fees are being amortized on a straight-line basis over the terms of the loans, between 12 to 30 months. Patent application costs include professional and application fees related to attempting to obtain patents for technology used by the Company. Upon granting of a patent such costs are amortized on the straight-line basis over 15 years, assessed annually for impairment. If the patent application is unsuccessful, such costs are expensed in the period the application is denied or abandoned. During the nine months ended September 30, 2014 and the year ended December 31, 2013, the Company capitalized patent application costs of $54,171 and $92,131, respectively. The Company did not expense any costs associated with abandoned applications during the nine months ended September 30, 2014 and the year ended December 31, 2013. Amortization expense for the nine months ended September 30, 2014 and the year ended December 31, 2013 was $50,363 and $64,836, respectively. Estimated future amortization expense is as follows:


2014 (remaining 3 months)	$	17,358
2015		69,432
2016		69,432
2017		69,432
2018		69,432
2019		69,432
Thereafter		324,563

	$	689,081

- 10 -

10.

Research and Development Costs – Research and development costs are expensed in the period incurred.

11.

Income Taxes – The Company accounts for income taxes in accordance with ASC 740 Income Taxes. The guidance prescribes a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. ASC 740 Income Taxes provides for a liability approach under which deferred income taxes are provided for based on enacted laws and rates applicable to the periods in which the taxes become payable. As described in Note G, there was no valuation allowance at September 30, 2014. The Company’s net deferred tax asset has been reduced to $1,500,000 through the use of a valuation allowance at December 31, 2013.

The Company evaluated its tax positions and concluded that all of the positions taken by the Company would more likely than not be sustained upon examination, based on the technical merits. The income tax returns of the Company are subject to examination by tax authorities, generally for three periods after they were filed.

12.

During the nine months ended September 30, 2014, the Company had cash on deposit with financial institutions, in excess of $250,000. All deposits up to that amount are insured by FDIC; however, any amounts exceeding $250,000 are uninsured. Cash balances in excess of FDIC limits were $9,508,853 at September 30, 2014.

13.

Concentration of Business Risk – In the nine months ended September 30, 2014, approximately 76% of total Company revenue was derived from five major customers and approximately 35% of all purchases were made from three vendors. All of the Company sales were made to customers located in foreign countries.

14.

Stock-Based Compensation – The Company is accounting for stock options under the provisions of ASC 718 Stock Compensation. For options granted during the nine months ended September 30, 2014 and the year ended December 31, 2013, compensation expense is recognized over the requisite service periods of the option agreements based on their fair value computed under an option-pricing model.

- 11 -

15.

B.	LINE OF CREDIT:

In November of 2011 the Company obtained a line of credit with a borrowing capacity of, at any point in time, the lesser of $2,500,000 or 85% of eligible accounts receivable, at an interest rate of overnight LIBOR plus 4%. The interest rate at September 30, 2014 and December 31, 2013 was 4.125%, respectively. The line of credit had a zero balance at September 31, 2014 and December 31, 2013. The line is secured by all assets and intangibles (excluding intellectual property) owned by the Company.

- 12 -

C.	CAPITAL LEASE OBLIGATIONS:

The Company had the following capital leases at September 30, 2014 and December 31, 2013:


	September 30,		December 31,
	2014		2013

Lease payable with monthly installments of $2,280 including principal and interest at 11.99%. The lease was secured by Laurier Die Sorter and matured in March 2014.	$	—	$	6,705

Lease payable with monthly installments of $3,901 including principal and interest at 7.06%. The lease was secured by various equipment and matured in December 2014.		11,568		45,074

Lease payable with monthly installments of $12,638 including principal and interest at 4.07%. The lease is secured by various equipment and matures in September 2016.		290,821		393,929

Lease payable with monthly installments of $22,425 including principal and interest at 4.28%. The lease is secured by various equipment and matures in August 2017.		736,632		911,675

Lease payable with monthly installments of $15,012 including principal and interest at 3.5% above 30-day LIBOR. The lease is secured by various equipment and matures in November 2017.		497,145		614,890

Lease payable with quarterly installments of $12,631 including principal and interest at 5.68%. The lease is secured by various equipment and matures in November 2015.		60,540		94,861

		1,596,706		2,067,134
Less: current portion		601,394		627,691

	$	995,312	$	1,439,443

- 13 -

As of September 30, 2014, future minimum annual lease payments are as follows:


2015	$	655,865
2016		600,428
2017		407,819
2018		25,102

		1,689,214
Less: amount representing interest		92,508

Present value of minimum lease payments	$	1,596,706

As of September 30, 2014, the net book value of assets held under capital lease obligations are as follows:


	2014

Office equipment	$	38,966
Laboratory equipment		2,792,040
Leasehold improvements		191,244

		3,022,250
Less: accumulated depreciation		822,513

	$	2,199,737

D.	LONG-TERM DEBT:

The Company’s long-term debt consists of the following at September 30, 2014 and December 31, 2013:


	September 30,		December 31,
	2014		2013

Loan with monthly interest payments at 6.5% through January 2014; with monthly principal payments of $41,667 plus interest through January 2015; increasing to 10% per annum through July 2015, with a balloon payment of $791,667 due at that time. The loan is secured by various business assets of the Company.	$	1,166,667	$	1,500,000

		1,166,667		1,500,000
Less: current portion		1,166,667		458,333

	$	—	$	1,041,667

- 14 -

Future minimum annual loan payments are as follows:


2014 (remaining 3 months)	$	125,000
2015		1,041,667

	$	1,166,667

E.	RELATED PARTY TRANSACTIONS:

A managing member of Ithaca B&T Associates, LLC (formerly Nine Brown Road Associates, LLC), an entity from which the Company leases certain office and laboratory space, is a member of the BinOptics Corporation’s board. The annual rent and related charges paid under the terms of the lease for the nine months ended September 30, 2014 and year ended December 31, 2013 was $111,132 and $157,794, respectively.

For the nine months ended September 30, 2014 and year ended December 31, 2013, consulting service fees in the amount of $62,500 and $91,500 were paid to a Board member, respectively. The Company also reimbursed the member for his out-of-pocket expenses in performing such consulting services.

F.	COMMITMENTS AND CONTINGENCIES:

The Company leases certain office and laboratory spaces under various operating leases. Rent expense for the nine months ending September 30, 2014 and year ending December 31, 2013 was $411,170 and $415,621, respectively.

Future minimum annual lease payments are as follows:


2014 (remaining 3 months)	$	182,129
2015		696,843
2016		638,837
2017		585,262
2018		570,226
2019		570,226
Thereafter		3,354,199

	$	6,597,722

- 15 -

G.	INCOME TAXES:

The net deferred tax asset at September 30, 2014 and December 31, 2013 is as follows:


	September 30,			December 31,
	2014			2013

Total of all deferred tax assets	$	9,244,700		$	12,931,169
Total of all deferred tax liabilities		(638,622	)		(638,622	)
Total valuation of allowance		—			(10,792,547	)

Net deferred tax asset	$	8,606,078		$	1,500,000

The primary types of temporary differences that create the deferrals are related to net operating loss carry forwards and federal and state tax credits. There was no valuation allowance placed on the deferred tax assets in the nine months ended September 30, 2014. There was a valuation allowance placed on the deferred tax assets in the year ended December 31, 2013, due to uncertainty regarding the Company’s ability to realize all of the benefit from the assets.

The income tax provision consists of the following at September 30, 2014:


	2014
Current tax expense:
Federal	$	327,372
State		—
Deferred tax benefit:
Federal		(7,110,000	)
State		—

Tax benefit	$	(6,782,628	)

The Company has approximately $21,841,000, $14,240,000 and $1,115,000 in net operating losses to offset future Federal, New York State, and California State taxable income, respectively. The net operating losses expire beginning in 2023 through 2033. The Company has approximately $1,489,000 and $450,000 in Federal and New York State tax credits to offset future income tax. The Federal credits expire beginning in 2022 through 2034, the New York State credits expire beginning in 2027 through 2032.

H.	PREFERRED STOCK:

On September 30, 2014 and December 31, 2013 the Company authorized the issuance of 363,000,000 shares and 356,000,000 shares of Preferred Stock, $0.01 par value per share, respectively. 185,000,000 shares are designated as Series 1 Convertible Preferred Stock (“Series 1 Preferred Stock”) at September 30, 2014 and December 31, 2013, and 178,000,000 shares are designated as Series 2 Convertible Preferred Stock (“Series 2 Preferred Stock”), at September 30, 2014 and December 31, 2013. The Series 1 Preferred Stock and Series 2 Preferred Stock are collectively referred to as the “New Preferred Stock”.

- 16 -

The holders of the New Preferred Stock are entitled to such votes per share equal to the number of shares of common stock into which each share of New Preferred Stock are then convertible. The New Preferred Stock is convertible at any time, at the option of the holder. Initially, each share of New Preferred Stock is convertible into one share of common stock, but that conversion ratio will automatically adjust to account for, among other things, future issuances of certain classes of stock and the issue prices of such stock, and certain future dilution events, as defined. Upon election of the holders of shares of New Preferred Stock representing at least 55% of the votes represented by the outstanding shares of New Preferred Stock, and without payment of any additional consideration, all of the outstanding shares of New Preferred Stock shall be converted into common stock at the applicable conversion rate.

The holders of shares of Series 2 Preferred Stock, in preference to any other holders of Series 1 Preferred Stock or Common Stock, are entitled to receive noncumulative dividends at the rate of $0.0068928 (8%) per annum on each outstanding share of Series 2 Preferred Stock payable when and as declared by the Board of Directors. Following the payment of the Series 2 Preferred Stock dividend, holders of shares of Series 1 Preferred Stock, in preference to any holders of Common Stock, are entitled to receive noncumulative dividends at the rate of $0.0068928 (8%) per annum on each outstanding share of Series 1 Preferred Stock payable when and as declared by the Board of Directors. Following the payment of the foregoing dividends on the Series 1 and Series 2 Preferred Stock described above, the Corporation may, if declared by the Board of Directors, declare and distribute dividends or similar distributions among all holders of outstanding shares of Series 1 Preferred Stock, Series 2 Preferred Stock, and Common Stock pro rata based on the number of shares of Common Stock held by each, determined on an as-if converted basis. At September 30, 2014 and December 31, 2013 there were no dividends in arrears.

- 17 -

that yields the Company gross proceeds of not less than $30 million, and the Common Stock is traded on either the New York Stock Exchange, the American Stock Exchange or the NASDAQ Global Market.

In November 2011 the Company received shareholder approval for the issuance of an additional 38,881,149 shares of Series 2 Preferred Stock at $0.08616 per share for total net proceeds of $3,350,000.

In December 2011 the Company received shareholder approval for the issuance of an additional 5,693,703 shares of Series 2 Preferred Stock at $0.08616 per share for total net proceeds of $490,569.

In December 2012 the Company received shareholder approval for the issuance of an additional 46,425,255 shares of Series 2 Preferred Stock at $0.08616 per share for total net proceeds of $4,000,000.

- 18 -

I.	WARRANTS:

At September 30, 2014 the following warrants were outstanding:

•

J.	STOCK OPTION PLAN:

Under the Company’s 2007 Stock Option Plan (the Plan), the Company, at the discretion of the plan administrator, may issue incentive stock options, nonqualified stock options, and stock purchase rights for shares of the Company’s common stock. All employees, directors, consultants, and independent contractors of the Company shall be eligible. The plan administrator may, in its discretion, determine restrictions and conditions on the exercisability of the stock options and stock purchase rights. No option shall be exercisable after expiration of ten periods from the date it was granted. The Plan was amended effective June 2012, to increase the number of shares of common stock reserved for issuance under the Plan from 19,100,000 to 43,100,000. At September 30, 2014, 197,573 shares were available for grant of options as determined by the plan administrator.

- 19 -

which such person must accept the offer. The Company has a repurchase option exercisable upon the voluntary or involuntary termination of the purchaser’s employment with the Company for any reason. The repurchase option shall lapse at such rate as the plan administrator may determine in its sole and absolute discretion. There were no grants of stock purchase rights during the nine months ended September 30, 2014.

The Company’s calculation for the employee grants under its stock-based compensation arrangements was made using the Black-Scholes-Merton model using the following assumptions during the nine months ended September 30, 2014 and year ended December 31, 2013:


	2014			2013

Dividend yield		0	%		0	%
Volatility		28.30	%		61.38	%
Discount rate		3	%		2	%
Expected life		6 years			6 years
Fair value of common stock per share	$	0.096		$	0.015

Total compensation cost related to nonvested awards not yet recognized is $189,162 as of September 30, 2014. It is expected to be recognized over the weighted-average period of 1.5 years.

- 20 -

A summary of the status of the Company’s stock option plan as of September 30, 2014 is presented below:


Fixed Options	Shares			Weighted Average Exercise Price

December 31, 2012		40,174,004		$	0.03
Granted		686,917		$	0.02
Exercised		(13,417	)	$	0.05
Expired		(40,000	)	$	0.10
Forfeited		(216,333	)	$	0.02

December 31, 2013		40,591,171		$	0.03

Granted		2,449,000		$	0.10
Exercised		(31,917	)	$	0.02
Expired		(122,000	)	$	0.10
Forfeited		(33,250	)	$	0.02

September 30, 2014		42,853,004		$	0.03


Exerciseable:
September 30, 2014		26,388,848

Weighted average fair value of options granted in 2014	$	0.01621

Information regarding fixed stock options outstanding at September 30, 2014 is presented below:


	Outstanding Options	Exerciseable Options
Range of exercise prices	$0.02 to $0.13	$0.02 to $0.13
Weighted-average remaining contractual life	7.39

K.	NON-STATUTORY STOCK OPTIONS

During the nine months ended September 30, 2014 the Company issued non-statutory stock options for shares of Series 1 Convertible Preferred Stock to two Board members, in consideration for their services on the Board. The total number of options outstanding as of September 30, 2014 was 6,963,788. The total number of options exercisable at September 30, 2014 and December 31, 2013 was 197,573 and 4,642,525, respectively. The remaining options vest quarterly over the next two periods. The exercise price of the options is $0.08616 and the expiration date is February, 2023. The fair value of the options at the grant date was estimate at $0.0016.

- 21 -

L.	RETIREMENT PLAN:

M.	SUBSEQUENT EVENTS:

Management has evaluated subsequent events involving the Company for potential recognition or disclosure in the accompanying unaudited consolidated financial statements through the date of the issuance. Subsequent events are events or transactions that occurred after the balance sheet date but before the accompanying consolidated financial statements are issued.

On November 17, 2014, the Company entered into an Agreement and Plan of Merger with M/A-COM Technology Solutions Holdings, Inc. (MACOM). In accordance with the Agreement and Plan of Merger, all of the outstanding equity interests (including outstanding warrants) of the Company were exchanged for aggregate consideration of approximately $224.1 million in cash.

- 22 -

EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS

On December 18, 2013, M/A-COM Technology Solutions Holdings, Inc. (MACOM) completed the acquisition of Mindspeed Technologies, Inc. (Mindspeed), a supplier of semiconductor solutions for communications infrastructure applications (Mindspeed Acquisition). MACOM completed the Mindspeed Acquisition through a cash tender offer (Offer) by Micro Merger Sub, Inc. (Merger Sub), a wholly-owned subsidiary of MACOM, for all of the outstanding shares of common stock, par value $0.01 per share, of Mindspeed (Shares) at a purchase price of $5.05 per share, net to the seller in cash, without interest, less any applicable withholding taxes (Offer Price). Immediately following the Offer, Merger Sub merged with and into Mindspeed, with Mindspeed surviving as a wholly-owned subsidiary of MACOM. At the effective time of the merger, each Share not acquired in the Offer (other than shares held by MACOM, Merger Sub and Mindspeed, and shares of restricted stock assumed by MACOM in the merger) was converted into the right to receive the Offer Price. MACOM funded the Mindspeed Acquisition through the use of available cash and borrowings under its revolving credit facility. The aggregate purchase price for the Shares, net of cash acquired, was $232.0 million and MACOM assumed $81.3 million of liabilities and incurred costs of $4.5 million in connection with the Mindspeed Acquisition.

On November 17, 2014, MACOM, through its wholly-owned subsidiary M/A-COM Technology Solutions Inc., entered into an Agreement and Plan of Merger with BinOptics Corporation (BinOptics), a supplier of high-performance photonic products. On December 15, 2014, MACOM completed the acquisition of BinOptics (BinOptics Acquisition). In accordance with the Agreement and Plan of Merger, all of the outstanding equity interests (including outstanding warrants) of BinOptics were exchanged for aggregate consideration of approximately $224.1 million in cash, subject to customary purchase price adjustments. MACOM funded the BinOptics Acquisition with a combination of cash on hand and the incurrence of $100.0 million of additional borrowings under our its revolving credit facility. MACOM incurred $4.6 million in transaction costs related to the BinOptics Acquisition.

Collectively, the Mindspeed Acquisition and the BinOptics Acquisition are referred to as the Acquisitions.

The following unaudited pro forma condensed combined financial statements (Unaudited Pro Forma Financial Information) are presented to illustrate the effects of the Acquisitions on MACOM’s historical results of operations and has been prepared to illustrate the effect of the Acquisitions and has been prepared for informational purposes only. The Unaudited Pro Forma Financial Information is based upon the historical consolidated financial statements and notes thereto of MACOM, Mindspeed and BinOptics and should be read in conjunction with the:

•

historical financial statements and the accompanying notes of MACOM included in MACOM’s Annual Report on Form 10-K for the fiscal year ended October 3, 2014;

•

historical financial statements and the accompanying notes of MACOM included in MACOM’s Quarterly Report on Form 10-Q for the three months ended January 2, 2015; and

•

historical financial statements and the accompanying notes of BinOptics for the year ended December 31, 2013. Also, the unaudited financial statements and accompanying notes as of September 30, 2014 and the income statement and cash flows for the nine months ended September 30, 2014 and 2013.

The historical consolidated financial information has been adjusted in the Unaudited Pro Forma Financial Information to give effect to pro forma events that are (1) directly attributable to the Acquisitions, (2) factually supportable and (3) with respect to the consolidated statement of operations, expected to have a continuing impact on the combined results of MACOM and Mindspeed or BinOptics. The following unaudited pro forma condensed combined consolidated statements of operations (Unaudited Pro Forma Statements of Operations) have been prepared assuming the Acquisitions had been completed on September 28, 2013, the first day of MACOM’s 2014 fiscal year. The Unaudited Pro Forma Financial Information has been adjusted with respect to certain aspects of the Acquisitions to reflect the consummation of the Acquisitions.

The Unaudited Pro Forma Financial Information was prepared in accordance with the acquisition method of accounting under accounting principles generally accepted in the United States (US GAAP) and the regulations of the United States Securities and Exchange Commission (SEC), and is not necessarily indicative of the financial position or results of operations that would have occurred

if the Acquisitions had been completed on the dates indicated, nor is it indicative of the consolidated future operating results or financial position of MACOM. Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes, which should be read in connection with the Unaudited Pro Forma Financial Information. In accordance with Article 11 of Regulation S-X, a pro forma balance sheet is not required as the Acquisitions have already been reflected in MACOM’s unaudited condensed consolidated balance sheet for the three months ended January 2, 2015 set forth in its Quarterly Report on Form 10-Q filed with the SEC on February 2, 2015.

The BinOptics Acquisition purchase price has been preliminarily allocated to the acquired assets and liabilities based upon their preliminary estimated fair values. Any excess purchase price has been allocated to goodwill. The accounting for the BinOptics Acquisition is dependent upon certain valuations and other studies that have not yet progressed to a stage where there is sufficient information for a definitive measurement. Accordingly, the Unaudited Pro Forma Financial Information has been prepared based upon preliminary estimates. The final amounts recorded for the BinOptics Acquisition may differ materially from the information presented. These estimates are subject to change pending further review of the assets acquired and liabilities assumed.

The Unaudited Pro Forma Financial Information does not reflect events that may occur after the Acquisitions, including, but not limited to, the anticipated realization of ongoing savings from operating synergies. It also does not give effect to certain one-time charges MACOM expects to incur in connection with the Acquisitions, including, but not limited to, restructuring charges that are expected to achieve ongoing cost savings and synergies.

M/A-COM Technology Solutions Holdings, Inc.

Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations

For the Year Ended October 3, 2014

(in thousands, expect per share amounts)


	M/A-COM Technology Solutions Holdings, Inc.			Mindspeed Technologies, Inc. (September 28, 2013 to December 18, 2013)			BinOptics Corporation (Year ended September 30, 2014)			Mindspeed Pro Forma Acquisition Adjustments			BinOptics Pro Forma Acquisition Adjustments			Total Pro Forma Adjustments			Notes (See Note 5)	Pro Forma Combined

Revenue	$	418,662		$	20,755		$	45,263		$	(1,299	)	$	—		$	(1,299	)	(a)	$	483,381

Cost of revenue		249,674			8,325			20,596			4,225			11,655			15,881		(a), (b), (c), (f), (g)		294,475

Gross profit		168,988			12,430			24,667			(5,524	)		(11,655	)		(17,180	)			188,906
Operating expenses:
Research and development		73,685			10,288			2,711			431			—			431		(c)		87,115
Selling, general and administrative		86,179			22,191			5,044			(13,026	)		7,132			(5,894	)	(b), (c), (d), (f)		107,520
Other expense		—			8,251			—			(7,599	)		—			(7,599	)	(e)		652
Restructuring charges		14,823			(10	)		—			—						—				14,813

Total operating expenses		174,687			40,720			7,755			(20,194	)		7,132			(13,062	)			210,100

Income (loss) from operations		(5,699	)		(28,290	)		16,912			14,670			(18,787	)		(4,118	)			(21,194	)
Other income (expense):
Warrant liability expense		(3,928	)		—			—			—			—			—				(3,928	)
Interest expense		(12,362	)		(801	)		(174	)		—			(4,750	)		(4,750	)	(h)		(18,087	)
Other income		3,217			—			—			—						—				3,217

Other income (expense), net		(13,073	)		(801	)		(174	)		—			(4,750	)		(4,750	)			(18,798	)

Income (loss) before income taxes		(18,772	)		(29,091	)		16,738			14,670			(23,537	)		(8,868	)			(39,992	)
Income tax provision (benefit)		(8,054	)		124			(8,272	)								(3,104	)	(i)		(19,306	)

Income (loss) from continuing operations		(10,718	)		(29,215	)		25,010			14,670			(23,537	)		(5,764	)			(20,686	)

Net income per share:
Basic income (loss) per common share:
Income (loss) from continuing operations	$	(0.23	)																	$	(0.44	)

Diluted income (loss) per common share:
Income (loss) from continuing operations	$	(0.23	)																	$	(0.44	)

Shares used to compute net income (loss) per common share:
Basic		47,009																			47,009

Diluted		47,009																			47,009

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

M/A-COM Technology Solutions Holdings, Inc.

Unaudited Pro Forma Condensed Combined Consolidated Statement of Operations

For the Three Months Ended January 2, 2015

(in thousands, expect per share amounts)


	M/A-COM Technology Solutions Holdings, Inc.			BinOptics Corporation (October 1, 2014 to December 15, 2014			Pro Forma Acquisition Adjustments			Notes (See Note 5)	Pro Forma Combined

Revenue	$	114,864		$	11,867		$	—			$	126,731
Cost of revenue		60,663			5,686			1,207		(j)		67,556

Gross profit		54,201			6,181			(1,207	)			59,175
Operating expenses:
Research and development		19,474			821			—				20,295
Selling, general and administrative		25,599			18,848			(21,580	)	(j), (k), (l)		22,867

Total operating expenses		45,073			19,669			(21,580	)			43,162

Income (loss) from operations		9,128			(13,488	)		20,373				16,013
Other income (expense):
Warrant liability expense		(10,608	)		—			—				(10,608	)
Interest expense		(4,723	)		(28	)		—				(4,751	)
Other income		375			—			—				375

Total other income (expense)		(14,956	)		(28	)		—				(14,984	)

Income (loss) before income taxes		(5,828	)		(13,516	)		20,373				1,029
Income tax provision		478			1,032			7,130		(m)		8,640

Income (loss) from continuing operations		(6,306	)		(14,548	)		13,243				(7,611	)

Net income (loss) per share:
Basic income (loss) per share:
Income (loss) from continuing operations	$	(0.13	)								$	(0.16	)

Diluted income (loss) per common share:
Income (loss) from continuing operations	$	(0.13	)								$	(0.16	)

Shares used:

Basic		47,606										47,606

Diluted		47,606										47,606

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

1. BASIS OF PRESENTATION

The Unaudited Pro Forma Statements of Operations were prepared using a three month period ending January 2, 2015 of 13 weeks. The fiscal year ended October 3, 2014 was 53 weeks in length.

The Acquisition are reflected in the Unaudited Pro Forma Financial Information as being accounted for under the acquisition method in accordance with guidance on accounting for business combinations under US GAAP.

The Unaudited Pro Forma Financial Information does not reflect ongoing cost savings or synergies that MACOM expects to achieve as a result of the Acquisitions or the costs necessary to achieve these savings and synergies.

In accordance with the guidance on accounting for business combinations, acquisition-related transaction costs and acquisition-related restructuring charges are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred. Total acquisition-related transaction costs incurred by MACOM were $4.5 million for the Mindspeed Acquisition and $4.6 million for the BinOptics Acquisition. These costs are excluded from the Unaudited Pro Forma Statement of Operations through pro forma adjustments.

Based on MACOM’s review of Mindspeed’s and BinOptics’ summary of significant accounting policies disclosed in Mindspeed’s and BinOptics’ historical financial statements and discussions with Mindspeed and BinOptics management, the nature and amount of any adjustments to the historical financial statements of Mindspeed and BinOptics to confirm their accounting policies to those of MACOM are not expected to be material. Further review of Mindspeed’s and BinOptics’ accounting policies and financial statements may result in required revisions to Mindspeeds’ and BinOptics’ policies and classifications to conform to MACOM’s.

The Unaudited Pro Forma Financial Information are presented for illustrative purposes only and are not necessarily indicative of the operating results that would have been achieved had the acquisition been completed as of the date indicated above or the results that may be attained in the future.

2. RECONCILIATION TO BINOPTICS’ HISTORICAL STATEMENT OF INCOME

A reconciliation of BinOptics’ historical statement of earnings for the year ended September 30, 2014 is as follows (in thousands):


	Year ended December 31, 2013			Less: Nine months ended September 30, 2013			Plus: Nine months ended September 30, 2014			Total

Sales, net		19,305			12,695			38,653			45,263
Cost of goods sold		11,314			7,703			16,985			20,596


Gross profit		7,991			4,992			21,668			24,667

Other expenses:
Research and development costs		2,705			2,051			2,057			2,711
Selling and administrative expenses		3,253			2,341			4,132			5,044


Income from operations		2,033			600			15,479			16,912

Other income (expense):		—			—			—			—
Interest expense		(151	)		(102	)		(125	)		(174	)


Income before income tax		1,882			498			15,354			16,738

Income tax benefit (expense)		1,485			—			6,787			8,272


Net income		3,367			498			22,141			25,010

3. ACQUISITION OF MINDSPEED

On December 18, 2013, MACOM completed the Mindspeed Acquisition through the Offer by Merger Sub, a wholly-owned subsidiary of MACOM, for all of the Shares at the Offer Price, a purchase price of $5.05 per share, net to the seller in cash, without interest, less any applicable withholding taxes. Immediately following the Offer, Merger Sub merged with and into Mindspeed, with Mindspeed surviving as a wholly-owned subsidiary of MACOM. At the effective time of the merger, each Share not acquired in the Offer (other than shares held by MACOM, Merger Sub and Mindspeed, and shares of restricted stock assumed by MACOM in the merger) was converted into the right to receive the Offer Price. MACOM funded the Mindspeed Acquisition through the use of available cash and borrowings under its revolving credit facility. The aggregate purchase price for the Shares, net of cash acquired, was $232.0 million and MACOM assumed $81.3 million of liabilities and incurred costs of $4.5 million in connection with the Mindspeed Acquisition.

MACOM recognized assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for Mindspeed was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to MACOM, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible.

MACOM finalized the purchase price allocation of the Mindspeed Acquisition during the three months ended January 2, 2015. The final allocation of purchase price is as follows:


	Amount
Current assets	$	50,612
Intangible assets		138,663
Deferred income taxes		92,881

Other assets		31,788

Total assets acquired		313,944

Liabilities assumed:
Current liabilities		35,270
Debt		40,177
Other liabilities		5,865

Total liabilities assumed		81,312

Net assets acquired		232,632

Consideration:
Cash paid upon closing, net of cash acquired		232,028
Fair value of vested awards assumed in acquisition		785

Total consideration		232,813

Goodwill	$	181

In connection with the Mindspeed Acquisition, MACOM assumed all of the outstanding options and all unvested restricted stock awards under Mindspeed’s equity plans and converted such options and stock awards into equivalent MACOM awards under the same general terms and conditions as were in existence with adjustments made to shares and exercise prices, if any, pursuant to a formula stipulated in the terms of the acquisition. The fair value of the assumed options and stock awards was $4.1 million, of which $0.8 million relates to vested stock options and has been included in the purchase consideration and the remainder relates to unvested stock options and stock awards, which will be expensed as the remaining services are provided.

The components of the acquired intangible assets were as follows (in thousands):


	Amount		Useful Lives (Years)

Developed technology	$	109,263	7
Customer relationships		11,430	10
In-process research and development		17,970	N/A

	$	138,663

The overall weighted-average life of the identified intangible assets acquired in the acquisition is estimated to be seven years.

Estimated amortization of the intangible assets in future fiscal years, is as follows (in thousands):


2015	$	18,650
2016		17,239
2017		16,326
2018		13,688
2019		11,774
Thereafter		18,568

	$	96,245

Certain developed technology intangibles were sold during 2014 in conjunction with the sale of the Mindspeed CPE product line. The table above excludes amortization related to such assets. In addition, a portion of the In-process research and development project intangibles was completed in 2014 and the related amortization is included in the table above.

4. ACQUISITION OF BINOPTICS

On November 17, 2014, MACOM, through its wholly-owned subsidiary M/A-COM Technology Solutions, Inc., entered into an Agreement and Plan of Merger with BinOptics. On December 15, 2014, MACOM completed the BinOptics Acquisition. In accordance with the Agreement and Plan of Merger, all of the outstanding equity interests (including outstanding warrants) of BinOptics were exchanged for aggregate consideration of approximately $224.1 million in cash, subject to customary purchase price adjustments. MACOM funded the BinOptics Acquisition with a combination of cash on hand and the incurrence of $100.0 million of additional borrowings under its existing revolving credit facility. MACOM incurred $4.6 million in transaction costs related to the BinOptics Acquisition.

MACOM is recognizing BinOptics’ assets acquired and liabilities assumed based upon the fair value of such assets and liabilities measured as of the date of acquisition. The aggregate purchase price for BinOptics is being allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the acquired net assets represents cost and revenue synergies specific to MACOM, as well as non-capitalizable intangible assets, such as the employee workforce acquired, and has been allocated to goodwill, none of which is tax deductible. A preliminary allocation follows (in thousands):


	Amount
Current assets	$	41,836
Intangible assets		135,254
Other assets		14,090

Total assets acquired		191,180

Current liabilities
Debt		1,491
Deferred income taxes		37,745
Other liabilities		12,810

Total liabilities assumed		52,046

Net assets acquired		139,134

Consideration:
Cash paid upon closing, net of cash acquired		224,114

Goodwill	$	84,980

The components of the acquired intangible assets on a preliminary basis were as follows (in thousands):


	Amount		Useful Lives (Years)

Developed technology	$	17,954	7
Customer relationships		113,500	10
Backlog		3,800	1

	$	135,254

The overall weighted-average life of the identified intangible assets acquired in the BinOptics Acquisition is estimated to be 9.3 years and the assets are being amortized over their estimated useful lives based upon the pattern over which MACOM expects to receive the economic benefit from these assets.

Estimated amortization of the intangible assets in future fiscal years, subject to the completion of the purchase price allocation for the BinOptics Acquisition, is as follows (in thousands):


2015	$	9,747
2016		11,230
2017		12,878
2018		14,289
2019		15,510
Thereafter		59,145

	$	122,799

The purchase accounting for the BinOptics Acquisition is preliminary and subject to completion including the areas of taxation where a study of the potential utilization of acquired net operating losses is not yet complete, and certain fair value measurements, particularly the finalization of the valuation assessment of the acquired tangible and intangible assets. The adjustments arising from the completion of the outstanding matters may materially affect the preliminary purchase accounting and would be retroactively reflected in the financial statements as of January 2, 2015 and for the interim period then ended.

5. UNAUDITED PRO FORMA ADJUSTMENTS

The following is a summary of the adjustments made to the Unaudited Pro Forma Financial Information for the fiscal year ended October 3, 2014 and should be read in conjunction with Notes 1 through 4 above.

(a)	To reflect a decrease of Mindspeed’s revenue related to the decreased of deferred revenue to estimated fair value (in thousands):


Revenue	$	(1,299	)
Cost of revenue		(280	)

(b)	To reflect in the pro forma incremental amortization from the $138.7 million of acquired Mindspeed intangible assets as follows (in thousands):


Cost of revenue	$	4,144
Selling, general and administrative		124

(c)	To reflect the pro forma incremental depreciation expense resulting from the increase to fair value of the Mindspeed property and equipment based upon the estimated weighted average useful lives of four years (in thousands):


Cost of revenue	$	361
Research and development		431
Selling, general and administrative		62

(d)	To eliminate $13.2 million of transaction costs related to payments made to third parties in connection with the Mindspeed Acquisition, as those costs are non-recurring in nature.

(e)	To eliminate the $7.6 million of the expense related to the payment of a “make-whole premium” in cash equal to the sum of the remaining scheduled interest payments to the holders of Mindspeed’s convertible debt, as that cost is non-recurring in nature.

(f)	To reflect in the pro forma incremental amortization from the $135.3 million of acquired BinOptics intangible assets as follows (in thousands):


Cost of revenue	$	5,323
Selling, general and administrative		7,132

(g)

The BinOptics inventory was increased to estimated realizable value, which has been estimated to be sales price less cost to sell through plus a reasonable margin of selling effort. This pro forma adjustment reflects the $6.3 million of incremental cost resulting from the increase to realizable value of the BinOptics inventory.

(h)	To reflect the pro forma increase of $4.8 million of interest expense related to the $100.0 million MACOM borrowed under its revolving credit facility to fund the acquisition of BinOptics at an interest rate of approximately 4.75%

(i)	To record the estimated tax effect related to the pro forma adjustments based on the statutory rate of 35%.

The following is a summary of the adjustments made to the Unaudited Pro Forma Financial Information for the three months ended January 2, 2015 and should be read in conjunction with Notes 1 through 4 above.

(j)	To reflect in the pro forma incremental amortization from the $135.3 million of acquired BinOptics intangible assets as follows (in thousands):


Cost of revenue	$	1,207
Selling, general and administrative		1,310

(k)	To eliminate $13.2 million of expenses related compensation costs paid to BinOptics employees to buy-out the employees’ BinOptics stock options, as those costs are non-recurring in nature.

(l)	To eliminate $9.7 million of transaction costs related to payments made to third parties in connection with the BinOptics Acquisition, as those costs are non-recurring in nature.

(m)	To record the estimated tax effect related to the pro forma adjustments based on the statutory rate of 35%.