(Letterhead of Deutsche Treuhand-Gesellschaft appears here)
TRANSIT-MEDIA GmbH
Financial statement
December 31, 1995
(with Independent Auditors' Report)
(Letterhead of Deutsche Treuhand-Gesellschaft appears here)
INDEPENDENT AUDITORS' REPORT
The Stockholders
TRANSIT-MEDIA GmbH:
We have audited the accompanying balance sheet of TRANSIT-MEDIA GmbH as of
December 31, 1995 and the related statement of operations and cash flows for
the period from July 13 through ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion of these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 also 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TRANSIT-MEDIA GmbH at
December 31, 1995, and the results of its operations and its cash flows for the
period from July 13 through December 31, 1995, in conformity with generally
accepted accounting principles.
June 28, 1996
(Signature appears here)
TRANSIT-MEDIA GMBH
Balance Sheet
December 31, 1995
Assets 1995
------ ---------------
Current assets:
Other receivable DM 15,992.45
---------------
Total current assets 15,992.45
Equipment, less accumulated depreciation
of DM 2,161.86 11,464.00
---------------
DM 27,456.45
===============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Bank borrowings DM 27,612.38
Trade payables 42,819.09
Other payables 19,843.05
---------------
Total current liabilities 90,274.52
Stockholders' equity:
Capital stock 50,000.00
Accumulated deficit (112,818.07)
---------------
Net deficit in stockholders equity (62,818.07)
---------------
DM 27,456.45
===============
See accompanying notes to financial statements.
-2-
TRANSIT-MEDIA GMBH
Statement of Operations
Period from July, 13 through December 31, 1995
1995
---------------
General and administrative expenses DM (114,691.29)
---------------
Operating loss (114,691.29)
Other income (expense):
Interest income 13.26
Interest expense (2,384.74)
Other income 4,244.70
---------------
Total other income (expense) 1,873.22
---------------
Net loss DM (112,818.07)
===============
See accompanying notes to financial statements.
-3-
TRANSIT-MEDIA GMBH
Statement of Cash Flows
Period from July, 13 through December 31, 1995
1995
---------------
Cash flow from operating activities:
Net loss DM (112,818.07)
Adjustments to reconcile loss to net cash
used in operating activities:
Depreciation of equipment 2,161.86
Changes in operating assets and liabilities:
Increase in other receivables (15,992.45)
Increase in bank borrowings 27,612.38
Increase in trade payables 42,819.09
Increase in other liabilities 19,843.05
---------------
Net cash used in operating activities (36,374.14)
Cash flow from investing activities:
Purchases of equipment (13,625.86)
---------------
Net cash used in investing activities (13,625.86)
---------------
Net decrease in cash and cash equivalents (50,000.00)
---------------
Cash and cash equivalents at beginning of period 50,000.00
---------------
Cash and cash equivalents at end of period DM --
===============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest DM 2,384.74
===============
See accompanying notes to financial statements.
-4-
TRANSIT-MEDIA GmbH
Notes to Financial Statements
December 31, 1995
(1) Organization and Summary of Significant Accounting Policies
(a) Organization
TRANSIT-MEDIA GmbH (The "Company") was established on July, 19, 1995 and
began operating in August 1, 1995. The company was still in a start-up
phase and expects to earn revenue from its operations beginning in third
quarter 1996. The company intends to design and sell information technology
to the public transit market and traveler's information stations.
(b) Equipment
Equipment is stated at cost and is depreciated using the straight-line
method over the estimated useful lives of the assets (which range from
three to ten years).
(c) Use of Estimates in Preparation of Financial Statements
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements
in conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(2) Other receivables
Outstanding receivables mainly represent deductible added value tax which
was collected in 1996. Therefore, no allowance for doubtful accounts has
been provided.
(3) Bank borrowings
The funds have been borrowed under a credit line of DM 200,000 secured by
a guarantee of Mr. Huber and Mr. and Mrs. Damm (Shareholder -- see note 8.)
The bank borrowings have been repaid and the guarantee has been withdrawn
in connection with the transfer of shares to Digital Recorders, Inc. (see
note 8).
-5-
TRANSIT-MEDIA GmbH
Notes to Financial Statements, continued
(4) Other payables
Other payables are mainly travel expenses to be paid to company's
management.
(5) Capital Stock
Capital stock of DM 50,000 is authorized and fully paid-in at par value.
(6) Leases
The Company leases its premises under various operating leases which expire
at various times in 1996 and 1997. Rent expense under these operating
leases was DM 9,648.01 for the periods ended December 31, 1995.
At December 31, 1995 future minimum lease payments under the noncancellable
operating leases are as follows:
Year ending December 31,
1996 DM 17,540.64
1997 17,540.64
---------
Total minimum lease payments DM 35,081.28
=========
(7) Income Taxes
The Company is subject to trade tax on income amounting to 14% of taxable
income and to corporation tax which is determined on the basis of a 45%
rate applicable to pretax earnings (after deduction on trade tax on income)
less a credit of 15% on dividends paid. In addition, a solidarity surcharge
of 7.5% of corporation tax is levied.
The deferred tax effect has been calculated on the basis of a combined tax
rate of 55% assuming the undistributed rate for corporation tax.
-6-
TRANSIT-MEDIA GmbH
Notes to Financial Statements, continued
The components of net deferred tax assets as of December 31, 1995 are
as follows:
Deferred tax assets:
Net tax effect of operating loss carryforwards DM 61,000.00
----------
Total gross deferred tax asset 61,000.00
Less valuation allowance (61,000.00)
----------
Net deferred tax asset DM --
==========
The Company has determined that the need for a valuation allowance arises
due to the absence of prior taxable income.
At December 31, 1995, the Company has net operating loss carryforwards for
corporation tax and trade tax on income purposes of approximately
DM 112,000.00 which are available to offset future taxable income.
Subsequently recognized tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1995 will be allocated to
income tax benefit that will be reported in the statement of operations
in the year such benefits are realized.
(8) Subsequent Events
On May 1, 1996 Digital Recorders, Inc. purchased 100% of the shares of
the Company from its prior shareholders, Mr. Robert Huber (50%) and
Mr. Hans Damm (50%).
On May 2, 1996 the new shareholder Digital Recorders, Inc. payed
$350,000.00 equivalent to DM 533,537.24, into capital reserves of
TRANSIT-MEDIA GmbH.