Exhibit 99.1

 

Independent Auditor’s Report

 

The Board of Directors

 

We have audited the accompanying combined balance sheet of PIEPS Holding GmbH and PIEPS GmbH (collectively, “the Company”) as of March 31, 2012, and the related combined statements of income, changes in equity and cash flows for the year then ended. These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these combined 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 of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the Company as of March 31, 2012, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in Austria.

 

Accounting principles generally accepted in Austria vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in note V. to the combined financial statements.

 

[s] KPMG Austria AG Wirtschaftsprüfungs- und Steuerberatungsgesellschaft

 

Vienna, Austria

 

December 13, 2012

 

 

 PIEPS Holding GmbH and PIEPS GmbH

Combined Balance Sheet as of March 31, 2012

(in Euros and thousands)

 

						KEUR				KEUR
A.		Fixed assets
		I.		Intangible assets
				Concessions, trade mark right and similar rights							65
		II.		Tangible assets
		1.		Technical plants and machinery			67
		2.		Other property, plant and equipment			97
		3.		Prepayments on assets under construction			167
											331
											396
B.		Current assets
		I.		Inventories
				Merchandise							978
		II.		Receivables and other current assets
		1.		Trade receivables			750
		2.		Other accounts receivables and current assets			117
											867
		III.		Cash and cash equivalents							38
											1,883
C.		Prepaid expenses
				Other prepaid expenses							1
		Total Assets									2,280
A.		Shareholder's equity
		I.		Combined share capital							168
		II.		Combined retained earnings and profits							288
											456
B.		Provisions
		1.		Provision for taxes			14
		2.		Provisions for severance indemnity			9
		3.		Other provisions and accruals			373
											396
C.		Liabilities
		1.		Bank loans and overdrafts			670
		2.		Trade payables			157
		3.		Liabilities against affiliated companies			400
		4.		Other liabilities			201
											1,428
		Total Equity and Liabilities									2,280
		Contingent Liabilities									11

  

 

PIEPS Holding GmbH and PIEPS GmbH

Combined Income Statement for the Fiscal Year 2012

(in Euros and thousands)

 

						2011/12				2011/12
						KEUR				KEUR
1.				Revenue							6,018
2.				Other operating income
		a)		Other income			107
											107
3.				Expenses for materials and other purchased services
		a)		Expenses for materials			(892	)
		b)		Expenses for services			(2,199	)
											(3,091	)
4.				Personnel expenses
		a)		Wages			(23	)
		b)		Salaries			(560	)
		c)		Expenses for severance payments and contributions to respective funds			(9	)
		d)		Expenses for statutory social security and payroll related taxes and contributions			(147	)
		e)		Other employee benefits			(14	)
											(753	)
5.				Depreciation on intangible assets and tangible assets							(123	)
6.				Other operating expenses
		a)		Taxes, other than income taxes			-
		b)		Other expenses			(1,567	)
											(1,567	)
7.				Operating result =
				Subtotal of lines 1 to 6							591
8.				Other interest and similar income							3
9.				Interest and similar expenses							(48	)
10.				Financial result =
				Subtotal of lines 8 and 9							(45	)
11.				Profit from ordinary business operations							546
12.				Taxes on income and earnings							(167	)
13.				Net income for the year							379
14.				Combined loss carryforward							(91	)
15.				Combined retained earnings and profits							288

 

 

PIEPS Holding GmbH and PIEPS GmbH

Combined Statement of Changes in Equity for the Fiscal Year 2012

(in Euros and thousands)

 

		Combined share capital				Retained earnings				Net profit				Total equity
in EUR		KEUR				KEUR				KEUR				KEUR
Balance as of April 1, 2011			168				389				-				557
Dividends to third-parties			-				(480	)			-				(480	)
Net income for the year			-				-				379				379
Balance as of March 31, 2012			168				(91	)			379				456

 

 

PIEPS Holding GmbH and PIEPS GmbH

Combined Statement of Cash Flows for the Fiscal Year 2012

(in Euros and thousands)

 

		2012
		KEUR
Net income for the year			379
Depreciation of fixed assets			123
Change in inventories, advances paid and prepaid expenses			(379	)
Change in trade receivables, receivables from affiliated companies and other receivables and assets			(32	)
Change in trade payables, liabilities to affiliated companies and other payables			199
Change in short-term provisions and accruals			79
CASH FLOW FROM OPERATING ACTIVITIES			369
Investments in fixed assets			(139	)
CHASH FLOW FROM INVESTING ACTIVITIES			(139	)
Dividends			(480	)
Proceeds from short-term loans			240
CASH FLOW FROM FINANCING ACTIVITIES			(240	)
CHANGE IN CASH AND CASH EQUIVALENTS			(10	)
Opening Balance of cash and cash equivalents			48
Closing balance of cash and cash equivalents			38

 

 

PIEPS Holding GmbH and PIEPS GmbH

Notes to Combined Financial Statements 

(in Euros and in thousands) 

 

I.

EXPLANATION OF ACCOUNTING POLICIES

 

1.

General

 

Basic Principles 

 

The combined financial statements have been prepared in accordance with the financial reporting requirements of the Austrian Commercial Code (Unternehmensgesetzbuch, UGB), as amended.

 

The annual financial statements of the combined entities, prepared on the basis of standards applied consistently throughout, form the basis for these combined financial statements.

 

All companies prepare their annual financial statements for the year ended March 31.

 

The combined financial statements are prepared in thousands of Euros ("KEUR").

 

Basis for Combined Financial Statements

 

The combined financial statements comprise PIEPS Holding GmbH and PIEPS GmbH (“PIEPS” or the “Company”). These entities were under control of Seidel Privatstiftung and its beneficiaries. Effective April 1, 2012, PIEPS Holding GmbH merged with PIEPS GmbH. We adjusted the financial statements as of March 31, 2012 for known subsequent events occurring since the financial statements as of March 31, 2012 were prepared.

 

Method of the Combination

 

The combined financial statements of PIEPS eliminate the impacts of all intercompany transactions and accounts.

 

Accounting Policies

 

These combined financial statements have been prepared in accordance with Austrian generally accepted accounting principles and the general standard of presenting a true and fair view of the net assets, financial position and results of operations of the Company.

 

The combined financial statements have been prepared in accordance with the principle of completeness. The principle of item-by-item measurement was applied to the measurement of individual assets and liabilities and the continued existence of the Company as a going concern was assumed. Compliance with the prudence principle was ensured by reporting only those profits that had been realized as at the balance sheet date. All identifiable risks and expected losses were taken into account. The measurement methods used previously were retained in the preparation of these combined financial statements.

 

2.

Foreign Currency Translation

 

Receivables denominated in a foreign currency are stated at the exchange rate at the date of transaction or the closing rate at the date of the statement of financial position, if lower.

 

Liabilities denominated in a foreign currency are stated at the exchange rate at the date of transaction or the closing rate at the date of the statement of financial position, if higher.

 

 

PIEPS Holding GmbH and PIEPS GmbH

Notes to Combined Financial Statements - Continued

(in Euros and in thousands)

 

3.

Fixed Assets

 

a)

Intangible Assets

 

Purchased intangible assets are measured at cost less straight-line amortization, with the exception of trade mark rights which are not amortized as they have an indefinite life. Amortization is based on the following useful lives:

 

	IT and software	3-5 years
	Other rights	3-5 years

 

Material permanent impairment is accounted for by recognizing write-downs for impairment.

 

Internally generated intangible assets are not capitalized.

 

b)

Tangible Assets

 

Tangible assets are measured at cost less depreciation. Low-value assets with an individual cost of up to KEUR 1 are fully expensed in the year of acquisition. In the schedule of changes in fixed assets, they are reported as additions, disposals and depreciation of the financial year in which they were acquired. Tangible assets are depreciated using the straight-line method over the expected useful life. Depreciation is based on the following useful lives:

 

	Technical plants and machinery	3-11 years
	Other property, plant and equipment	3-11 years

 

Depreciation is based on the half-year convention, where assets purchased during the first six months of the year are subject to a full year's depreciation and assets purchased in the second half of the year are subject to six months depreciation regardless of the actual date placed in service.

 

Additional write-downs in excess of regular depreciation are recognized, if impairment occurs which is expected to be permanent.

 

4.

Current Assets

 

a)

Inventories

 

Merchandise is measured at the lower of cost or market prices.

 

b)

Receivables and Other Current Assets

 

Receivables and other current assets are recognized at their nominal amounts.

 

If there are identifiable individual risks, the lower fair value is determined and these assets are recognized at this value. Securities classified as current assets are measured at the lower of cost or market value as at the balance sheet date.

 

c)

Cash and Cash Equivalents

 

Cash and cash equivalents comprise cash in hand and bank balances.

 

 

PIEPS Holding GmbH and PIEPS GmbH

Notes to Combined Financial Statements - Continued

(in Euros and in thousands)

 

5.

Provisions

 

There were KEUR 9 in obligations for severance payments as at the balance sheet date that require a provision.

 

Provisions for long-service awards were calculated according to actuarial principles applying an imputed interest rate of 4%. A staff turnover discount of 75% was applied. According to management's assessment, the discount is appropriate given the current personnel structure and special circumstances of the sector. Payments of long-service awards will become due in twenty-five years' time at the earliest. Management therefore expects long-service award payments to occur with a probability of 20%.

 

The provisions for taxes relate to the provisions for corporate income tax that has not yet been assessed.

 

In compliance with the principle of prudence, other provisions and accruals are recognized, according to prudent business judgment, for all identifiable risks and contingent liabilities identifiable as at the time the financial statements are prepared.

 

6.

Liabilities

 

Liabilities are recognized at their repayment amount, in compliance with the prudence principle.

 

II.

BALANCE SHEET DISCLOSURES

 

To improve the clarity of presentation in the balance sheet, individual items have been combined. Where required, separate disclosures are made in the notes to the individual balance sheet items.

 

1.

Fixed Assets

 

Low-value assets are expensed in the year of addition and reported as additions and disposals in the schedule of changes in fixed assets. The changes in individual fixed assets and the breakdown of annual depreciation, amortization and write-downs are as follows:

 

Combined Fixed Asset Schedule as of March 31, 2012

(in Euros and thousands)

 

				Cost of acquisition April 1, 2011				Additions				Disposal				Cost of acquisition March 31, 2012				Accumulated depreciation and amortization				Book value March 31, 2012				Book value April 1, 2011				Depreciation and amortization for the Fiscal Year
Asset item				KEUR				KEUR				KEUR				KEUR				KEUR				KEUR				KEUR				KEUR
I.		Intangible assets
		Concessions, trade mark right and similar rights			252				16				-				268				203				65				56				7
II.		Tangible Assets
1.		Technical plants and machinery			361				5				-				366				299				67				122				61
2.		Other property, plant and equipment			280				52				6				326				229				97				100				55
					641				57				6				692				528				164				222				116
III.		Prepayments
		Prepayments on assets under construction			101				66				-				167				-				167				102				-
					994				139				6				1,127				731				396				380				123

 

2.

Inventories

 

The inventories reported in the balance sheet relate to merchandise and include provisions for slow movers.

 

 

PIEPS Holding GmbH and PIEPS GmbH

Notes to Combined Financial Statements - Continued 

(in Euros and in thousands) 

 

3.

Receivables and Other Current Assets

 

The receivables and other current assets reported in the balance sheet comprise the following items and maturities:

 

								Due
				Total				within 1 year				after 1 year
Receivables at March 31, 2012				KEUR				KEUR				KEUR
1.		Trade receivables			750				750				-
2.		Other receivables and assets			117				117				-
		Receivables and other current assets			867				867				-

 

4.

Shareholder’s Equity

 

As at March 31, 2012, the share capital amounted to KEUR 35.

 

5.

Provisions

 

The provisions changed as follows:

 

Balance at April 1, 2011

Release reversal

Additions

Balance at March 31, 2012

Provisions for taxes

KEUR

KEUR

KEUR

KEUR

For corporate income tax

23

(23

)

14

14

 

Balance at April 1, 2011

Release reversal

Additions

Balance at March 31, 2012

Other provisions and accruals

KEUR

KEUR

KEUR

KEUR

Other provisions and accruals

330

(176

)

228

382

 

6.

Liabilities

 

The liabilities reported in the balance sheet comprise the following items and maturities:

 

								Due
				Total				within 1 year				in 1 to 5 years				after 5 years				Secured by collateral
Receivables at March 31, 2012				KEUR				KEUR				KEUR				KEUR				KEUR
1.		Bank loan and overdrafts			670				571				99				-				-
2.		Trade payables			157				157				-				-				-
3.		Liabilities against affiliated companies			400				400				-				-				-
4.		Other payables			201				61				140				-				-
		Total liabilities			1,428				1,189				239				-				-

 

Other payables do not include any material accrued expenses payable after the balance sheet date.

 

7.

Contingent Liabilities

 

Below the balance sheet as of March 31, 2012 are contingent liabilities of KEUR 11, which are related to bank guarantees for the security deposit on the rent of the Company’s office space.

 

 

PIEPS Holding GmbH and PIEPS GmbH

Notes to Combined Financial Statements - Continued

(in Euros and in thousands)

 

8.

Other Financial Obligations

 

Obligations from the Use of Property, Plant and Equipment Not Recognized in the Balance Sheet

 

We forecast the future rental and lease obligations as follows:

 

		March 31, 2012
		KEUR
For the next fiscal year			110
For the next five fiscal years			443

 

III.

INCOME STATEMENT DISCLOSURES

 

To improve the clarity of presentation in the income statement, individual items have been combined. Where required, separate disclosures are made in the notes to the individual income statement items.

 

1.

Revenue

 

Revenue breaks down as follows:

 

		2011/12
By geographically defined market		KEUR
Domestic revenue			2,173
Foreign revenue			3,845
			6,018

 

Revenue by geographically defined market is determined by the location of the seller and therefore domestic revenue also includes revenues to customers located outside of Austria.

 

2.

Expenses for Severance Payments and Contributions to Respective Funds

 

The total amount of expenses to severance payments of KEUR 1 and contributions to respective funds of KEUR 8 in the financial year 2011/2012 is KEUR 9.

 

 

PIEPS Holding GmbH and PIEPS GmbH

Notes to Combined Financial Statements - Continued

(in Euros and in thousands)

 

IV.

OTHER DISCLOSURES

 

1.

Average Headcount

 

		2011/12
Wage earners			1
Salaried employees			9
Total			10

 

2.

Members of Management

 

During 2011/2012, the following persons were members of the board of managers of PIEPS Holding GmbH and PIEPS GmbH:

 

·

Ing. Michael Schober

·

Dr. Maximilian Seidel (until October 1, 2012)

·

Peter Metcalf (since October 1, 2012)

·

Scot Carlson (since October 1, 2012)

·

Robert Peay (since October 1, 2012)

 

3.

Disclosures Relating to Members of Executive Bodies

 

Disclosure of the amount of remuneration paid to the members of the management is omitted pursuant to the safeguard clause of section 241 (4) UGB (less than 3 members on the management board).

 

V.

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN AUSTRIAN GAAP AND U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (“GAAP”)

 

The combined financial statements of PIEPS have been prepared in accordance with Austrian GAAP, which differ in certain significant respects from U.S. GAAP. The effects of the application of U.S. GAAP to net income and equity are set out in the tables below:

 

						2011/12
			Note			KEUR
Net income reported under Austrian GAAP							379
U.S. GAAP adjustments:
Property and equipment			a)				(2	)
Inventory costing and overheads			b)				9
Foreign currency translation			c)				(2	)
Sales agent accrual			d)				34
Income tax effect			e)				(1	)
Net income reported under U.S. GAAP							417

 

 

PIEPS Holding GmbH and PIEPS GmbH

Notes to Combined Financial Statements - Continued

(in Euros and in thousands)

 

						March 31, 2012
			Note			KEUR
Equity reported under Austrian GAAP							456
U.S. GAAP Adjustments:
Property and equipment			a)				(2	)
Inventory costing and overheads			b)				24
Foreign currency translation			c)				(2	)
Sales agent accrual			d)				225
Income tax effect			e)				(5	)
Equity reported under U.S. GAAP							696

 

a)

Under Austrian GAAP, tangible assets are depreciated using a half year convention. Under U.S. GAAP, they are depreciated when put into service on a monthly pro-rata basis.

 

b)

Under Austrian GAAP, PIEPS has elected not to capitalize any overhead costs. Under U.S. GAAP, the portion of variable and fixed overheads directly related to inventory are capitalized.

 

c)

Under Austrian GAAP, accounts receivable and accounts payable denominated in a currency other than the functional currency (i.e., EUR for PIEPS) are to be remeasured at the lower of/higher of exchange rate on initiation date and balance sheet date. Under U.S. GAAP, all amounts are to be remeasured at the exchange rate as of the balance sheet date.

 

d)

Under Austrian GAAP, an accrual is required for contingent payments that may need to be paid to a sales agent in case of a termination without cause. Under U.S. GAAP, an accrual may only be recorded for a liability.

 

e)

Tax effect of 25% corporate tax for temporary differences between Austrian tax law and U.S. GAAP.