EX-99.1 3 a2058666zex-99_1.txt EXHIBIT 99.1 MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000 CONTENTS -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INDEPENDENT AUDITOR'S REPORT 1 FINANCIAL STATEMENTS Consolidated balance sheets 2 Consolidated statements of operations 3 Consolidated statements of stockholders' equity 4 Consolidated statements of cash flows 5 - 6 Notes to consolidated financial statements 7 - 14 --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT To the Board of Directors Mobitec Holding AB and Subsidiaries Herrrljunga, Sweden We have audited the accompanying consolidated balance sheets of Mobitec Holding AB and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mobitec Holding AB and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. McGLADREY & PULLEN, LLP Raleigh, North Carolina July 17, 2001 1 MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999
(SEK AND DOLLAR AMOUNTS IN THOUSANDS) (EXCEPT FOR SHARE AND PER SHARE INFORMATION) December 31, ASSETS (NOTE 4) 2000 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents SEK 2,077 $ 221 SEK 6,222 Trade accounts receivable (Note 8) 19,494 2,071 13,028 Other receivables 2,694 286 2,048 Inventories (Note 2) 15,630 1,660 9,861 Prepaid expenses and other assets 487 52 408 ----------------------------------- ------------- TOTAL CURRENT ASSETS 40,382 4,290 31,567 Property and equipment, net of accumulated depreciation (Note 3) 4,094 435 3,622 Other assets (Note 7) 1,221 130 270 ----------------------------------- ------------- TOTAL ASSETS SEK 45,697 $ 4,855 SEK 35,459 =================================== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Lines of credit (Note 4) SEK 10,061 $ 1,069 SEK 4,531 Accounts payable 10,459 1,111 8,613 Accrued expenses 6,017 639 5,434 Income tax payable 646 69 135 Other current liabilities (Note 4) 2,522 269 2,028 ----------------------------------- ------------- TOTAL CURRENT LIABILITIES 29,705 3,157 20,741 ----------------------------------- ------------- Long Term Liabilities Deferred income taxes (Note 6) 145 15 334 Deferred compensation benefits (Note 7) 911 97 - ----------------------------------- ------------- TOTAL LONG TERM LIABILITIES 1,056 112 334 ----------------------------------- ------------- TOTAL LIABILITIES 30,761 3,269 21,075 ----------------------------------- ------------- Minority interest in consolidated subsidiary 1,819 193 1,009 ----------------------------------- ------------- Commitments and Contingencies (Notes 5 and 11) Stockholders' Equity Share capital, par value SEK 1.00 per share, 100,000 shares authorized and outstanding 100 12 100 Legal reserve 2,653 299 2,653 Accumulated other comprehensive income, foreign translation adjustments 564 41 112 Retained earnings 9,800 1,041 10,510 ----------------------------------- ------------- TOTAL STOCKHOLDERS' EQUITY 13,117 1,393 13,375 ----------------------------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY SEK 45,697 $ 4,855 SEK 35,459 =================================== =============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2 MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 2000 AND 1999
(SEK AND DOLLAR AMOUNTS IN THOUSANDS) (EXCEPT FOR SHARE AND PER SHARE INFORMATION) For the Years Ended December 31, 2000 2000 1999 ---------------------------------------------------------------------------------------------------------------------------------- Net sales (Note 8) SEK 114,031 $ 12,438 SEK 96,093 Cost of sales 67,961 7,413 65,747 -------------------------------- -------------- GROSS PROFIT 46,070 5,025 30,346 -------------------------------- -------------- Operating expenses: Selling, general and administrative 37,781 4,121 24,014 Research and development 6,821 744 4,742 Other 146 16 373 -------------------------------- -------------- Total operating expenses 44,748 4,881 29,129 -------------------------------- -------------- OPERATING INCOME 1,322 144 1,217 -------------------------------- -------------- Nonoperating income (expense): Other income (expense) 219 24 (288) Interest (expense) (434) (47) (243) -------------------------------- -------------- Total nonoperating income (expense) (215) (23) (531) -------------------------------- -------------- INCOME BEFORE INCOME TAXES 1,107 121 686 Income tax expense (Note 6) 491 54 274 -------------------------------- -------------- INCOME BEFORE MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY 616 67 412 Minority interest in net income of consolidated subsidiary 807 88 175 -------------------------------- -------------- NET INCOME (LOSS) SEK (191) $ (21) SEK 237 ================================ ============== EARNINGS PER SHARE: Earnings (loss) per common share SEK (1.91) $ (0.21) SEK 2.37 ================================ ============== Weighted average shares outstanding 100,000 100,000 100,000 ================================ ==============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 3 MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2000 AND 1999
(SEK AMOUNTS IN THOUSANDS) Accumulated Other Other Total Share Legal Retained Comprehensive Comprehensive Stockholders' Capital Reserve Earnings Income Income Equity ---------------------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1999 100 2,653 10,273 - 13,026 Net income - - 237 - 237 237 Changes in cumulative translation adjustments - - - 112 112 112 ------------- Total comprehensive income 349 ---------------------------------------------------=============--------------- Balance, December 31, 1999 100 2,653 10,510 112 13,375 Net (loss) - - (191) - (191) (191) Changes in cumulative translation adjustments - - - 452 452 452 ------------- Total comprehensive income 261 ============= Dividends - - (519) - (519) --------------------------------------------------- ---------------- Balance, December 31, 2000 100 2,653 9,800 564 13,117 =================================================== ================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 4 MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2000 AND 1999
(SEK AMOUNTS IN THOUSANDS) For the Years Ended December 31, 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income (loss) SEK (191) SEK 237 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Minority interest in net income of consolidated subsidiary 807 175 Depreciation and amortization 1,600 1,348 Deferred income taxes (189) 26 Gain on sale of property and equipment (183) - Deferred compensation expense 1,046 - Changes in operating assets and liabilities: (Increase) in trade accounts receivable (6,466) (5,643) (Increase) in other receivables (646) (663) (Increase) decrease in inventories (5,769) 814 (Increase) decrease in prepaid expenses and other current assets (79) 36 Increase in accounts payable 1,846 2,354 Increase in accrued expenses 583 2,267 (Decrease) increase in income tax payable 511 (156) Increase in other current liabilities 494 1,628 --------------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (6,636) 2,423 --------------------------------------------- Cash Flows From Investing Activities Proceeds from sales of property and equipment 461 - Purchases of property and equipment (2,254) (1,732) Purchase of insurance to fund deferred compensation (1,046) - Purchase of other assets (153) (338) --------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (2,992) (2,070) --------------------------------------------- Cash Flows From Financing Activities Dividends (519) - Net proceeds from bank borrowings 5,530 1,741 --------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 5,011 1,741 --------------------------------------------- Effect of exchange rate change 472 105 --------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (4,145) 2,199 Cash and cash equivalents at beginning of year 6,222 4,023 ---------------- --------------- Cash and cash equivalents at end of year SEK 2,077 SEK 6,222 ================ =============== (Continued) 5 MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) YEARS ENDED DECEMBER 31, 2000 AND 1999 (SEK AMOUNTS IN THOUSANDS) For the Years Ended December 31, 2000 1999 ----------------------------------------------------------------------------------------------------------------------------------- Supplemental Disclosures of Cash Flow Information Cash payments for: Interest SEK 434 SEK 243 ================ =============== Income taxes SEK 169 SEK 93 ================ ===============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 6 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SEK AMOUNTS IN THOUSANDS) -------------------------------------------------------------------------------- NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: The Company develops, manufactures, and distributes information systems primarily for buses used in public transportation. Customers are primarily bus manufacturers located in Australia, Brazil, Germany, and Scandinavia. A summary of the Company's significant accounting policies follows: BASIS OF PRESENTATION: These consolidated financial statements have been prepared in Swedish Krona (SEK), the Company's functional currency. The 2000 consolidated balance sheet and statement of operations reflect amounts in US dollars in a "convenience translation" column. The consolidated financial statements have also been prepared in accordance with accounting principles generally accepted in the United States of America. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Mobitec AB. The consolidated financial statements also include the accounts of Mobitec AB's wholly owned subsidiaries (Mobitec GmbH, Mobitec Australia, Pty Ltd., Mobitec Klimat AB and Mobitec Hexair AB) and the accounts of its 50% owned subsidiary, Mobitec Brazil LTDA. Mobitec Hexair AB was sold during the year ended December 31, 2000; however, the results of its operations are included in the statements of income. All significant inter-company accounts and transactions have been eliminated in consolidation. INVENTORIES: Inventories are stated at the lower of cost (average cost) or market. PROPERTY AND EQUIPMENT: Property and equipment is stated at cost, less accumulated depreciation. If facts and circumstances suggest that the property and equipment will not be recoverable, as determined, based on the undiscounted cash flows over the remaining depreciable period, the Company will review for impairment. To the extent that there is an impairment, analysis is preformed based on several criteria, including but not limited to, revenue trends, discounted operation cash flows and other factors to determine the impairment amount. The Company computes depreciation on its equipment using the straight-line method over the following estimated useful lives:
Years ------- Buildings 50 Leasehold improvements 5 Machinery and equipment 3 to 10
ESTIMATES: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of 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. INCOME TAXES: The Company reports deferred tax assets and liabilities attributable to temporary differences between the book value of assets and liabilities and their tax value. The accumulated deferred tax liability is adjusted each year by applying the current tax rate in each country and is reported in the balance sheet as deferred income taxes. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of the Company's foreign subsidiaries are translated at exchange rates prevailing at the end of the year. Revenue and expense transactions are translated at the average of exchange rates in effect during the period. Translations gains and losses are recorded directly to stockholders' equity. Realized gains and losses on foreign currency transactions, if any, are included in operations. 7 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SEK AMOUNTS IN THOUSANDS) -------------------------------------------------------------------------------- NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS: The following summarizes the major methods and assumptions used in estimating the fair value of financial instruments: Cash and cash equivalents - The carrying amount approximates fair value due to the relatively short-term period to maturity of these instruments. Short-term borrowings - The carrying amount approximates fair value due to the variable interest rate adjustments based upon market conditions. REVENUE RECOGNITION: The Company recognizes operating revenues upon shipment of goods to customers. RESEARCH AND DEVELOPMENT: The Company expenses all research and development costs at the time expenses are incurred. EARNINGS PER SHARE AMOUNTS: Earnings (loss) per share has been computed based upon the weighted average number of shares of share capital outstanding. NOTE 2. INVENTORIES The components of inventories consist of the following:
2000 1999 --------- -------- Raw materials SEK 13,479 SEK 7,194 Work-in-process 197 148 Finished goods 1,264 802 Supplies 690 1,717 --------- -------- SEK 15,630 SEK 9,861 ========= ========
NOTE 3. PROPERTY AND EQUIPMENT Property and equipment are as follows:
2000 1999 --------- -------- Land SEK - SEK 95 Buildings - 194 Machinery and equipment 8,454 6,373 Leasehold improvements 797 797 --------- -------- 9,251 7,459 Less accumulated depreciation 5,157 3,837 --------- -------- SEK 4,094 SEK 3,622 ========= ========
Depreciation expense was 1,504 SEK and 1,280 SEK for 2000 and 1999, respectively. 8 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SEK AMOUNTS IN THOUSANDS) -------------------------------------------------------------------------------- NOTE 4. LOAN AGREEMENTS The Company has an agreement with a bank in which the Company may currently borrow up to a maximum of 4,500 SEK. At December 31, 2000 and 1999, 4,406 SEK and 4,531 SEK, respectively, was outstanding. Advances under the agreement are subject to a borrowing base of 75% of eligible accounts receivable. The line of credit bears interest at 5.1% and is collateralized by accounts receivable. This line of credit agreement expires on October 31, 2001. The Company also has an agreement with a bank in which it may borrow up to 6,000 SEK of which 5,655 SEK was outstanding at December 31, 2000. The terms of this agreement require the payment of an unused credit line fee equal to 0.5% of the unused portion and interest at 5% of the outstanding balance. This agreement is collateralized by a mortgage on substantially all assets of the Company. This agreement expires on October 31, 2001. The Company also has convertible loans of 99 SEK at December 31, 2000 from employees that can be converted into share capital of the Company. These loans are reflected in "other current liabilities" at December 31, 2000. These loans were repaid by the Company in June 2001. NOTE 5. LEASE COMMITMENTS The Company has lease commitments under operating leases for vehicles and office space. Rental expense for 2000 and 1999 was 1,800 SEK and 1,040 SEK, respectively. At December 31, 2000, the future minimum lease commitments under non-cancelable operating leases are as follows:
Year Ending Operating December 31, Leases --------------------------------------------------------------------------------- 2001 SEK 1,320 2002 1,488 2003 1,382 2004 1,009 2005 916 Thereafter 192 ------------- Total minimum lease payments SEK 6,307 =============
9 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SEK AMOUNTS IN THOUSANDS) -------------------------------------------------------------------------------- NOTE 6. INCOME TAXES The components of income tax expense for the years ended December 31, 2000 and 1999 consisted of the following:
2000 1999 ------------ ----------- Current expense SEK 680 SEK 248 Deferred expense (benefit) (189) 26 ------------ ----------- SEK 491 SEK 274 ============ ===========
At December 31, 2000 and 1999, the Company has net deferred tax liabilities that consist of the following:
2000 1999 ------------ ----------- Deferred tax assets: Property and equipment SEK 130 SEK 87 Inventories 6 - ------------ ----------- 136 87 ------------ ----------- Deferred tax liabilities: Untaxed reserves 281 281 Other - 140 ------------ ----------- 281 421 ------------ ----------- Net deferred tax liabilities SEK (145) SEK (334) ============ ===========
10 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SEK AMOUNTS IN THOUSANDS) -------------------------------------------------------------------------------- NOTE 6. INCOME TAXES (CONTINUED) The deferred tax amounts above have been classified on the consolidated balance sheets as follows:
2000 1999 ---------------------------------- Current assets SEK - SEK - Noncurrent assets - - Noncurrent liabilities (145) (334) ------------- ------------ SEK (145) SEK (334) ============= ============
The income tax provision differs from the amount of income tax determined by applying the applicable Swedish income tax rate to pretax income for 2000 and 1999 due to the following:
2000 1999 ---------------------- -------------------- Amount Percent Amount % ---------------------- -------------------- Computed "expected" tax expense SEK 310 28.0% SEK 192 28.0% Increase in income taxes resulting from: Nondeductible items 173 15.6% 68 9.9% Other 8 0.8% 14 2.0% ---------------------- -------------------- SEK 491 44.4% SEK 274 39.9% ====================== ====================
NOTE 7. RETIREMENT PLAN During 2000, the Company entered into a deferred compensation plan agreement with a former key employee which permitted the employee to retire at age 60. In March 2000, the employee retired and the Company paid approximately 1,046 SEK to fund an insurance contract. The Company also recorded a corresponding liability to cover the estimated present value of the liability to be paid to the recipient. Each month, the recipient will receive approximately 17 SEK over a 60-month term. At December 31, 2000, the related asset and liability associated with this plan is 911 SEK and is included in the accompanying balance sheet as "other assets" and as "deferred compensation benefits." The amount of the expense associated with this plan for the year ended December 31, 2000 was approximately 1,046 SEK. 11 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SEK AMOUNTS IN THOUSANDS) -------------------------------------------------------------------------------- NOTE 8. MAJOR CUSTOMER Sales to a major customer (which consists of six wholly-owned subsidiaries of a Scandinavian and European bus and truck manufacturing company) during the years ended December 31, 2000 and 1999 are as follows:
Amount of Net Sales Years Ended December 31, ------------------------------------ 2000 1999 ------------------------------------ Customer A SEK 31,261 SEK 25,788 -------------- -------------- SEK 31,261 SEK 25,788 ============== ============== Trade Accounts Receivable December 31, ------------------------------------ 2000 1999 ------------------------------------ Customer A SEK 2,839 SEK 4,819 -------------- -------------- SEK 2,839 SEK 4,819 ============== ==============
Because of the nature of the Company's business, the major customers may vary between years. NOTE 9. OTHER COMPREHENSIVE INCOME The following is a summary of the tax effects of the components of other comprehensive income, consisting solely of foreign currency translation adjustments, reported in the statements of stockholders' equity for the years ended December 31, 2000 and 1999:
Pre-tax Tax Net-of-tax Amount Expense Amount -------------- -------------- -------------- Year ended December 31, 2000: Foreign currency translation adjustment SEK 628 SEK 176 SEK 452 ============== ============== ============== Year ended December 31, 1999: Foreign currency translation adjustment SEK 155 SEK 43 SEK 112 ============== ============== ==============
12 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SEK AMOUNTS IN THOUSANDS) -------------------------------------------------------------------------------- NOTE 10. FOREIGN OPERATIONS The Company has one business segment in which it develops, manufactures, and distributes information systems primarily for buses used in public transportation. Customers are primarily bus manufacturers located in Scandinavia, Germany, Australia, and Brazil. Summarized financial information for the Company's foreign sales (attributed to countries based on the location of the subsidiary) for the year ended December 31, 2000 and 1999 is as follows:
2000 1999 ----------------------------------- Sweden SEK 99,761 SEK 96,277 Germany 11,925 7,727 Australia 6,770 - Brazil 13,850 1,594 Elimination of inter-company sales (18,275) (9,505) ------------ ------------ SEK 114,031 SEK 96,093 ============ ============ The following table presents information about the Company's operating income by geographic area: Sweden SEK (647) SEK 1,302 Germany (1,013) (252) Australia 770 - Brazil 1,767 328 Elimination of inter-company income (loss) 445 (161) ------------ ------------ SEK 1,322 SEK 1,217 ============ ============ The following table presents information about the Company's identifiable assets by geographic area: Sweden SEK 43,365 SEK 37,387 Germany 3,730 4,624 Australia 5,311 - Brazil 6,297 3,772 Elimination of inter-company receivables and payables (13,006) (10,324) ------------ ------------ SEK 45,697 SEK 35,459 ============ ============
13 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (SEK AMOUNTS IN THOUSANDS) -------------------------------------------------------------------------------- NOTE 11. CONTINGENCIES The Company, in the normal course of operations, is involved in several legal actions, which are vigorously being contested. In management's opinion, the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position. NOTE 12. SUBSEQUENT EVENT On June 28, 2001, all of the outstanding stock of the Company was acquired by Digital Recorders, Inc. ("Digital"), a manufacturer incorporated in the United States, and its wholly-owned subsidiary, DRI Europa AB ("DRI Europa"). The acquisition of the Company's stock was made pursuant to an Amended Option Agreement, dated March 13, 2001, and a Stock Purchase Agreement, dated June 27, 2001. Both agreements were between Digital and DRI Europa, as the purchasers, and the Company's individual shareholders, as the sellers. The purchase price for the Company's shares consisted of a combination of cash, notes to the individual sellers, Digital stock and warrants to purchase Digital stock. The total purchase price was approximately 80,277 SEK. As a result of the acquisition, the Company has become a wholly-owned subsidiary of DRI Europa. 14 MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 CONTENTS ----------------------------------------------------------------------------------- ----------------------------------------------------------------------------------- FINANCIAL STATEMENTS Consolidated balance sheets 1 Consolidated statements of income 2 Consolidated statements of cash flows 3 - 4 Notes to consolidated financial statements 5 - 8 -----------------------------------------------------------------------------------
MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(SEK AND DOLLAR AMOUNTS IN THOUSANDS) (EXCEPT FOR SHARE AND PER SHARE INFORMATION) MARCH 31, MARCH 31, DECEMBER 31, 2001 2001 2000 ASSETS (UNAUDITED) (NOTE) ----------------------------------------------------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents SEK 2,182 $ 210 SEK 2,077 Trade accounts receivable 21,966 2,112 19,494 Other receivables 4,777 459 2,694 Inventories 15,557 1,496 15,630 Prepaid expenses and other assets 558 54 487 ------------------------------- ---------- TOTAL CURRENT ASSETS 45,040 4,331 40,382 Property and equipment, net of accumulated depreciation 2,950 284 4,094 Other assets 867 83 1,221 ------------------------------- ---------- TOTAL ASSETS SEK 48,857 $ 4,698 SEK 45,697 =============================== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Lines of credit SEK 11,544 $ 1,110 SEK 10,061 Accounts payable 10,614 1,020 10,459 Accrued expenses 6,323 608 6,017 Income tax payable 1,019 98 646 Other current liabilities 1,411 136 2,522 ------------------------------- ---------- TOTAL CURRENT LIABILITIES 30,911 2,972 29,705 ------------------------------- ---------- Long Term Liabilities Deferred income taxes 389 37 145 Deferred compensation benefits 860 83 911 ------------------------------- ---------- TOTAL LONG TERM LIABILITIES 1,249 120 1,056 ------------------------------- ---------- TOTAL LIABILITIES 32,160 3,092 30,761 ------------------------------- ---------- Minority interest in consolidated subsidiary 2,163 208 1,819 ------------------------------- ---------- Stockholders' Equity Share capital, par value $1.00 per share, 100,000 shares authorized and outstanding 100 12 100 Legal reserve 2,106 266 2,653 Accumulated other comprehensive income, foreign translation adjustment (348) (98) 564 Retained earnings 12,676 1,218 9,800 ------------------------------- ---------- TOTAL STOCKHOLDERS' EQUITY 14,534 1,398 13,117 ------------------------------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY SEK 48,857 $ 4,698 SEK 45,697 =============================== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Note: The consolidated balance sheet as of December 31, 2000 was taken from the audited financial statements as of that date. 1 MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(SEK AND DOLLAR AMOUNTS IN THOUSANDS) (EXCEPT FOR SHARE AND PER SHARE INFORMATION) For the Three Months Ended March 31, 2001 2001 2000 ----------------------------------------------------------------------------------------------------------------------------------- Net sales SEK 34,207 $ 3,511 SEK 26,148 Cost of sales 18,306 1,879 15,076 ------------------------------- ---------- GROSS PROFIT 15,901 1,632 11,072 ------------------------------- ---------- Operating expenses: Selling, general and administrative 10,113 1,038 8,178 Research and development 1,500 154 1,705 ------------------------------- ---------- Total operating expenses 11,613 1,192 9,883 ------------------------------- ---------- OPERATING INCOME 4,288 440 1,189 ------------------------------- ---------- Nonoperating income (expense): Other income (expense) (139) (14) (28) Interest (expense) (9) (1) (17) ------------------------------- ---------- Total nonoperating income (expense) (148) (15) (45) ------------------------------- ---------- INCOME BEFORE INCOME TAXES 4,140 425 1,144 Income tax expense 920 94 534 ------------------------------- ---------- INCOME BEFORE MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARY 3,220 331 610 Minority interest in net income of consolidated subsidiary 344 35 99 ------------------------------- ---------- NET INCOME SEK 2,876 $ 296 SEK 511 =============================== ========== COMPREHENSIVE INCOME SEK 1,964 $ 202 SEK 482 =============================== ========== EARNINGS PER SHARE: Earnings per common share SEK 28.76 $ 2.96 SEK 5.11 =============================== ========== Weighted average shares outstanding 100,000 100,000 100,000 =============================== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 2 MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED MARCH 31, 2001 AND 2000
(AMOUNTS IN THOUSANDS) For the Three Months Ended March 31, 2001 2000 -------------------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income SEK 2,876 SEK 511 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Minority interest in net income of consolidated subsidiary 344 99 Depreciation 224 368 Deferred income taxes 244 (9) Book value of property and equipment and other assets disposed 2,290 - Changes in operating assets and liabilities: (Increase) in trade accounts receivable (2,472) (889) (Increase) decrease in other receivables (2,083) 33 (Increase) decrease in inventories 73 (2,654) (Increase) in prepaid expenses and other current assets (71) (328) Increase in accounts payable 155 2,547 (Decrease) increase in accrued expenses 306 (916) Increase in income tax payable 373 341 (Decrease) in other current liabilities (1,111) (824) (Decrease) in deferred compensation benefits (51) - ---------------------------------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,097 (1,721) ---------------------------------------- Cash Flows From Investing Activities Proceeds from sales of property and equipment 1 - Purchases of property and equipment (1,050) (653) Other 33 16 ---------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (1,016) (637) ---------------------------------------- Cash Flows From Financing Activities Net proceeds from bank borrowings 1,483 244 Change in legal reserve (547) 363 ---------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 936 607 ---------------------------------------- Effect of exchange rate change (912) (29) ---------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 105 (1,780) Cash and cash equivalents at beginning of period 2,077 6,222 -------------- ------------ Cash and cash equivalents at end of period SEK 2,182 SEK 4,442 ============== ============ (Continued) 3 MOBITEC HOLDING AB AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (CONTINUED) THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (AMOUNTS IN THOUSANDS) For the Three Months Ended March 31, 2001 2000 -------------------------------------------------------------------------------------------------------------------------- Supplemental Disclosures of Cash Flow Information Cash payments for: Interest SEK 9 SEK 17 ============== ============ Income taxes SEK 303 SEK 202 ============== ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 4 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------------------------------- NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS: The Company develops, manufactures, and distributes information systems primarily for buses used in public transportation. Customers are primarily bus manufacturers located in Australia, Brazil, Germany, and Scandinavia. A summary of the Company's significant accounting policies follows: BASIS OF PRESENTATION: In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal adjustments) necessary for a fair presentation of the financial position of Mobitec Holding AB and subsidiaries (the "Company") at March 31, 2001 and December 31, 2000, the results of operations for the three months ended March 31, 2001 and 2000, and cash flows for the three months ended March 31, 2001 and 2000. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes included in the Company's annual 2000 financial statements. These consolidated financial statements have been prepared in Swedish Krona (SEK), the Company's functional currency. The 2001 consolidated balance sheet and statement of income reflect amounts in US dollars in a "convenience translation" column. The consolidated financial statements have also been prepared in accordance with accounting principles generally accepted in the United States of America. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Mobitec AB. The consolidated financial statements also include the accounts of Mobitec AB's wholly owned subsidiaries (Mobitec GmbH, Mobitec Australia, Pty Ltd., Mobitec Klimat AB and Mobitec Hexair AB) and the accounts of its 50% owned subsidiary, Mobitec Brazil LTDA. Mobitec Hexair AB was sold on December 31, 2000 and Mobitec Klimat AB was sold on January 1, 2001. All significant inter-company accounts and transactions have been eliminated in consolidation. INVENTORIES: Inventories are stated at the lower of cost (average cost) or market. PROPERTY AND EQUIPMENT: Property and equipment is stated at cost, less accumulated depreciation. If facts and circumstances suggest that the property and equipment will not be recoverable, as determined, based on the undiscounted cash flows over the remaining depreciable period, the Company will review for impairment. To the extent that there is an impairment, analysis is preformed based on several criteria, including but not limited to, revenue trends, discounted operation cash flows and other factors to determine the impairment amount. The Company computes depreciation on its equipment using the straight-line method over the following estimated useful lives:
Years --------- Buildings 50 Leasehold improvements 5 Machinery and equipment 3 to 10
ESTIMATES: The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of 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. INCOME TAXES: The Company reports deferred tax assets and liabilities attributable to temporary differences between the book value of assets and liabilities and their tax value. The accumulated deferred tax liability is adjusted each year by applying the current tax rate in each country and is reported in the balance sheet as deferred income taxes. 5 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------------------------------- NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FOREIGN CURRENCY TRANSLATION: Assets and liabilities of the Company's foreign subsidiaries are translated at exchange rates prevailing at the end of the period. Revenue and expense transactions are translated at the average of exchange rates in effect during the period. Translations gains and losses are recorded directly to stockholders' equity. Realized gains and losses on foreign currency transactions, if any, are included in operations. FAIR VALUE OF FINANCIAL INSTRUMENTS: The following summarizes the major methods and assumptions used in estimating the fair value of financial instruments: Cash and cash equivalents - The carrying amount approximates fair value due to the relatively short-term period to maturity of these instruments. Short-term borrowings - The carrying amount approximates fair value due to the variable interest rate adjustments based upon market conditions. REVENUE RECOGNITION: The Company recognizes operating revenues upon shipment of goods to customers. RESEARCH AND DEVELOPMENT: The Company expenses all research and development costs at the time expenses are incurred. EARNINGS PER SHARE AMOUNTS: Earnings per share has been computed based upon the weighted average number of shares of share capital outstanding. NOTE 2. OTHER COMPREHENSIVE INCOME The following is a summary of the tax effects of the components of other comprehensive income, consisting solely of foreign currency translation adjustments, reported in the statements of stockholders' equity for the three months ended March 31, 2001 and 2000:
Pre-tax Tax Net-of-tax Amount (Benefit) Amount ------------ ------------- -------------- Three months ended March 31, 2001: Foreign currency translation adjustment SEK (1,266) SEK (354) SEK (912) ============ ============= ============== Three months ended March 31, 2000: Foreign currency translation adjustment SEK (40) SEK (11) SEK (29) ============ ============= ==============
6 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------------------------------- NOTE 3. FOREIGN OPERATIONS The Company has one business segment in which it develops, manufactures, and distributes information systems primarily for buses used in public transportation. Customers are primarily bus manufacturers located in Scandinavia, Germany, Australia, and Brazil. Summarized financial information for the Company's foreign sales (attributed to countries based on the location of the subsidiary) for the three months ended March 31, 2001 and 2000 is as follows:
2001 2000 ---------------------------------------- Sweden SEK 29,414 SEK 24,978 Germany 3,209 3,746 Australia 3,778 - Brazil 4,106 2,197 Elimination of inter-company sales (6,300) (4,773) ---------------- ------------- SEK 34,207 SEK 26,148 ================ =============
The following table presents information about the Company's operating income (loss) by geographic area: Sweden SEK 2,676 SEK 726 Germany (106) 128 Australia 279 - Brazil 840 179 Elimination of inter-company income (loss) 599 156 ---------------- ------------- SEK 4,288 SEK 1,189 ================ =============
The following table presents information about the Company's identifiable assets by geographic area: Sweden SEK 43,928 Germany 3,444 Australia 5,124 Brazil 7,012 Elimination of inter-company receivables and payables (10,651) ---------------- SEK 48,857 ================
7 MOBITEC HOLDING AB AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) ------------------------------------------------------------------------------- NOTE 4. SUBSEQUENT EVENT On June 28, 2001, all of the outstanding stock of the Company was acquired by Digital Recorders, Inc. ("Digital"), a manufacturer incorporated in the United States, and its wholly-owned subsidiary, DRI Europa AB ("DRI Europa"). The acquisition of the Company's stock was made pursuant to an Amended Option Agreement, dated March 13, 2001, and a Stock Purchase Agreement, dated June 27, 2001. Both agreements were between Digital and DRI Europa, as the purchasers, and the Company's individual shareholders, as the sellers. The purchase price for the Company's shares consisted of a combination of cash, notes to the individual sellers, Digital stock and warrants to purchase Digital stock. The total purchase price was approximately 80,277 SEK. As a result of the acquisition, the Company has become a wholly-owned subsidiary of DRI Europa. 8