Pink Sheets

Ok, so they finally defined "The Company" somewhat correctly.

ADIC, Exabyte, Network Appliance, and Overland Storage have disppeared from the list of certified hardware!

Revenues for 2002 were $9.9 million and not $6.6 million (they must have read it upside-down... hehe) as stated in the latest 2004 10-K. The original 2003 10-K had a somewhat higher revenue for 2003 ($18.2 million vs $17.9 million). It also had the correct $9.9 number for 2002!

The licensing revenues for each region match up ok. Service in Asia for 2003 was revised down to $0.532 million from $0.71 million. Everything else matches up.

Based on everything I've read, Sony and Network Appliances didn't pan out much (at least not by Mar 2004).

R&D was restated upwards for 2002, but not 2003. Sales & Marketing costs were restated upwards for 2002. Gross margins for 2002 revised upwards. Goodwill amortization for 2002 restated downwards. [geez, this is a mess]

They tried unsuccessfully to sell the IP (for what, $166,000?). The restatement is much more clear about what happened and when.

1. revenues were flat in Q1-Q3 of 2002. Q4 decreased significantly.
2. BKBO did an impairment analysis in Q4. Charged $2.5 million in that year.
3. BKBO threw more money at MagnaVault. Results got worse.
4. Nov 2002 end-of-life decision, only customer support would continue.
5. Layoffs and closing of Maryland office.
6. Previous item triggered an impairment analysis of MagnaVault goodwill.
7. Step 1 (preliminary screening) in the analysis showed an impairment and, thus, required step 2
8. Step 2 (direct test) showed impairment, BKBO took a charge of $442,000 in Q3 2003 to bring the asset down to fair value of MagnaVault IP.
9. During Q3, BKBO tried to sell MagnaVault IP. As of Dec 31, 2002, it appeared likely to sell [i.e they're trying to cover their posterior for why the next part happened in the next quarter].
10. March 31, 2003, BKBO gave up trying to sell it. This caused another trigger event.
11. BKBO did the CICA two-step (3062.56) and took another charge of $446,000 in Q4 2003, writing MagnaVault intangible assets to zero. They incorrectly call it goodwill, even in the restated-restatement 8-K: Canadian CICA (1581.48 and 1581.49) says it's not goodwill if it 1) results from contractual or other legal rights (regardless of whether they're transferrable) [YEP], 2) capable of being separated or divided from the acquired enterprise [YEP].

Revenue differences:

• Mar-03: from $5,604 to $5,521, G&A revised up to $1,504 from $1,537, They had screwed up by not amortizing the non-goodwill intangible assets, and they probably didn't discover it until they impaired the goodwill and planned on selling the MagnaVault IP. At that point, the auditors would have detected the problem. Again they're calling it "goodwill" in the financial restatement.
  
• Dec-02: from $4,932 to $4,832
• Sep-02: from $4,024 to $3,980, G&A difference
  
• Jun-02: from $3,630 to $3,585, G&A difference
  
• Mar-02: unchanged ($3,087), G&A difference
  

Stock based compensation went up from $326,000 to $536,000.
Accrued liabilities went from $1.1 million to $1.4 million.
Deferred revenue went from $3.9 million to $4.1 million.

(below are in thousands)
On the balance sheet (2003), goodwill is split out into pathetically small intangibles (MagnaVault IP) and goodwill. The total dropped as well by $233. Accrued liabilities are somewhat higher (lower in 2002).

Deferred revenue has been split into a current portion and a non-current portion [smack forehead], plus the total deferred revenue is slightly higher (less than $100).

Accounts payable is higher by $33.

At this point, any sane person would give up and walk away from this nightmare. At least the number of shares is unchanged.

Now, let's look at the all-important cash flow statement.
Depreciation has changed (the tangible depreciation is the same in the notes). Stock based compensation has changed. Everything else is fine.

NOTES:
The depreciation details have not changed.

Before: "For the years ended March 31, 2003 and 2002 and the eleven months ended March 31, 2001, 8,252,631, 10,561,095, and 14,579,746 potential common shares, respectively, were excluded from the computations of diluted loss per share as their effect was anti-dilutive."

After: "For the years ended March 31, 2003 and 2002 and the eleven months ended March 31, 2001, 4,878,147, 4,962,725, and 5,986,703 potential common shares, respectively, were excluded from the computations of diluted loss per share as their effect was anti-dilutive."

See below for why this changed.

RESTATEMENT NOTE:

In connection with the Company’s 53% step acquisition of BakBone KK in March 2002, the Company recorded 100 percent of BakBone KK’s deferred revenue balances that existed on the date of the step acquisition. An adjustment was made to record these deferred revenue balances at fair value on the date of the acquisition, which led to corresponding adjustments that decreased service revenues by $178,000 in the year ended March 31, 2003. These adjustments were made to conform to accounting rules and interpretations regarding acquisition transactions that require recognition of deferred revenue only to the extent it represents a legal obligation assumed by the acquiring entity.

Furthermore, the Company determined that revenues totaling $94,000 recognized initially during the year ended March 31, 2003 should have been deferred as of March 31, 2003 and recognized during the year ended March 31, 2004.

Adjustments to stock-based compensation were $210,000 for the year ended March 31, 2003. The Company identified instances where certain equity instruments granted to non-employees during the year ended March 31, 2003 were valued using a Black-Scholes model assumption that was incorrect. The Company re-calculated these amounts and recorded an additional $210,000 in stock-based compensation during the year ended March 31, 2003.

The Company determined that aggregate expense adjustments of $255,000 and ($222,000) for the years ended March 31, 2003 and 2002, respectively, should have been recorded. The $255,000 restatement adjustment included in the year ended March 31, 2003 represents the recognition of $255,000 in additional general and administrative expenses. The additional general and administrative expenses relate to $33,000 in previously unaccrued legal expenses and the recognition of $222,000 in rent expense associated with a lease liability recorded originally as of March 31, 2002 in connection with an unused facility liability; however, the criteria for liability and expense recognition were not met as of March 31, 2002. Thus, the $222,000 in rent expense was reversed for the year ended March 31, 2002 and recorded for the year ended March 31, 2003.

The $55,000 restatement adjustment included in the year ended March 31, 2003 for other expense is related to the amortization of separately identified intangible assets. The original purchase price of the Company’s 53% step acquisition of BakBone KK allocated no value to separately identified intangible assets. The Company has since determined that $222,000 in amortizable intangible assets should have been recorded, with the intangible assets being amortized over the assets’ useful life of four years.

Here's why the shares dilution changed:

The Company determined that the number of weighted-average shares outstanding, which is used to calculate basic and diluted earnings per share, required adjusting for the years ended March 31, 2003 and 2002 and for the eleven months ended March 31, 2001. Historically, the Company considered certain shares to be contingently issuable for purposes of calculating the number of weighted-average shares outstanding. In accordance with [CICA] Section 3500, Earnings Per Share , contingently issuable shares are included.... Upon further review, the Company determined that these shares were improperly classified as contingently issuable....

BakBone's financial statements are a mess!