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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB



xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For The Quarterly Period Ended: February
28, 2003



or



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For The Transition Period From
 To



Commission File Number: 0-21367



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DATA TRANSLATION, INC.

(Exact name of
registrant as specified in its charter)



|Delaware                                                      |  | 04-3332230                             
|------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of organizationor incorporation) |  | (I.R.S. Employer Identification Number)



100
Locke Drive

Marlboro, Massachusetts

(Address of principal executive offices)



01752

(Zip code)



(508) 481-3700

(Registrants telephone number, including area code)



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No ̈



As of March 31, 2003 there were 3,511,312 shares of the issuers common
stock outstanding.



Transitional Small Business Disclosure Format
(check one):    Yes ̈No  x



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DATA TRANSLATION, INC. AND SUBSIDIARIES



INDEX



|                                                                                                         |  | Page No.
|-------------------------------------------------------------------------------------------------------- |  | --------
|Part IFinancial Information:                                                                            |  |         
|                                                                                                        
|Item 1  Financial Statements                                                                            |  |         
|Consolidated Balance Sheets as of February 28, 2003 and November 30, 2002                                |  | 3       
|                                                                                                        
|Consolidated Statements of Operations for the Three Months Ended February 28, 2003 and February 28, 2002 |  | 4       
|                                                                                                        
|Consolidated Statements of Cash Flows for the Three Months Ended February 28, 2003 and February 28, 2002 |  | 5       
|                                                                                                        
|Notes to Consolidated Financial Statements                                                               |  | 6       
|                                                                                                        
|Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations           |  | 9       
|                                                                                                        
|Item 3  Quantitative and Qualitative Disclosures about Market Risk                                      |  | 14      
|                                                                                                        
|Item 4  Controls and Procedures                                                                         |  | 14      
|                                                                                                        
|Part IIOther Information                                                                                |  | 15      
|                                                                                                        
|Signature                                                                                                |  | 16      



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##### Table of Contents

PART I. FINANCIAL INFORMATION



DATA TRANSLATION, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                                                                 |  | February 28,2003 |             |   | November 30, 2002 |  
|---------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ----------------- | -
|Current Assets:                                                                                                  |  |                  |             |   |                   |  
|Cash and cash equivalents                                                                                        |  | $                | 2,162,000   |   |                   | $
|Short term investments                                                                                           |  |                  | 767,000     |   |                   |  
|Marketable securities                                                                                            |  |                  | 115,000     |   |                   |  
|Accounts receivable, net of reserves of $225,000 and $228,000 in 2003 and 2002,
respectively                     |  |                  | 1,352,000   |   |                   |  
|Inventories                                                                                                      |  |                  | 1,519,000   |   |                   |  
|Prepaid expenses                                                                                                 |  |                  | 280,000     |   |                   |  
|                                                                                                                 |  |                  |             |   |                   |  
|Total current assets                                                                                             |  |                  | 6,195,000   |   |                   |  
|                                                                                                                
|Equipment and Leasehold Improvements, net                                                                        |  |                  | 254,000     |   |                   |  
|                                                                                                                
|Other Assets, net                                                                                                |  |                  | 37,000      |   |                   |  
|                                                                                                                 |  |                  |             |   |                   |  
|                                                                                                                
|Total Assets                                                                                                     |  | $                | 6,486,000   |   |                   | $
|                                                                                                                 |  |                  |             |   |                   |  
|                                                                                                                
|Current Liabilities:                                                                                             |  |                  |             |   |                   |  
|Accounts payable                                                                                                 |  | $                | 1,069,000   |   |                   | $
|Accrued expenses                                                                                                 |  |                  | 1,917,000   |   |                   |  
|                                                                                                                 |  |                  |             |   |                   |  
|Total current liabilities                                                                                        |  |                  | 2,986,000   |   |                   |  
|                                                                                                                
|Stockholders Investment:                                                                                        |  |                  |             |   |                   |  
|                                                                                                                 |  |                  |             |   |                   |  
|Preferred Stock, $.01 par value, Authorized5,000,000 shares; none
issued                                        |  |                  |            |   |                   |  
|Common Stock, $.01 par value, Authorized30,000,000 shares; 3,568,412 shares issued
3,511,312 shares outstanding |  |                  | 36,000      |   |                   |  
|                                                                                                                
|Treasury Stock, common, at cost, 56,465 shares                                                                   |  |                  | (227,000    | ) |                   |  
|Capital in excess of par value                                                                                   |  |                  | 14,642,000  |   |                   |  
|Accumulated deficit                                                                                              |  |                  | (10,937,000 | ) |                   |  
|Cumulative translation adjustment                                                                                |  |                  | (14,000     | ) |                   |  
|                                                                                                                 |  |                  |             |   |                   |  
|                                                                                                                
|Total stockholders investment                                                                                   |  |                  | 3,500,000   |   |                   |  
|                                                                                                                 |  |                  |             |   |                   |  
|                                                                                                                
|Total Liabilities and Stockholders Investment                                                                   |  | $                | 6,486,000   |   |                   | $
|                                                                                                                 |  |                  |             |   |                   |  



The
accompanying notes are an integral part of these consolidated financial statements.



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DATA TRANSLATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                                       |  | Three Months Ended |          
|---------------------------------------------------------------------- |  | ------------------ | ---------
|                                                                       |  | February 28, 2003  |          
|Net sales                                                              |  | $                  | 2,905,000
|                                                                      
|Cost of sales                                                          |  |                    | 1,314,000
|                                                                       |  |                    |          
|Gross profit                                                           |  |                    | 1,591,000
|                                                                      
|Research and development expenses                                      |  |                    | 716,000  
|Selling and marketing expenses                                         |  |                    | 886,000  
|General and administrative expenses                                    |  |                    | 162,000  
|                                                                       |  |                    |          
|                                                                      
|Loss from operations                                                   |  |                    | (173,000 
|                                                                      
|Interest income                                                        |  |                    | 6,000    
|                                                                       |  |                    |          
|                                                                      
|Net loss                                                               |  | $                  | (167,000 
|                                                                       |  |                    |          
|                                                                      
|Basic and diluted net loss per share                                   |  | $                  | (0.05    
|                                                                       |  |                    |          
|                                                                      
|Basic and diluted weighted average number of common shares outstanding |  |                    | 3,511,000
|                                                                       |  |                    |          



The
accompanying notes are an integral part of these consolidated financial statements.



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DATA TRANSLATION, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                            |  | Three Months Ended |          
|--------------------------------------------------------------------------- |  | ------------------ | ---------
|                                                                            |  | February 28, 2003  |          
|CASH FLOWS FROM OPERATING ACTIVITIES:                                       |  |                    |          
|Net loss                                                                    |  | $                  | (167,000 
|Adjustments to reconcile net loss to net cash used in operating
activities- |  |                    |          
|Depreciation and amortization                                               |  |                    | 80,000   
|                                                                           
|Changes in current assets and liabilities-                                  |  |                    |          
|Accounts receivable                                                         |  |                    | (231,000 
|Inventories                                                                 |  |                    | (250,000 
|Prepaid expenses                                                            |  |                    | 7,000    
|Accounts payable                                                            |  |                    | 135,000  
|Accrued expenses                                                            |  |                    | 325,000  
|                                                                            |  |                    |          
|Net cash used in operating activities                                       |  |                    | (101,000 
|                                                                            |  |                    |          
|CASH FLOWS FROM INVESTING ACTIVITIES:                                       |  |                    |          
|Purchases of equipment and leasehold improvements                           |  |                    | (30,000  
|Purchases of marketable securities                                          |  |                    | (115,000 
|Maturity of marketable securities                                           |  |                    | 115,000  
|Decrease in other assets                                                    |  |                    | (3,000   
|                                                                            |  |                    |          
|Net cash used in investing activities                                       |  |                    | (33,000  
|                                                                           
|EXCHANGE RATE EFFECTS                                                       |  |                    | 19,000   
|                                                                            |  |                    |          
|NET DECREASE IN CASH AND CASH EQUIVALENTS                                   |  |                    | (115,000 
|                                                                           
|CASH AND CASH EQUIVALENTS, beginning of period                              |  |                    | 3,159,000
|                                                                            |  |                    |          
|CASH AND CASH EQUIVALENTS, end of period                                    |  |                    | 3,044,000



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##### Table of Contents

DATA TRANSLATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. Basis of Presentation



In the opinion of management, these unaudited consolidated
financial statements and disclosures reflect all adjustments necessary for fair presentation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year.



Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These consolidated financial statements
should be read in conjunction with the consolidated financial statements and the notes thereto included in the latest audited financial statements of Data Translation, Inc. and its subsidiaries (the Company), which are contained in the
Companys 2002 Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission on February 28, 2003.



The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at 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.



2. Cash
Equivalents and Marketable Securities



Cash
equivalents are carried at cost which approximates market value and have maturities of less than three months. Cash equivalents include money market accounts, overnight time deposits, and U.S. Treasury bills.



The Company accounts for marketable securities in accordance
with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Under this standard, the Company is required to classify all investments in debt and equity
securities into one or more of the following three categories: held-to-maturity, available-for-sale or trading. The Companys marketable securities mature in August 2003 and are classified as held-to-maturity as the Company has the positive
intent and ability to hold to maturity. Marketable securities are reported at amortized cost, which approximates fair market value. The Companys cash equivalents and marketable securities are invested in highly rated government securities.



3. Segment Reporting and Geographic Information



(a)Segment Reporting



The Company adopted SFAS No. 131Disclosures
About Segments of an Enterprise and Related Information in the fiscal year ended November 30, 1999. SFAS No. 131 establishes standards for reporting information regarding operating segments in annual financial statements and requires selected
information for those segments to be presented in interim financial reports issued to stockholders. SFAS No. 131 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified
as components of an enterprise about which separate financial information is available for evaluation by the chief decision maker, or decision making group, in making decisions how to allocate resources and assess performance. The Companys
chief operating decision-maker, as defined under SFAS No. 131, is the Chief Executive Officer.



The Companys reportable segments are Core and Commercial. The Core segment is composed of the data acquisition, imaging and machine vision business which consists of plug-in cards and
Windows-based software that provide an integrated, high performance system solution to the general scientific and industrial, test and measurement marketplace. The Commercial segment is composed of a plug-in video capture card, Broadway, which is a
high-performance video capture and encoding system for Windows 98 and Windows NT PCs. The accounting policies of the segments are the same as those described in the summary of significant accounting policies contained in the Companys 2002
Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission on February 28, 2003. The Company evaluates performance based on revenues and operating margin. Revenues are attributed to geographic areas based on where the customer
is located. Segment information for the three months ended February 28, 2003 and February 28, 2002 is as follows:



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|                                             |  | Core |           | Commercial |   | Total  
|-------------------------------------------- |  | ---- | --------- | ---------- | - | -------
|For the three months ended February 28, 2003 |  |      |           |            |   |        
|Revenues from unaffiliated customers         |  | $    | 2,829,000 |            | $ | 76,000 
|Cost of revenue                              |  |      | 1,276,000 |            |   | 38,000 
|Research and development                     |  |      | 711,000   |            |   | 5,000  
|                                             |  |      |           |            |   |        
|Operating margin (1)                         |  | $    | 842,000   |            | $ | 33,000 
|                                             |  |      |           |            |   |        
|For the three months ended February 28, 2002 |  |      |           |            |   |        
|Revenues from unaffiliated customers         |  | $    | 2,519,000 |            | $ | 250,000
|Cost of revenue                              |  |      | 1,206,000 |            |   | 117,000
|Research and development                     |  |      | 635,000   |            |   | 5,000  
|                                             |  |      |           |            |   |        
|Operating margin (1)                         |  | $    | 678,000   |            | $ | 128,000
|                                             |  |      |           |            |   |        



|(1) |  | The Operating Margins reported reflect only the expenses of the line of business and do not represent the actual margins for each operating segment since they do not
contain an allocation for selling and marketing, general and administrative and other corporate expenses incurred in support of the line of business.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Profit Reconciliation:



|                                               |  | Three Months Ended |         
|---------------------------------------------- |  | ------------------ | --------
|                                               |  | February 28, 2003  |         
|Total operating margin for reportable segments |  | $                  | 875,000 
|Selling and marketing expenses                 |  |                    | (886,000
|General and administrative expenses            |  |                    | (162,000
|Interest income                                |  |                    | 6,000   
|                                               |  |                    |         
|Net loss                                       |  | $                  | (167,000
|                                               |  |                    |         



(b)
Geographic Information



|                                             |  | United States |           |   | United Kingdom |   |         | Germany |  |   | Eliminations |   |  | Consolidated |         
|-------------------------------------------- |  | ------------- | --------- | - | -------------- | - | ------- | ------- |  | - | ------------ | - |  | ------------ | --------
|For the three months ended February 28, 2003 |  |               |           |   |                |   |         |         |  |   |              |   |  |              |         
|Sales to unaffiliated customers (1)          |  | $             | 2,154,000 |   |                | $ | 316,000 |         |  | $ | 435,000      |   |  | $            |        
|Sales or transfers between geographic areas  |  |               | 306,000   |   |                |   |        |         |  |   |             |   |  |              | (306,000
|                                             |  |               |           |   |                |   |         |         |  |   |              |   |  |              |         
|Total net sales                              |  | $             | 2,460,000 |   |                | $ | 316,000 |         |  | $ | 435,000      |   |  | $            | (306,000
|                                             |  |               |           |   |                |   |         |         |  |   |              |   |  |              |         
|Net loss                                     |  | $             | (174,000  | ) |                | $ | 5,000   |         |  | $ | (2,000       | ) |  | $            | 4,000   
|                                             |  |               |           |   |                |   |         |         |  |   |              |   |  |              |         
|Long-lived assets                            |  | $             | 233,000   |   |                | $ | 23,000  |         |  | $ | 11,000       |   |  | $            | (13,000 
|                                             |  |               |           |   |                |   |         |         |  |   |              |   |  |              |         
|For the three months ended February 28, 2002 |  |               |           |   |                |   |         |         |  |   |              |   |  |              |         
|Sales to unaffiliated customers (1)          |  | $             | 2,118,000 |   |                | $ | 302,000 |         |  | $ | 349,000      |   |  | $            |        
|Sales or transfers between geographic areas  |  |               | 281,000   |   |                |   |        |         |  |   |             |   |  |              | (281,000
|                                             |  |               |           |   |                |   |         |         |  |   |              |   |  |              |         
|Total net sales                              |  | $             | 2,399,000 |   |                | $ | 302,000 |         |  | $ | 349,000      |   |  | $            | (281,000
|                                             |  |               |           |   |                |   |         |         |  |   |              |   |  |              |         
|Net loss                                     |  | $             | (249,000  | ) |                | $ | (8,000  | )       |  | $ | (23,000      | ) |  | $            | (19,000 
|                                             |  |               |           |   |                |   |         |         |  |   |              |   |  |              |         
|Long-lived assets                            |  | $             | 353,000   |   |                | $ | 38,000  |         |  | $ | 14,000       |   |  | $            | (12,000 
|                                             |  |               |           |   |                |   |         |         |  |   |              |   |  |              |         



|(1) |  | Foreign sales from the United States to unaffiliated customers for the three months ended February 28, 2003 and February 28, 2002 were approximately $396,000,
and $512,000, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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DATA TRANSLATION, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



5. Inventories



Inventories are stated at the lower of first-in, first-out (FIFO) cost or market and consist of the following:



|                |  | February 28, 2003 |           | November 30, 2002
|--------------- |  | ----------------- | --------- | -----------------
|Raw material    |  | $                 | 1,070,000 |                  
|Work-in-process |  |                   | 153,000   |                  
|Finished goods  |  |                   | 296,000   |                  
|                |  |                   |           |                  
|                |  | $                 | 1,519,000 |                  
|                |  |                   |           |                  



Work-in-process and
finished goods inventories include material, labor and manufacturing overhead. Management performs periodic reviews of inventory and disposes of items not required by their manufacturing plan and reduces the carrying cost of inventory items to the
lower of cost or market (with market value generally defined as the lower of replacement cost or net realizable value).



6. Net Loss Per Common Share



Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period.
The dilutive effect of potential common stock, consisting of outstanding stock options, is determined using the treasury stock method in accordance with SFAS 128. Diluted net loss per share for the three months ended February 28, 2003 and 2002 is
the same as basic net loss per share, since the inclusion of the potential common stock equivalents would be antidilutive. For the three months ended February 28, 2003 and 2002,851 and 0 common equivalent shares, respectively, have been
excluded from the calculation of diluted earnings per share.



7.
Stockholders Investment



In March 2000,
the FASB issued Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation-An Interpretation of APB Opinion No. 25. The interpretation clarifies the application of Opinion 25 in certain situations, as defined. The
interpretation became effective on July 1, 2000, and covers certain events that occur after December 15, 1998. The effects of applying this interpretation should be recognized on a prospective basis from the effective date. On December 16, 1998, the
Companys board authorized the repricing of employee options to purchase 100,000 shares of common stock from an exercise price of $3.00 per share to an exercise price of $1.50 per share, which represented the fair market value of the
Companys common stock on the date of repricing. As of February 28, 2003, options to purchase 50,001 common stock were still outstanding and are subject to variable plan accounting through the earlier of the exercise or termination of the
options. There was no effect on earnings during the first quarter of fiscal 2003.



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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



Forward Looking Statements



This Form 10-QSB may contain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, with respect to (i) the Companys anticipated
liquidity position, (ii) market conditions and trends in the markets in which the Company participates, (iii) the Companys ability to meet its current operating requirements, (iv) the impact on the Companys business results of
operations, and financial condition of contingencies over which the Company has no control, and (vi) certain other statements identified or qualified by words such as likely, will, suggests, may,
would, could, should, expects, anticipates, estimates, plans, projects, believes, is optimistic about, or similar expressions
(and variants of such words of expressions). Investors are cautioned that forward-looking statements are inherently uncertain. These forward-looking statements represent the best judgment of the Company as on the date of this Form 10-Q and the
Company cautions readers not to place undue reliance on such statements. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties
including, without limitation, risks described under the heading Certain Factors That May Affect Future Results in the Companys 2002 Annual Report on Form 10-KSB, filed with the Securities and Exchange Commission on February 28,
2003.



Results of Operations



The following table sets forth certain consolidated statement
of operations data as a percentage of net sales.



|                                    |  | Three Months Ended February 28, |   
|----------------------------------- |  | ------------------------------- | --
|                                    |  | 2003                            |   
|Net sales                           |  | 100.0                           |   
|Gross profit                        |  | 54.8                            |   
|Research and development expenses   |  | 24.6                            |   
|Selling and marketing expenses      |  | 30.5                            |   
|General and administrative expenses |  | 5.6                             |   
|                                    |  |                                 |   
|Loss from operations                |  | (6.0                            | ) 
|Interest income                     |  | 0.2                             |   
|                                    |  |                                 |   
|Net loss                            |  | (5.7                            | )%
|                                    |  |                                 |   



Comparison of First
Fiscal Quarter of 2003 to First Fiscal Quarter of 2002:



Net sales for the fiscal quarter ended February 28, 2003 were $2,905,000, an increase of $136,000, or 4.9%, from the same period a year ago. The increase was attributable primarily to higher sales of the Companys core products.
Revenue from the Companys core products increased approximately 11.6% from the same period a year ago. The Company believes that it is currently in the midst of an acceptance period as newly released products are being introduced to the
marketplace to replace the Companys legacy products. The Company will have to manage successfully the transition from legacy products in order to maintain the appropriate level of revenue to support the Companys expense base.



Gross profit for the fiscal quarter ended
February 28, 2003 was 54.8%, compared to 52.2% in the comparable quarter of the prior year. The increase was the result of a more favorable product mix and decreased manufacturing expenses.



The loss from operations for the first fiscal quarter of 2003
was $173,000, compared to a loss from operations of $309,000 in the comparable quarter of the prior year. The decrease in net loss is primarily a result of a more favorable gross margin performance through a combination of product mix and increased
revenue. Operating expenses for the first quarter of fiscal 2003 were $1,764,000, representing 60.8% of sales, compared to $1,756,000, representing 63.4% of sales, in the prior year period. Research and development expenses for the first quarter of
fiscal 2003 were $716,000, representing 24.7% of sales, compared to $640,000, representing 23.1% of sales, for the comparable period of the prior year. The increase is primarily attributable to an increased use of outside resources within the
research and development department. Sales and marketing expenses for the first quarter of fiscal 2003 were $886,000, representing 30.5% of sales, compared to $732,000, representing 26.4% of sales, in the



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##### Table of Contents

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)



prior year period. The
increase in sales and marketing expenses is primarily a result of increased spending in advertising, promotion and sales channel development.General and administrative expenses were $162,000 for the first quarter of fiscal 2003, representing
5.6% of sales, compared to $383,000, representing 13.8% of sales, for the same period last year. The decrease in general and administrative expenses is primarily the result of a franchise tax refund from the State of Delaware.



The net loss for the fiscal quarter ended February 28, 2003
was $167,000, or $0.05 per diluted share, compared to a net loss of $299,000, or $0.09 per diluted share, for the same period in 2002.



Liquidity and Capital Resources



As of February 28, 2003, the Company had cash, cash equivalents, marketable securities, and short term investments totaling $3,044,000, as
compared to $3,159,000 as of November 30, 2002.



In the first three months of 2003, the Company used $101,000 for operating activities, resulting from a net loss, an increase in accounts payable, accrued expenses, accounts receivable and inventory, partially offset by a decrease in
prepaid expenses.



The Company used $33,000 for
investing activities in the first three months of 2003, principally as a result of acquisitions of equipment and leasehold improvement.



Given currently available funds, the Company believes that it will be able to meet its current operating requirements for the remainder of
the current fiscal year. If the Company is unsuccessful in increasing revenues or if its liquidity position deteriorates, the Company will need to secure external financing in order to meet its ongoing expenses. Therefore, the Company is pursuing
possible financing alternatives, but there can be no assurance that the Company will be successful in obtaining any required financing.



Critical Accounting Policies



(a) Revenue Recognition



The Company recognizes revenue from sales to end users, resellers and distributors upon shipment, provided persuasive evidence of
an arrangement exists, the sales price is fixed or determinable and collection of the related receivable is probable. Warranty costs are estimated and recorded by the Company at the time of revenue recognition.



In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements. This bulletin established additional guidelines for revenue recognition. The Companys revenue recognition policy complies with this
pronouncement.



During 2002, the Company adopted
Emerging Issues Task Force (EITF) 00-10, Accounting for Shipping and Handling Fees and Costs. In accordance with this EITF, all amounts billed to a customer in a sale transaction related to shipping and handling should be classified as
revenue. Companies must also decide whether to include these shipping and handling costs in cost of sales, or if significant and are not to be included in cost of sales, a company should disclose both the amount of such costs and the line item on
its statement of operations that includes these costs. The Company has historically accounted for shipping and handling expenses as a reduction to the cost of sales in the statement of operations to offset the costs incurred. The Company has
recorded shipping and handling costs in net sales and cost of sales in the accompanying statements of operations for the periods ended February 28, 2003 and 2002.



10



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##### Table of Contents

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)



During
2002, the Company adopted EITF 01-14, Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred. In accordance with this EITF, reimbursements received for out-of-pocket expenses incurred
should be characterized in the income statement as revenue. The Company has historically accounted for the reimbursements received for out-of-pocket expenses incurred as a reduction to the cost of sales in the statement of operations to offset the
costs incurred. The Company had no reimbursements for out-of-pocket costs for the periods ended February 28, 2003 or 2002.



(b) Inventories and Obsolete and Excess Inventory



Inventories are valued at the lower of first-in, first-out (FIFO) cost or market value; as such,
costs have been reduced to reflect decreases in market value based on excess and obsolete inventories. The estimated allowance is based on managements review of inventories on hand compared to estimated future usage and sales.



(c) Allowance for Uncollectible Accounts Receivable



The Company performs ongoing credit evaluations
of its customers and adjusts credit limits based upon payment history and the customers current credit worthiness, as determined by review of their current credit information. The Company continuously monitor collections and payments from
customers and maintains a provision for uncollectible receivables based upon historical experience and any specific customer collection issues identified. While such credit losses have historically been within our expectations and the provisions
established, The Company cannot guarantee that it will continue to experience the same credit loss rates that it has in the past. A significant change in the liquidity or financial position of a key customer could have a material adverse impact on
the collectability of accounts receivable and future operating results.



(d) Concentration of Credit Risk



SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance sheet and credit
risk concentrations. The Company has no significant off-balance sheet risk or concentration of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements. Financial instruments that subject the Company to
credit risk consist primarily of trade accounts receivable. As of February, 2003 and 2002, no individual customer accounted for greater than 10% of accounts receivable. For the periods, ended February 28, 2003 and 2002, no individual customer
accounted for greater than 10% of revenues.



(e)
Research and Development Costs



The Company
charges research and development costs to operations as incurred.



(f) Foreign Currency



The Company translates the assets and liabilities of its foreign subsidiaries at the rates of exchange in effect at year-end. Revenues and expenses are translated using exchange rates in effect during the year. Gains and losses from
foreign currency translation are credited or charged to Cumulative translation adjustment included in stockholders investment in the accompanying consolidated balance sheets. Foreign currency transaction gains and losses are
included in general and administrative expenses in the accompanying consolidated statements of operations. Foreign currency transaction gains and losses were not significant for the periods ended February 28, 2003 and 2002.



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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)



(g)
Disclosure About Fair Value of Financial Instruments



SFAS No. 107, Disclosure About Fair Market Value of Financial Instruments, requires disclosure of estimated fair values for certain financial instruments. The Companys financial instruments include cash, marketable
securities, accounts receivable and accounts payable. The carrying amounts of these financial instruments approximate their fair value due to their short-term nature.



(h) Stock-based Compensation



The Company accounts for stock options issued to employees under Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees, and complies with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 establishes a fair-value-based method of accounting for stock-based
compensation plans.



The Company accounts for
stock options issued to non-employees in accordance with SFAS No. 123 and Emerging Issues Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services. On September 25, 2000, the Company issued options to purchase 10,000 common shares to non-employees. As of February 28, 2003, options to purchase 6,664 common shares were vested. The value of these shares was not material for the
period ending February 28, 2003. As of February 28, 2003, 3,336 options are subject to vesting over the next two years. The Company will record the value of these options over the period that services are being provided.



New Accounting Standards



In April 2002, the FASB issued SFAS No. 145, Rescission of
FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This Statement rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement,
FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements and FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This statement also amends FASB Statement No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions and various
other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This statement is effective for financial statements issued on or after May 15, 2002. The
adoption of the statement did not have a material effect of the consolidated statement of operations.



In July 30, 2002, the FASB issued FASB Statement No. 146, Accounting for the Costs Associated with Exit or Disposal Activities.
This statement requires companies to recognize costs associated with exit or disposal activities only when liabilities for those costs are incurred rather than at the date of a commitment to an exit or disposal plan. FASB No. 146 also requires
companies to initially measure liabilities for exit and disposal activities at their fair values. FASB No. 146 replaces Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) and EITF No. 88-10, Costs Associated with Lease Modification or Termination. The provisions of FASB No. 146 are effective for exit or disposal
activities that are initiated after December 31, 2002.



In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure  an amendment of FASB Statement No. 123. This Statement amends SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of
Statement 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. This Statement also requires
that those effects be disclosed



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##### Table of Contents

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(CONTINUED)



more prominently by
specifying the form, content, and location of those disclosures. The adoption of SFAS No. 148 during the three months ended February 28, 2003 did not have a material impact on the Companys operations of financial position.



In November 2002, the FASB issued FASB Interpretation No. 45
(FIN No. 45), Guarantors Accounting and Disclosure Requirements for Guarantees of Indebtedness to Others An Interpretations of FASB Statements No. 5, 57 and 107 and Recission of FASB Interpretation No. 34. The Objective of
Interpretation 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. This Interpretation does not prescribe a specific approach for subsequently measuring the guarantors recognized liability
over the term of the related guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the
guarantors fiscal year-end. The disclosure requirements in the Interpretation are effective for financial statements of interim or annual periods ending after December 15, 2002. The interpretive guidance incorporated without change from
Interpretation 34 continues to be required for financial statements for fiscal years ending after June 15, 1981-the effective date of Interpretation 34. The adoption of this interpretation during the three months ended February 28, 2003 did not have
a material impact on the Companys operations or financial position.



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##### Table of Contents

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Company does not engage in trading market risk sensitive instruments or other than trading instruments that are likely to expose the Company to market risk, whether interest rate,
foreign currency exchange, commodity price or equity price risk. At August 31, 2001, the Company had entered into certain forward foreign exchange contracts in order to hedge specific future monthly obligations denominated in Euros. The Company
does not hold or transact in financial instruments for purposes other than risk management. To a certain extent, the Company is exposed to market risk related to changes in foreign currency exchange rates. These exposures may change over time as
business practices evolve and could have a material adverse effect on the Companys business, financial condition and results of operations. Historically, the Companys primary foreign currency exchange rate exposure has been related to
the operations of its European subsidiaries. Through February 28, 2003, foreign currency fluctuations have not had a material impact on the Companys financial position or results of operations.



Item 4. CONTROLS AND PROCEDURES



Within the 90-day period prior to the filing date of this report, an evaluation was conducted under the supervision and with the participation if the Companys management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures are effective to ensure that all material information relating to the Company, including our consolidated subsidiaries, is made known to them particularly during the period when our periodic reports are being prepared. It should be noted
that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under the potential future
conditions, regardless of how remote.



Subsequent to the date of
this evaluation there have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls, including any corrective actions with regard to significant deficiencies and material
weaknesses.



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##### Table of Contents

PART II. OTHER INFORMATION



Item 6.
Exhibits and Reports on Form 8-K



a) Exhibits.



Exhibit
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code).



Exhibit 99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b)
of section 1350, chapter 63 of title 18, United States Code).



b) Reports on Form 8-K.



The following reports were filed on Form 8-K during the quarter ended February 28, 2003 and for the subsequent period ended April 14, 2003:



On December 18, 2002, we filed a Current Report on Form 8-K under Item 5 regarding the notice we received
from The Nasdaq Stock Market that for 30 trading days the price of our common stock had closed below the minimum $1.00 per share bid price required for continued listing on the Nasdaq SmallCap Market.



On January 6, 2003, we filed a Current Report on Form 8-K
under Item 5 regarding the notice we received from The Nasdaq Stock Market that the companys common stock would be delisted from trading on the Nasdaq SmallCap Market effective with the opening of trading on January 10, 2003, as a result of
our common stock not meeting certain listing requirements.



On March 21, 2003, we filed a Current Report on Form 8-K under Item 5 regarding the Companys intention to file a Form 15 with the Securities and Exchange Commission in 30 days to deregister the companys common stock
under the Securities and Exchange Act of 1934, as amended.



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##### Table of Contents

SIGNATURE



Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|      |  |                |  | DATA TRANSLATION, INC.
|----- |  | -------------- |  | ----------------------
|     
|Date: |  | April 14, 2003 |  |                       
|      |  |                |  |                       



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##### Table of Contents

CERTIFICATION OF CHIEF EXECUTIVE OFFICER



Section 302 Certification



I, ALFRED A. MOLINARI, certify that:



(1) I have reviewed this annual report on Form 10-QSB of DATA TRANSLATION,
INC., a Delaware corporation (the registrant);



(2)
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;



(3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;



(4) The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we:



| | (a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



(5) The registrants other certifying
officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):



| | (a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



(6) The registrants other certifying
officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: April 14, 2003



By: /s/ Alfred A. Molinari

Alfred A. Molinari

Chief Executive Officer



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##### Table of Contents

CERTIFICATION OF CHIEF FINANCIAL OFFICER



Section 302 Certification



I, MICHAEL A. DIPOTO, certify that:



(1) I have reviewed this annual report on Form 10-QSB of DATA TRANSLATION,
INC., a Delaware corporation (the registrant);



(2)
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;



(3) Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;



(4) The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we:



| | (a) |  | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this annual report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | evaluated the effectiveness of the registrants disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report
(the Evaluation Date); and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



(5) The registrants other certifying
officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent function):



| | (a) |  | all significant deficiencies in the design or operation of internal controls which could adversely affect the registrants ability to record, process, summarize
and report financial data and have identified for the registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



(6) The registrants other certifying
officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and material weaknesses.



Date: April 14, 2003



By: /s/ Michael A. DiPoto

Michael A. DiPoto

Chief Financial Officer



18