A Question of Amortization ?
From DDIM 96 Annual Report:
"During the last six months of 1996, the Company invested $1,255,000 in capitalized product development cost, consisting of personnel and other related expenses, and $182,000 in computer equipment to develop Ardes 2k."
In Q1 of 1997 DDIM deferred $536,000 in Product Development and capitalized $300,000 in Equipment & Furniture. If we assume $100,000 of this equipment is allocated to Ardes2k, than DDIM has a total of $2,073,000 invested in Ardes2k.
As a YR2000 planning tool Ardes2k has a maximum economic life of two years. No one will be buying Ardes2k after June of 1999. Buy Generally Accepted Accounting Principals (GAAP), DDIM should amortize about $86,375/month of Ardes2k development costs. During the Phone Conference DDIM's CFO said only $40,000/month will be amortized (expensed) over 3 to 4 years. On July 1, 1999 the value of Ardes2k should be zero, but DDIM plans to still have it valued as a $1 Million asset in deferred Product Development costs. This should make for and interesting conversation between the CFO and the auditor from BDO Seidman. It is hard to believe that the Auditors will allow this. But than again they allowed the original deferral of over $2 Million in product development costs that have created the fiction of DDIM earnings for the last 9 months.
In a worst case predicament for DDIM, there would be few if any sales of Ardes2k in 1997. This would require DDIM to expense all $2 Million this years. This is not to unlikely, the release of Ardes2k has been announced over a half a dozen times, starting last August and still no sales. Is there a Market for Ardes2k? Still a very BIG question.
Jalali |
