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Ex - 20.3 UNAUDITED FINANCIAL STATEMENTS OF DTI HOLDINGS, INC.
DTI HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 690
Accounts receivable, net 1,059
Inventory, net 795
Prepaid expenses and other current assets 28
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Total current assets 2,572
Property and equipment, net 266
Goodwill, intangibles and other assets 3,922
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Total assets $ 6,760
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 757
Accrued liabilities 219
Accrued compensation 212
Taxes payable 343
Current portion of long-term debt 380
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Total current liabilities 1,911
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Long-term debt, net of current portion 799
Shareholders' equity :
Common stock 1,000
Additional paid-in capital 6,417
Accumulated deficit (2,565)
Deferred stock-based compensation (802)
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Total shareholders' equity 4,050
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Total liabilities and shareholders' equity $ 6,760
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See accompanying notes to unaudited consolidated financial statements.
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DTI HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(In thousands, except per share data)
Revenues $ 2,738
Cost of goods sold 1,123
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Gross profit 1,615
Operating expenses:
Research and development 333
Sales and marketing 442
General and administrative 256
Stock based compensation 802
Amortization of goodwill 217
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Total operating expenses 2,050
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Loss from operations 435
Other expense, net 31
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Loss before provision for income taxes 466
Income tax provision 220
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Loss available to common shareholders $ 686
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Basic and diluted loss per common share $ (0.07)
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Shares used in computing basic and diluted
loss per common share 10,000,000
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See accompanying notes to unaudited consolidated financial statements
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DTI HOLDINGS, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(In thousands)
Cash flows from operating activities:
Net loss $ (686)
Depreciation 20
Goodwill 217
Stock based compensation 802
Change in operating assets and liabilities:
Accounts receivable 80
Inventory 102
Prepaid expenses and other current assets 5
Accounts payable (2)
Accrued liabilities (41)
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Net cash provided by operating activities 497
Cash flows from investing activities:
Purchase of fixed assets (38)
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Net cash used in investing activities (38)
Cash flows from financing activities
Principal payments on Notes (420)
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Net cash used in financing activities (420)
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Net increase in cash 39
Cash and equivalents at beginning of period 651
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Cash and equivalents at March 31, 2000 $ 690
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See accompanying notes to unaudited consolidated financial statements
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Significant accounting policies:
(a) Basis of presentation:
The accompanying consolidated financial statements include the results of the
Company and its operating subsidiary, DTI.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States,
which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the reported amounts of revenue
and expenses during the reporting period. Actual results may differ from those
estimates. All amounts are stated in U.S. dollars unless otherwise indicated.
(b) Revenue recognition:
Hardware revenue is recognized when a product is delivered and accepted by the
customer, consistent with the Company's terms of sale. Maintenance revenue is
deferred and recognized on a straight-line basis over the terms of the
maintenance agreement.
Revenue from the license of software products is recognized upon delivery when
collectibility is reasonably assured. Provisions for estimated losses on
contracts are recorded when identifiable. The difference between costs plus
estimated earnings and billings on individual contracts is reported as either
work in progress or deferred revenue.
(c) Inventory:
Raw materials are stated at the lower of cost, determined on a first-in,
first-out basis, and replacement cost. Work in process and finished goods
inventory are stated at the lower of cost, determined as average cost, and net
realizable value.
(d) Fixed assets:
Fixed assets are recorded at cost less accumulated amortization. Amortization is
calculated on a straight-line basis over the following terms:
Computer equipment 5 years
Engineering equipment 5 - 10 years
Manufacturing equipment 5 - 10 years
Furniture and fixtures 7 - 10 years
The Company regularly reviews the carrying values of its property and equipment
by comparing the carrying amount of the asset to the expected future cash flows
to be generated by the asset. If the carrying value exceeds the amount
recoverable, a writedown of the asset to estimated fair value is charged to the
statement of operations.
(e) Warranty reserve:
Hardware sales include a warranty that offers technical support, parts and
service for one year. The warranty reserve included in accrued liabilities
represents the estimated costs to provide technical support and service on
hardware products sold and is accrued monthly based on sales and prior claims
experience.
(f) Income taxes:
Under the asset and liability method of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the consolidated statement of operations in the period that includes the
enactment date.
(g) Research and development:
Costs related to research, design and development of products are charged to
research and development expenses as incurred. Development costs are capitalized
beginning when a product's technological feasibility has been established, which
generally occurs upon completion of a working model, and ending when a product
is available for general release to customers. To date, completing a working
model of the Company's product and the general release of the product have
substantially coincided. As a result, the Company has not capitalized any
development costs since such costs have not been significant.
Goodwill:
Goodwill represents the excess of purchase consideration over the fair value of
net assets acquired. Amortization of goodwill is calculated on a straight-line
basis over a three-year term. The carrying value of goodwill is reviewed on a
regular basis to determine whether any impairment has occurred. To date, no such
impairment has been identified.
(i) Currency translation:
The Company's functional currency is the U.S. dollar. Monetary items denominated
in foreign currencies are translated to U.S. dollars at exchange rates in effect
at the balance sheet date and non-monetary items are translated at rates in
effect when the assets were acquired or the obligation incurred. Revenue and
expenses are translated at rates in effect at the time of the transaction.
Foreign exchange translation gains and losses are included in loss for the
period.
(j) Stock-based compensation:
The Company follows Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock Issued to Employees" and related interpretations, in
accounting for its variable employee stock options arrangement. Under APB 25,
deferred stock-based compensation is recorded at the option grant date at an
amount equal to the difference between the fair market value of a common share
and the exercise price of the option. Deferred stock-based compensation for
options which are contingently issuable based upon the achievement of
performance criteria is recorded based upon the current fair market value of the
shares at each reporting period. Deferred stock-based compensation resulting
from employee option grants is amortized over the vesting period of the
individual options, which is from 15 to 27 months.
(k) Loss per common share:
Loss per common share has been calculated on the basis of loss divided by the
weighted average number of common shares outstanding during each period.
(l) Comprehensive income:
SFAS No. 130, "Reporting Comprehensive Income", issued by the Financial
Accounting Standards Board ("FASB") establishes standards for the reporting and
presentation of comprehensive income. This standard defines comprehensive income
as the changes in equity of an enterprise except those resulting from
shareholder transactions. For the periods presented comprehensive loss is the
same as the net loss.
(m) Recent accounting pronouncements:
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133
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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
establishes methods of accounting for derivative financial instruments and
hedging activities related to those instruments as well as other hedging
activities. The Company has not assessed the impact on its financial position,
results of operations or cash flows of adopting SFAS No. 133. The Company will
be required to implement SFAS No. 133, as amended by SFAS No. 137 for its fiscal
year ending December 31, 2001.
