Exhibit 99.2
INTEGRAL ANALYTICS, INC.
CINCINNATI, OHIO
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2016
AND
INDEPENDENT AUDITORS’ REPORT
A Professional Association Certified Public Accountant
INTEGRAL ANALYTICS, INC.
Cincinnati, Ohio
TABLE OF CONTENTS
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Independent Auditors’ Report on Financial Statements | 1 |
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Financial Statements: | |
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Balance Sheet | 2 |
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Statement of Income and Retained Earnings | 3 |
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Statement of Shareholders’ Equity | 4 |
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Statement of Cash Flows | 5 |
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Notes to Financial Statements | 6 - 8 |
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| One East Fourth Street, Suite 1200, Cincinnati, Ohio 45202 P. 513.241.3111 | F. 513.241.1212 | cshco.com |
To the Board of Directors
Integral Analytics, Inc.
INDEPENDENT AUDITORS’ REPORT ON FINANCIAL STATEMENTS
Report on the Financial Statements
We have audited the accompanying financial statements of Integral Analytics, Inc. (an S corporation), which comprise the balance sheet as of December 31, 2016, and the related statements of operations, shareholder’s equity, and cash flows for the year 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 financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these 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 financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the 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 financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Integral Analytics, Inc.as of December 31, 2016, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Clark, Schaefer, Hackett & Co.
Cincinnati, Ohio
July 28, 2017
One East Fourth Street Suite 1200 Cincinnati, Ohio 45202 Phone: (513) 241‑3111 Fax: (513) 241‑1212 www.cshco.com
INTEGRAL ANALYTICS, INC.
BALANCE SHEET
As of December 31, 2016
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ASSETS |
Current Assets: | | | |
Cash and cash equivalents | | $ | 1,022,526 |
Accounts receivable, net of allowance of $74,694 | | | 938,163 |
Prepaid expenses | | | 74,871 |
Total current assets | | | 2,035,560 |
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Property and equipment: | | | |
Furniture and equipment | | | 51,276 |
Computer equipment | | | 26,171 |
Software | | | 10,000 |
Total property and equipment | | | 87,447 |
Less accumulated depreciation | | | 78,018 |
Net property and equipment | | | 9,429 |
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Other Assets: | | | |
Deposits | | | 2,271 |
Intangible assets, less accumulated amortization of $31,529 | | | 172,776 |
Total other assets | | | 175,047 |
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Total Assets | | $ | 2,220,036 |
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LIABILITIES AND SHAREHOLDER’S EQUITY |
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Current Liabilities: | | | |
Accounts payable | | $ | 473,035 |
Accrued expenses | | | 58,854 |
Accrued shareholders’ distributions | | | 130,276 |
Deferred revenue | | | 647,457 |
Total current liabilities | | | 1,309,622 |
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Long term liabilities: | | | |
Shareholder notes payable | | | 188,600 |
Total Liabilities | | | 1,498,222 |
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Shareholders’ Equity: | | | |
Common stock; no par value; 9,000 shares authorized | | | |
5,057 shares issued; 4,542 outstanding | | | 202,393 |
Treasury stock; 515 shares, at cost | | | (52,232) |
Retained earnings | | | 571,653 |
Total shareholder’s equity | | | 721,814 |
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Total liabilities and shareholder’s equity | | $ | 2,220,036 |
The accompanying notes are an integral part of these statements.
INTEGRAL ANALYTICS, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
For the year ended December 31, 2016
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Revenues: | | | |
Software licenses | | $ | 1,806,138 |
Consulting and other revenue | | | 2,783,626 |
Total revenues | | | 4,589,764 |
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Cost of revenues: | | | |
Software licenses | | | 1,702,352 |
Consulting and other revenue | | | 366,077 |
Total cost of revenues | | | 2,068,429 |
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Gross profit | | | 2,521,335 |
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Operating expenses: | | | |
Product development | | | 1,083,618 |
Operations | | | 273,660 |
Sales and marketing | | | 363,386 |
General and administrative | | | 1,437,309 |
Total operating expenses | | | 3,157,973 |
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Loss from operations | | | (636,638) |
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Other expenses: | | | |
Interest expense | | | 14,575 |
Bad debt expense | | | 74,694 |
Total other expenses | | | 89,269 |
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Net loss | | $ | (725,907) |
The accompanying notes are an integral part of these statements.
INTEGRAL ANALYTICS, INC.
STATEMENT OF SHAREHOLDERS’ EQUITY
For the year ended December 31, 2016)
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| | Common Stock | | Treasury | | | | |
| | Shares | | Amount | | Stock | | Retained Earnings | | Total |
Balance at January 1, 2016 | | 4,465 | | $ | 202,255 | | $ | (52,232) | | $ | 1,297,560 | | $ | 1,447,583 |
Issuance of common stock | | 77 | | | 138 | | | — | | | — | | | 138 |
Net loss | | — | | | — | | | — | | | (725,907) | | | (725,907) |
Balance at December 31, 2016 | | 4,542 | | $ | 202,393 | | $ | (52,232) | | $ | 571,653 | | $ | 721,814 |
The accompanying notes are an integral part of these statements.
INTEGRAL ANALYTICS, INC.
STATEMENT OF CASH FLOW
For the year ended December 31, 2016
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Cash flows from operating activities | | | | |
Net loss | | $ | (725,907) | |
Adjustments to reconcile net loss to net cash used by operations: | | | | |
Bad debt expense | | | 74,694 | |
Depreciation | | | 7,325 | |
Amortization | | | 9,599 | |
Effects of changes in operating assets and liabilities | | | | |
Accounts receivable | | | (454,409) | |
Prepaid expenses and other assets | | | 28,878 | |
Accounts payable | | | 433,848 | |
Accrued expenses | | | (17,695) | |
Deferred revenue | | | (3,286) | |
Net cash used in operating activities | | | (646,953) | |
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Cash flows from investing activities | | | | |
Capitalized patent costs | | | (35,446) | |
Net cash used in investing activities | | | (35,446) | |
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Cash flows from financing activities | | | | |
Issuance of common stock | | | 138 | |
Net cash provided by financing activities | | | 138 | |
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Net decrease in cash and cash equivalents | | | (682,261) | |
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Cash and cash equivalents at beginning of year | | | 1,704,787 | |
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Cash and cash equivalents at end of year | | $ | 1,022,526 | |
Supplemental disclosures | | | | |
State and local income taxes paid, net of refunds | | $ | 2,281 | |
Interest paid | | $ | 15,084 | |
The accompanying notes are an integral part of these statements.
INTEGRAL ANALYTICS, INC.
Cincinnati, Ohio
NOTES TO FINANCIAL STATEMENTS
Note 1 — Summary of Significant Accounting Policies
Integral Analytics, Inc. (the “Company”) is a utility software provider which conducts business throughout the United States of America. The Company’s primary products are advanced analytical software for use by utility companies in the energy, power generation, transmission and delivery industries in evaluating and forecasting demand and capacity planning and to meet regulatory requirements. In connection with the licensing of its software, the Company also provides consulting and support services, and contracts to install hardware systems for its software products. The following is a summary of the significant accounting policies followed in the preparation of the financial statements.
Cash equivalents
The Company maintains cash in bank deposit accounts at financial institutions where the balances, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risks on its cash balances.
Accounts receivable
The Company carries its accounts receivable at the original invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts, based on a history of past write-offs and collections and current credit conditions. The Company has recorded an allowance for doubtful accounts of $74,694 as of December 31, 2016.
Advertising expense
Advertising expenses are charged to income during the year in which they are incurred. The Company recognized $25,502 in advertising expenses in the year ended December 31, 2016.
Income taxes
The Company is treated as a S-Corporation for federal income tax purposes. Members are taxed individually on their share of the Company’s earnings in accordance with the Company’s operating agreement. Accordingly, no liabilities or income tax provisions for federal or state income taxes are recorded in the accompanying financial statements.
Property and depreciation
Property is recorded at cost. Depreciation is provided on the straight-line method over the estimated useful lives of the respective assets, generally 3 - 7 years for office furniture and fixture, computer equipment, and software.
Intangible assets
Intangible assets consist of the following at December 31, 2016:
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Patents | | $ | 204,305 |
Less accumulated amortization | | | (31,259) |
| | $ | 172,776 |
Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. Patent costs are accumulated until a patent is either issued, denied, or the Company abandons the patent process. Patent lives are typical 20 years from the first filing date, and the Company amortizes patent costs from the date of issuance until the patent period expires.
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2017 | | $ | 9,599 |
2018 | | | 9,599 |
2019 | | | 9,599 |
2020 | | | 9,599 |
2021 | | | 9,599 |
Thereafter | | | 124,781 |
| | $ | 172,776 |
Intangible assets are reviewed annually for impairment or when events or circumstances indicate their carrying amount may not be recoverable. Management has determined that no impairment is necessary at December 31, 2016.
Revenue recognition
Revenues from software license agreements and maintenance contracts are recognized ratably of the life of the agreements. Payments for the Company’s license and maintenance agreements are collected in advance and recognized ratably over the contractual period, typically one year. Deferred revenue represents the unrecognized portion to be recognized in future periods. The Company recognizes consulting revenue as services are rendered based on agreed upon consulting rates. The Company’s systems design contracts are recognized on a milestone basis in accordance with its contracts with customers.
Software costs
Costs associated with the maintenance and support of the Company’s software product are expensed as incurred in accordance with the Costs of Computer Software to be Sold, Leased or Otherwise Marketed topic of the FASB Accounting Standards Codification.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Subsequent events
The Company evaluates events and transactions occurring subsequent to the date of the financial statements for matters requiring recognition or disclosure in the financial statements. The accompanying financial statements consider events through July 28, 2017, the date on which the financial statements were available to be issued.
Note 2 — Concentration of Credit Risk
Revenue from two customers represented approximately 65% of total Integral Analytics, Inc. revenue for the year ended December 31, 2016. Accounts receivable from two customers represented approximately 68% of total Integral Analytics, Inc. receivables as of December 31, 2016.
INTEGRAL ANALYTICS, INC.
Cincinnati, Ohio
NOTES TO FINANCIAL STATEMENTS
Note 3 — Operating Lease Commitments
The Company leases its Cincinnati office and other office locations under operating leases, on a month to month basis. Rental expense under these leases ranges from $557 a month to $2,912 per month, with $55,520 of expense for the year ended December 31, 2016.
Note 4 — Retirement Plan
The Company has a 401(k) plan which covers all employees who meet the eligibility requirements. The Company matches 100% of employee contributions up to 6% of qualifying compensation. Company contributions to this plan were $118,713 during the year ended December 31, 2016.
Note 5 — Shareholder Notes Payable
The Company has notes payable to shareholders with interest payable annually at 8% per annum. The notes can be called by the shareholders with 180 days notice. The outstanding balance at December 31, 2016 was $188,600. The notes are shown as long-term as the shareholders do not intend to call them in the immediate future.
Note 6 —Research and Development Costs
The Company expenses product development costs as they are incurred. Product development expense incurred for the year ended December 31, 2016 was $1,083,618.
Note 7 — Subsequent Event
On July 28, 2017 the shareholders sold all of the Company’s stock to a publicly traded entity. In connection with the sale, all assets and business operations were sold and certain liabilities were assumed by the new parent company. Shareholder notes payable Company were settled as part of the stock purchase agreement.
