COMBINED FINANCIAL STATEMENTS   Bivio Software Business (Carve-Out of Certain Operations of Bivio Networks, Inc.) January 31, 2012 and 2011 and for the Years Then Ended With Report of Independent Auditors

 

(Carve-Out of Certain Operations of Bivio Networks, Inc.)

 

January 31, 2012 and 2011

 

	Page
Combined Financial Statements
Combined Balance Sheets	F-1
Combined Statements of Operations	F-2
Combined Statements of Changes in Net Parent Company Investment	F-3
Combined Statements of Cash Flows	F-4
Notes to Combined Financial Statements	F-5
Independent Auditors’ Report	F-11

 

(Carve-Out of Certain Operations of Bivio Networks, Inc.)

 

		January 31, 2012				January 31, 2011
Assets
Current assets:
Cash and cash equivalents		$	95,800			$	109,900
Accounts receivable, net of allowance for doubtful accounts of $53,500			959,200				261,200
Inventory, net			-				518,100
Prepaid expenses and other current assets			121,800				128,600
Total current assets			1,176,800				1,017,800
Property and equipment, net			79,400				182,800
Intangible assets, net			180,000				260,000
Goodwill			207,000				207,000
Other assets			50,600				45,700
Total assets		$	1,693,800			$	1,713,300
Liabilities and Net Bivio Networks, Inc. Investment
Accounts payable		$	129,100			$	125,900
Accrued expenses			280,500				257,000
Deferred revenue			1,647,100				554,100
Total liabilities			2,056,700				937,000
Commitments and contingencies (Note 4)
Net Bivio Networks, Inc. investment			(362,900	)			776,300
Total liabilities and net Bivio Networks, Inc. investment		$	1,693,800			$	1,713,300

(Carve-Out of Certain Operations of Bivio Networks, Inc.)

 

 

		Fiscal Years Ended
		January 31, 2012				January 31, 2011
Revenues
Product sales		$	1,954,400			$	9,900
Software sales			643,900				191,100
Service revenue			177,700				94,000
Support services			511,300				27,500
Total revenues			3,287,300				322,500
Cost of revenues
Cost of product sales			709,300				4,400
Cost of software sales			19,600				11,200
Cost of service revenue			88,900				13,800
Cost of support services			71,600				12,500
Total cost of revenues			889,400				41,900
Gross margin			2,397,900				280,600
Operating expenses
General and administrative expense			3,803,600				3,895,100
Research and development expense			2,849,000				3,073,800
Total operating expenses			6,652,600				6,968,900
Loss from operations			(4,254,700	)			(6,688,300	)
Provision for income taxes			-				-
Net loss		$	(4,254,700	)		$	(6,688,300	)

 

(Carve-Out of Certain Operations of Bivio Networks, Inc.)

 

Combined Statements of Changes in Net Parent Company Investment

 

Balance at January 31, 2010		$	734,700
Net loss			(6,688,300	)
Transfers from Bivio			6,729,900
Balance at January 31, 2011			776,300
Net loss			(4,254,700	)
Transfers from Bivio			3,115,500
Balance at January 31, 2012		$	(362,900	)

 

(Carve-Out of Certain Operations of Bivio Networks, Inc.)

 

		Fiscal Years Ended
Cash flows from operating activities:		January 31, 2012				January 31, 2011
Net loss	$	(4,254,700		)		$	(6,688,300	)
Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:
Depreciation and amortization			199,300				288,100
Decrease (increase) in accounts receivable			(698,000	)			66,200
Decrease (increase) in inventory			518,100				(518,100	)
Decrease (increase) in prepaid expenses and other current assets			6,800				(25,800	)
Increase in other assets			(4,900	)			(23,200	)
Increase in accounts payable and accrued expenses			26,700				101,400
(Decrease) increase in deferred revenue			1,093,000				117,700
Total adjustments			1,141,000				6,300
Net cash used in operating activities			(3,113,700	)			(6,682,000	)
Cash flows from investing activities:
Property and equipment expenditures			(15,900	)			(12,400	)
Net cash used in investing activities			(15,900	)			(12,400	)
Cash flows from financing activities:
Net transfers from Bivio Networks, Inc.			3,115,500				6,729,900
Net cash provided by financing activities			3,115,500				6,729,900
Net increase (decrease) in cash and cash equivalents			(14,100	)			35,500
Cash and cash equivalents at beginning of period			109,900				74,400
Cash and cash equivalents at end of period	$		95,800			$	109,900
Cash paid for interest			-				-
Cash paid for income taxes			-				-

 

 

(Carve-Out of Certain Operations of Bivio Networks, Inc.)

 

 

Note 1 — Background and Nature of Operations

 

 

 

 

 

       For arrangements that include both software and non-software elements, we allocate revenue to the software deliverables as a group and non-software deliverables based on their relative selling prices.  In such circumstances, the accounting principles establish a hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows: (i) VSOE, (ii) third-party evidence of selling price ("TPE") and (iii) best estimate of the selling price ("ESP").  When we are unable to establish a selling price using VSOE, or TPE, we use ESP to allocate the arrangement fees to the deliverables.

 

    Provided the fees are fixed or determinable and collection is considered probable, revenue from licensing rights and sales of hardware and third-party software is generally recognized upon physical or electronic shipment and transfer of title. In certain transactions where collection risk is high, the revenue is deferred until collection occurs or becomes probable. If the fee is not fixed or determinable, then the revenue recognized in each period (subject to application of other revenue recognition criteria) will be the lesser of the aggregate of amounts due and payable or the amount of the arrangement fee that would have been recognized if the fees were being recognized using the residual method. Fees which are considered fixed or determinable at the inception of Bivio Software Business's arrangements must include the following characteristics:

·	The fee must be negotiated at the outset of an arrangement and generally be based on the specific volume of products to be delivered without being subject to change based on variable pricing mechanisms such as the number of units copied or distributed or the expected number of users.

·	Payment terms must not be considered extended. If a significant portion of the fee is due more than 12 months after delivery or after the expiration of the license, the fee is presumed not fixed or determinable.

·	the price is fixed or determinable;

·	the customer is obligated to pay and there are no contingencies surrounding the obligation or the payment;

·	the customer's obligation would not change in the event of theft or damage to the product;

·	the customer has economic substance;

·	the amount of returns can be reasonably estimated; and

·	Bivio Software does not have significant obligations for future performance in order to bring about resale of the product by the customer.

 

 

 

 

 

 

    Research and Development Costs.    Bivio Software funds research and development from internal cash flow from operations, and costs are expensed as incurred.

		January 31, 2012				January 31, 2011
Accounts receivable, gross		$	1,012,700			$	314,700
Allowance for doubtful accounts			(53,500	)			(53,500	)
Accounts receivable, net		$	959,200			$	261,200

 

		January 31, 2012				January 31, 2011
Property and equipment:
Computer equipment		$	217,800			$	207,800
Lab and test equipment			1,566,400				1,560,500
Furniture and fixtures			80,800				80,800
			1,865,000				1,849,100
Less accumulated depreciation and amortization			(1,785,600	)			(1,666,300	)
		$	79,400			$	182,800

 

		January 31, 2012				January 31, 2011
Intangible assets, gross		$	400,000			$	400,000
Less accumulated amortization			(220,000	)			(140,000	)
Intangible assets, net		$	180,000			$	260,000

 

		January 31, 2012				January 31, 2011
Accrued expenses:
Compensation		$	155,000			$	128,800
Other accrued expenses			125,500				128,200
		$	280,500			$	257,000

		January 31, 2012				January 31, 2011
Maintenance		$	623,900			$	259,500
Undelivered software			1,023,200				294,600
Deferred revenue		$	1,647,100			$	554,100

 

 

Fiscal Year		Operating Leases
2013		$	63,200
2014			43,400
2015			43,400
2016			43,400
Future minimum lease payments		$	193,400

 

    Total rent expense for operating leases amounted to $215,500 and $198,400 for the fiscal years ended January 31, 2012 and 2011, respectively. Rent expense is recognized on a straight-line basis over the lease period. Deferred rent amounts are immaterial.

 

 

 

 

 

Bivio Software Business

 

 

 

 

/s/ Squar, Milner, Peterson, Miranda, & Williamson, LLP

 

 

February 8, 2013