SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 22, 1999
--------------------------------
DIGITAL D.J. HOLDINGS, INC.
formerly known as
BREAKTHROUGH ELECTRONICS, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Nevada 33-14982-LA 77-0530472
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1658 E. Capitol Expressway, San Jose, California 95121
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (408) 246-9855
--------------------
Breakthrough Electronics, Inc., 2612 East Kentucky Avenue,
----------------------------------------------------------
Salt Lake City, Utah 84117
--------------------------
(Former name or former address, if changed since last report)
1
Item 1. Changes in Control of Company.
- ------- -----------------------------
A change in control of the Company has occurred as of the date of
this report. Digital D.J. Holdings, Inc., formerly known as Breakthrough
Electronics, Inc. (the "Company") has recently completed a merger, pursuant to
that certain Agreement and Plan of Merger, dated November 22, 1999, a copy of
which is attached hereto and incorporated herein by this reference (the "Merger
Agreement") and through which control of the Company was transferred from its
existing shareholders to the shareholders of Digital D.J., Inc. For the purposes
of this Form 8-K report, the essential terms of the merger are outlined as
follows:
1. On November 22, 1999, the Company, through its wholly owned
subsidiary, Digital DJ Subsidiary, Inc., merged with Digital DJ, Inc., in a
reverse triangular merger. The Company issued to the shareholders of Digital DJ,
Inc., one share of common stock for each outstanding share of Digital DJ, Inc.,
on a fully converted basis. In exchange for the merger between Digital D.J.,
Inc., and Digital D.J. Merger Subsidiary, Inc., the Company issued 15,160,910
shares of common stock to Digital D.J., Inc., constituting approximately 96% of
the Company's issued and outstanding shares. The Digital D.J., Inc. shareholders
thereby became the controlling shareholders of the Company. No other
consideration was involved in the acquisition. Control of the Company changed
from Lawrence Sapperstein, a former Director and President, Lawrence Grobstein,
former Director and Vice President and Anthony Adimey, former Director and
Secretary-Treasurer. The new controlling shareholders acquired control from the
Board of Directors and offices listed above. The new controlling shareholders
are listed below.
Percentage of Shares
--------------------
Controlling Person Beneficially Owned
------------------ ------------------
Tsutomu Takahisa (Director) 26.62%
Yoshiki Ohmori (Director) 3.14%
Koyo Hasagawa (Director) 3.14%
Investment Enterprise Partnership YED 9.60%
Nichimen American/Nichimen Corporation 9.51%
2. Concurrently with the merger, the Company changed its name of
record with the Nevada Secretary of State to Digital DJ Holdings, Inc.
3. On January 11, 2000, the Company changed its Nasdaq trading
symbol to DJAY and its Cusip number to 25383V105.
4. The new Board of Directors, as nominated by the Shareholders of
the Company, was elected to become the new Board of Directors of the Company.
The biographical information of each of the following listed directors is more
fully and completely set-out in the Proxy Statement sent to all shareholders of
the Company and a copy of which has been incorporated by this reference as an
exhibit:
2
A. Tsutomu Takahisa
B. Yasuhiko Ohmori
C. Koyo Hasegawa
5. The Merger Agreement also provided that all debts and
obligations of the Company were paid and discharged as of the closing date of
the reorganization.
6. The place of business of the Company will be changed to the
principal business address in San Jose, California, of its sole operating
subsidiary, Digital D.J., Inc.
Item 2. Acquisition or Disposition of Assets.
- ------- ------------------------------------
(a) As outlined in Item 1, the Company (now known as Digital DJ
Holdings, Inc.) merged its subsidiary, Digital DJ Subsidiary, Inc., in a reverse
triangular merger resulting in all of the outstanding shares of Digital DJ,
Inc., being acquired by the Company for the Company's common stock, on a
one-for-one basis, in a transaction in which 15,160,910 shares of the Company's
common stock were issued to the shareholders of Digital D.J., Inc.
(b) The assets of Digital DJ, Inc., are more fully set-out in
the Financial Statements appended hereto.
Item 3. Changes in Company's Certifying Accountant.
- ------- ------------------------------------------
The historical independent auditors and accountants for the
Company were the Las Vegas, Nevada firm of Paul M. Healy, CPA.
(a) After completion of the merger and the change of control, the
Company's Board of Directors selected the accounting firm of Singer, Lewak,
Greenbaum & Goldstein to replace the firm of Paul M. Healy, CPA, as Company's
accountants.
The former accountants did not resign or decline to stand for
reelection, but were dismissed as part of the change of control to allow the
appointment of Singer, Lewak, the accountants for Digital D.J., Inc., prior to
the merger.
The Company's former principal accountants, Paul M. Healy, CPA's
audited financial reports stated a qualification that the Company might not
continue as a going concern. Such statement was unrelated to their replacement.
The decision to change accountants was recommended and approved by
the Board of Directors.
3
Company is not aware of any disagreements with Company's former
accountant during the past two most recent fiscal years on any matter of
accounting principals or practices, financial statement disclosure or auditing
scope or procedure.
The Company has provided the former accountant with a copy of the
disclosures the Company is making in this Form 8-K report in response to the
disclosures required by Regulation S-K, Item 304(a). The former accountant has
been provided an opportunity to furnish the Company with a letter addressed to
the Commission stating its agreement and absence of any disagreement with the
statements made by the Registration in response to this Item.
Item 4. Other Events.
- ------- ------------
The Company believes that the outline of the significant items and
events incident to the merger as set-out and outlined in Item 1 constitute all
other significant events to be reported. Consequently, the matters discussed in
Item 1 are incorporated by this reference, together and attached accounting. The
Company knows of no other significant events, other than those outlined in Item
1.
Item 5. Resignation of Company's Directors.
- ------ ----------------------------------
As part of and as a condition to the closing of the merger on
November 22, 1999, the prior Board of Directors, who also constitute the
principal officers of the Company, resigned. These officers were Lawrence
Sapperstein, President/Director, Lawrence Grobstein, Vice President/Director;
and Anthony Adimey, Secretary- Treasurer/Director.
As part of the Merger and pursuant to the Resolution of the
Shareholders of Company, as attached hereto, certain nominees of Digital D.J.
were appointed and elected as directors and subsequently appointed officers of
the Company as more particularly set- out in the following table:
Name Position
---- --------
Tsutomu Takahisa Director, President, Secretary, Treasurer
and CFO
Yasuhiko Ohmori Director
Koyo Hasegawa Director
Various biographical information concerning each of the foregoing
directors and officers, as well as their sharehold interest, are more fully
set-out in the proxy statement submitted to the shareholders of the Company in
4
the concurrently filed Notice to Shareholders attached and which is incorporated
by this reference. No compensation for these officers has currently been set.
Item 6. Financial Statements and Exhibits.
- ------ ---------------------------------
The Company's financial statements, pro forma financial
information and exhibits thereto are filed herewith.
(a) Exhibits.
(2) 2.1 Agreement and Plan of Merger.
2.2 Agreement of Merger.
(3) 3.1 Amended Articles of Incorporation of Breakthrough
Electronics, Inc.
(5) 5.1 Opinion of Counsel of James Lewis.
(17) 17.1 Resignation and Termination Agreement of Lawrence
Sapperstein.
17.2 Resignation and Termination Agreement for Lawrence
Grobstein.
17.3 Resignation and Termination Agreement for Anthony
Adimey.
(21) 21.1 List of Subsidiaries of the Company.
(22) 22.1 Proxy Statement
(99) 99.1 Press Release
5
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Financial Statements
June 30, 1999 and 1998
(With Independent Auditors' Report Thereon)
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Table of Contents
Page
Independent Auditors'Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Shareholders'
(Deficit) Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Independent Auditors' Report
The Board of Directors
Digital DJ Inc:
We have audited the accompanying consolidated balance sheets of Digital DJ Inc.
and subsidiary (the Company), a development stage company, as of June 30, 1999
and 1998, and the related consolidated statements of operations, shareholders'
(deficit) equity, and cash flows for the years then ended and for the period
from December 6, 1991 (inception) to June 30, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The cumulative consolidated statements of
operations, shareholders' (deficit) equity, and cash flows for the period from
December 6, 1991 (inception) to June 30, 1999, include amounts for the period
from December 6, 1991 (inception) to June 30, 1995, which were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for the period from December 6, 1991 (inception)
to June 30, 1995, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Digital DJ Inc. and subsidiary, a
development stage company, as of June 30, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended and for the
period from December 6, 1991 (inception) to June 30, 1999, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company is in the development stage, has
experienced recurring losses since inception, and requires additional financing
or restructuring of its liabilities to complete its development stage
activities, which raise substantial doubt about its ability to continue as a
going concern. Management believes it will be able to obtain such financing from
new investors, and restructure its liabilities. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/KPMG LLP
-----------
KPMG LLP
December 9, 1999
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
June 30, 1999 and 1998
Assets 1999 1998
------ ---- ----
Current assets:
Cash $ 1,029,379 4,859
Restricted cash -- 250,000
Accounts receivable 904 350,749
Other current assets 3,607 29,580
---------------- ----------------
1,033,890 635,188
Property and equipment, net 51,207 114,350
Other assets 28,920 29,421
---------------- ----------------
$ 1,114,017 778,959
================ ================
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 174,336 2,779,175
Notes payable -- 30,000
Deferred revenue 1,557,500 635,000
Accrued expenses and other current
liabilities 343,729 448,035
---------------- ----------------
Total current liabilities 2,075,565 3,892,210
Long-term notes payable 2,412,705 807,705
Other liabilities 19,894 --
---------------- ----------------
Total liabilities 4,508,164 4,699,915
Minority interest 1,142 --
Commitments
Shareholders' deficit:
Preferred stock, no par value
(liquidation preference aggregating
$9,549,251 in 1999 and 1998);
6,000,000 shares authorized; 3,408,476
shares issued and outstanding in
1999 and 1998 9,549,251 9,549,251
Common stock and warrants, no par
value; 20,000,000 shares
authorized; 6,030,700 and 6,030,500
shares issued and outstanding in
1999 and 1998 985,402 985,242
Deficit accumulated during the
development stage (13,929,942) (14,455,449
---------------- ----------------
Total shareholders' deficit (3,395,289) (3,920,956
---------------- ----------------
deficit $ 1,114,017 778,959
================ ================
See accompanying notes to financial statements.
2
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
Period from
December 6,
1991
Years ended June 30, (inception) to
----------------------------------------
1999 1998 June 30, 1999
------------- ------------- --------------
Revenues:
Revenues $ 444,449 368,019 1,122,921
Rental income 99,094 118,956 218,050
------------- ------------- --------------
Total revenues 543,543 486,975 1,340,971
------------- ------------- --------------
Costs and expenses:
Cost of revenues 24,261 1,140,100 1,207,851
Cost of rental income 80,398 119,144 199,542
Loss on inventory write down -- 2,271,203 2,271,203
Loss on sales or write down
of property and equipment 12,188 588,108 600,296
Research and development 371,859 1,346,615 3,761,324
Selling, general, and
administrative 803,867 2,723,207 8,483,384
------------- ------------- --------------
Total costs and expenses 1,292,573 8,188,377 16,523,600
------------- ------------- --------------
Loss from operations (749,030) (7,701,402) (15,182,629
------------- ------------- --------------
Other expenses:
Interest, net (86,379) (32,750) (104,081
Other (6,804) (27,741) (3,662
------------- ------------- --------------
Total other expenses (93,183) (60,491) (107,743
------------- ------------- --------------
Loss before income taxes
and extraordinary item (842,213) (7,761,893) (15,290,372
Income taxes 3,000 1,490 10,290
------------- ------------- --------------
Loss before extraordinary
item (845,213) (7,763,383) (15,300,662
Extraordinary item - gain on
restructuring of accounts payable,
net of income tax expense of
$10,000 1,370,720 -- 1,370,720
------------- ------------- --------------
Net income (loss) $ 525,507 (7,763,383) (13,929,942
============= ============= ==============
See accompanying notes to financial statements.
3
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Shareholders' (Deficit) Equity
Preferred stock Common stock and warrants
------------------------------- -------------------------------
Shares Amount Shares Amount
--------------- -------------- --------------- --------------
Issuance of common stock at $5.00 per share -- $ -- 60,000 $ 300,000
Net loss for the period from December 6, 1991 (inception)
to June 30, 1992 -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1992 -- -- 60,000 300,000
Stock split, June 3, 1993 -- -- 4,140,000 --
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1993 -- -- 4,200,000 300,000
Issuance of common stock and warrants at $0.60 per share -- -- 166,667 100,000
Issuance of common stock and warrants at $0.70 per share -- -- 500,003 350,002
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1994 -- -- 4,866,670 750,002
Issuance of Series A preferred stock at $1.40 per share 431,564 604,190 -- --
Series A preferred stock exchanged forgiveness of note
payable and accrued interest 50,534 70,747 -- --
Common stock exchanged forforgiveness of notes payable
and accrued interest -- -- 148,810 148,810
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1995 482,098 674,937 5,015,480 898,812
Issuance of Series B preferred stock at $2.50 per share 827,255 2,068,137 -- --
Series B preferred stock exchanged for forgiveness of
note payable and accrued inter 40,756 101,890 -- --
Issuance of Series C preferred stock at $3.00 per share 759,710 2,279,130 -- --
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1996 2,109,819 5,124,094 5,015,480 898,812
Issuance of Series C preferred stock at $3.00 per share 240,290 720,870 -- --
Issuance of Series D preferred stock at $3.50 per share 554,473 1,940,656 -- --
Issuance of common stock under stock option plans -- -- 515,010 50,717
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1997 2,904,582 7,785,620 5,530,490 949,529
Issuance of Series D preferred stock at $3.50 per share 503,894 1,763,631 -- --
Issuance of common stock under stock option plans -- -- 500,010 35,713
Net loss -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1998 3,408,476 9,549,251 6,030,500 985,242
Issuance of common stock under stock option plans -- -- 200 160
Net income -- -- -- --
---------- ----------- ------------ -----------
Balances, June 30, 1999 3,408,476 $ 9,549,251 6,030,700 $ 985,402
========== =========== ============ ===========
4
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Shareholders' (Deficit) Equity
continued
Deficit
accumulated Total
during shareholders'
development (deficit)
stage equity
---------------- --------------
Issuance of common stock at $5.00 per share -- 300,000
Net loss for the period from December 6, 1991 (inceptio
to June 30, 1992 (76,889) (76,889)
------------- -----------
Balances, June 30, 1992 (76,889) 223,111
Stock split, June 3, 1993 -- --
Net loss (227,520) (227,520)
------------- -----------
Balances, June 30, 1993 (304,409) (4,409)
Issuance of common stock and warrants at $0.60 per shar -- 100,000
Issuance of common stock and warrants at $0.70 per shar -- 350,002
Net loss (452,734) (452,734)
------------- -----------
Balances, June 30, 1994 (757,143) (7,141)
Issuance of Series A preferred stock at $1.40 per share -- 604,190
Series A preferred stock exchanged forgiveness of note
payable and accrued interest -- 70,747
Common stock exchanged forforgiveness of notes payable
and accrued interest -- 148,810
Net loss (682,748) (682,748)
------------- -----------
Balances, June 30, 1995 (1,439,891) 133,858
Issuance of Series B preferred stock at $2.50 per share -- 2,068,137
Series B preferred stock exchanged for forgiveness of
note payable and accrued inter -- 101,890
Issuance of Series C preferred stock at $3.00 per share -- 2,279,130
Net loss (1,871,340) (1,871,340)
------------- -----------
Balances, June 30, 1996 (3,311,231) 2,711,675
Issuance of Series C preferred stock at $3.00 per share -- 720,870
Issuance of Series D preferred stock at $3.50 per share -- 1,940,656
Issuance of common stock under stock option plans -- 50,717
Net loss (3,380,835) (3,380,835)
------------- -----------
Balances, June 30, 1997 (6,692,066) 2,043,083
Issuance of Series D preferred stock at $3.50 per share -- 1,763,631
Issuance of common stock under stock option plans -- 35,713
Net loss (7,763,383) (7,763,383)
------------- -----------
Balances, June 30, 1998 (14,455,449) (3,920,956)
Issuance of common stock under stock option plans -- 160
Net income 525,507 525,507
------------- -----------
Balances, June 30, 1999 (13,929,942) (3,395,289)
============= ===========
See accompanying notes to financial statements.
5
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
Period from
December 6,
1991
Yers ended June 30, (inception) to
----------------------------------
1999 1998 June 30, 1999
---------------- ---------------- --------------
Cash flows from operating activities:
Net income (loss) $ 525,507 (7,763,383) (13,929,942)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Gain on restructuring of accounts payable (1,380,720) -- (1,380,720)
Depreciation 47,405 316,321 661,376
Loss on sales or write down of property
and equipment 12,188 588,108 600,296
Loss on inventory write down -- 2,271,203 2,271,203
Accrued interest on loans converted to
common and preferred stock -- -- 19,447
Changes in operating assets and liabilities:
Accounts receivable 349,845 (350,749) (904)
Inventory -- (1,966,327) (1,966,327)
Restricted cash 250,000 -- --
Other current assets 25,973 28,867 (3,607)
Patent -- 71,492 --
Other assets 501 24,476 (28,920)
Accounts payable (222,977) 2,755,927 2,556,198
Accrued expenses and other current
liabilities (104,306) 7,195 343,729
Deferred revenue 922,500 635,000 1,557,500
Other liabilities 19,894 -- 19,894
----------- ------------ -----------
-- --
Net cash provided by (used in)
operating activities 445,810 (3,381,870) (9,280,777)
----------- ------------ -----------
Cash flows from investing activities:
Acquisition of equipment and furniture (11,410) (188,072) (1,871,056)
Proceeds from sale of equipment and furniture 14,960 238,341 253,301
----------- ------------ -----------
Net cash provided by (used in)
investing activities 3,550 50,269 (1,617,755)
----------- ------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 160 35,713 836,592
Proceeds from issuance of preferred stock -- 1,763,631 9,376,614
Proceeds from investor loans 605,000 837,705 1,777,705
Repayment of investor loans (30,000) -- (63,000)
----------- ------------ -----------
Net cash provided by
financing activities 575,160 2,637,049 11,927,911
----------- ------------ -----------
Net increase (decrease) in cash 1,024,520 (694,552) 1,029,379
Cash at beginning of period 4,859 699,411 --
----------- ------------ -----------
Cash at end of period $ 1,029,379 4,859 1,029,379
=========== ============ ===========
Supplemental disclosures of noncash investing and financing activities:
Conversion of loans payable and accrued
interest to
common and preferred stock:
Loans payable $ -- -- 302,000
Accrued interest -- -- 19,447
----------- ------------ -----------
$ -- -- 321,447
=========== ============ ===========
Conversion of accounts payable to notes
payable $ 1,000,000 -- 1,000,000
=========== ============ ===========
inventory $ -- 304,876 304,876
=========== ============ ===========
accounts payable $ 1,142 -- 1,142
=========== ============ ===========
See accompanying notes to financial statements.
6
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(1) The Company
Digital DJ Inc. (the Company) was incorporated in December 1991. The
Company's primary business activity is the development and marketing of a
digital data system that provides a variety of information services to
radio listeners using FM subcarrier technology. On April 1, 1999, the
Company established a wholly owned subsidiary, FM Intelligent
Transportation Systems, Inc. (FMITS), which provides a traffic
information service in the mobile market, with an initial investment of
$5,000 for 5,000,000 shares of common stock. On June 1, 1999, the Company
transferred 1,142,376 shares of the common stock of FMITS (approximate
23% interest) to Nichimen America, Inc. (Nichimen) in consideration for
the cancellation of accounts payable to Nichimen in the amount of
$951,980.
As of June 30, 1999, the Company is in the development stage and is
primarily engaged in research and development activities. Accordingly,
the accompanying consolidated statements of operations should not be
regarded as typical for normal periods of operation. The Company's
development stage status, recurring net losses and capital deficit raise
substantial doubt about its ability to continue as a going concern.
Additional financing or restructuring of its liabilities will be required
in order for the Company to complete its development stage activities.
Management believes that it will be able to obtain such financing from
new investors, and restructure its liabilities.
(2) Summary of Significant Accounting Policies
(a) Restricted Cash
Restricted cash consists of funds on deposit with a bank
supporting a letter of credit for the Company's facility
operating lease.
(b) Revenue Recognition
Effective July 1, 1998, the Company began recognizing revenue in
accordance with Statement of Position (SOP) 97-2, Software
Revenue Recognition.
SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements (i.e., software
products, upgrades/ enhancements, post-contract customer support,
installation and training) to be allocated to each element based
on the relative fair values of the elements. The fair value of an
element must be based on evidence, which is specific to the
vendor. The revenue allocated to software products (including
specified upgrades/enhancements) generally is recognized upon
shipment of the products. The revenue allocated to post-contract
customer support generally is recognized ratably over the term of
the support and revenue allocated to services is recognized as
such services are performed. If a vendor does not have evidence
of the fair value for all elements in a multiple-element
arrangement, all revenue from the arrangement is deferred until
such evidence exists or until all elements are delivered. The
adoption of SOP 97-2 did not have a material impact on the
Company's results of operations.
7
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(c) Capitalized Software
Development costs incurred in the research and development of new
software products are expensed as incurred until technological
feasibility in the form of a working model has been established.
To date, the Company has not completed its software development
to the point of technological feasibility, and accordingly, no
costs have been capitalized.
(d) Property and Equipment
Property and equipment are stated at cost. Depreciation of
property and equipment is provided using the straight-line method
over the estimated useful lives of the respective assets,
generally three to seven years.
(e) Income Taxes
The Company uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax
assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date.
(f) Use of Estimates
The preparation of consolidated 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
these estimates.
(g) Employee Stock Option Plans
The Company accounts for its stock-based compensation plans in
accordance with the provisions of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. As such, compensation expense is
recorded on the date of grant only if the current market price of
the underlying stock exceeded the exercise price. On July 1,
1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. Under SFAS No. 123, the
Company must disclose certain pro forma information related to
employee stock option grants as if the fair value-based method
defined in SFAS No. 123 had been applied.
8
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(h) Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of
The Company accounts for long-lived assets in accordance with the
provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to
be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported
at the lower of the carrying amount or fair value less costs to
sell.
(i) Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable and payable,
and accrued liabilities approximate fair value due to the short
maturity of these instruments. The recorded amount of long-term
notes payable approximates fair value as the actual interest
rates approximate current competitive rates.
(3) Property and Equipment
Property and equipment as of June 30, 1999 and 1998, consisted of the
following:
1999 1998
---- ----
Furniture and fixtures $ 1,571 $ 17, 444
Computer equipment and software 170,365 188,381
--------- ---------
171,936 205,825
Less accumulated depreciation 120,729 91,475
--------- --------
$ 51,207 $ 114,350
========= ==========
(4) Income Taxes
Income taxes of $3,000 and $1,490 for the years ended June 30, 1999 and
1998, respectively, consisted of state income taxes. As of June 30, 1999
and 1998, total deferred tax assets, net of liabilities, were
approximately $5,431,000 and $5,484,000, respectively, resulting
primarily from net operating losses, inventory reserve, and deferred
revenue. Deferred tax assets are fully offset by a valuation allowance,
since the Company's management believes that it is more likely than not
that the deferred tax assets will not be realized based on the level of
projected future taxable income. The net change in the total valuation
allowance for the years ended June 30, 1999 and 1998, was a decrease of
$53,000 and an increase of $3,241,000, respectively.
The differences between the "expected" income taxes of the statutory rate
of 34% and the actual income taxes in 1999 and 1998, are primarily due to
changes in valuation allowance and nondeductible expenses.
9
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
As of June 30, 1999, the Company has net operating loss carryforwards for
federal and California income tax purposes of approximately $9,476,000
and $3,303,000, respectively. The federal net operating loss
carryforwards expire in the years 2011 through 2013. The California net
operating loss carryforwards expire in the years 2002 through 2003.
Federal and California tax laws impose significant restrictions on the
utilization of net operating loss carryforwards in the event of a shift
in ownership of the Company which constitutes an "ownership change," as
defined by the Internal Revenue Code.
(5) Notes Payable
The Company entered into agreements to borrow $837,705 from 10
individuals and 2 companies (of which $133,104 is from related parties)
during the period from December 1997 through June 1998. These loans
generally bear interest at 10%. Of the total amount borrowed, $807,705
was in the form of convertible notes, which were due to mature on March
31, 1999. In April 1999, the maturity date was extended to July 31, 2000.
The entire principal amount of these notes, at the option of holders, can
be converted into shares of common stock of the Company, at the price of
$1.12 per share. The remaining note payable of $30,000 was fully paid in
April 1999.
The Company obtained additional financing through issuance of convertible
notes of $605,000 from 16 individuals in May and June 1999. In addition,
included in accounts payable as of June 30, 1998, were amounts due to
Nichimen America Inc. (Nichimen) of $1,951,980, of which the amount of
$1,000,000 was converted into a convertible note, effective June 1, 1999.
These notes bear interest at 10% and mature on July 31, 2000. The entire
principal amount of these notes, as the option of holders, can be
converted into shares of common stock of the Company, at the price of
$1.12 per share.
(6) Preferred Stock
The rights, preferences, and privileges of the Series A, B, C, and D
convertible preferred stock are as follows:
o Each share of Series A, B, C, and D preferred stock may be
converted into common stock at the option of the holder. The
conversion rate is initially one-for-one, subject to adjustment
for certain antidilution provisions. Automatic conversion for
Series A, B, C, and D will occur upon the closing of an initial
public offering of common stock in which the per share price is at
least $8.00 and gross proceeds to the Company are at least
$10,000,000.
o Holders of preferred stock are entitled to noncumulative annual
dividends, when and if declared by the Company's Board of
Directors, of $0.14, $0.25, $0.30, and $0.35 per share for Series
A, B, C, and D preferred stock, respectively.
o Holders of Series A, B, C, and D preferred stock have the right to
one vote for each share of common stock into which such shares
could be converted in every election of directors of the Company
and on other matters as provided in the Articles of Incorporation
and required by law.
o Holders of Series A, B, C, and D preferred stock have a
liquidation preference of $1.40, $2.50, $3.00, and $3.50 per
share, respectively, plus all declared but unpaid dividends.
10
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(7) Stock Option and Equity Incentive Plans
Under nonqualified Stock Option Agreements, the directors of the Company
and certain shareholders are granted options to purchase shares of the
Company's common stock at fair market value as determined by the
Company's Board of Directors. Options vest over four years.
Under the terms of the equity incentive plan, employees, officers,
directors, consultants, and advisers may be granted options to purchase
shares of the Company's common stock. Such options are granted at fair
market value as determined by the Company's Board of Directors. Options
vest over , varying periods, generally four years. Under the plan,
1,500,000 shares have been reserved for issuance.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. Had compensation cost for the
Company's stock option plan been determined consistent with SFAS No. 123,
the Company's reported net income (loss) of approximately $526,000 and
$(7,763,000) for the years ended June 30, 1999 and 1998, respectively,
would have been decreased (increased) to approximately $464,000 and
$(7,820,000), respectively.
Such pro forma information reflects only options granted since June 30,
1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma
information presented above because compensation cost is reflected over
the options vesting period of four years and compensation cost for
options granted prior to July 1, 1995 is not considered.
The fair value of each option has been estimated on the date of grant
using the minimum value method with the following weighted-average
assumptions: no dividends; an expected life of 3.5 years; and risk free
interest rates of 5.44% and 5.80% for the years ended June 30, 1999 and
1998, respectively.
A summary of the status of the Company's options is as follows:
1999 1998
---- ----
Wieghted- Weighted-
average average
Options exercise price Options exercise price
------- -------------- ------- --------------
Outstanding at beginning
of year 1,296,592 $ 1.159 1,781,391 $ 0.800
Granted 238,376 1.400 402,308 1.470
Exercised (200) 0.800 (500,010) 0.071
Forfeited (254,851) 1.095 (387,097) 1.235
--------- ----- --------- -----
Outstanding at end of year 1,279,917 1.217 1,296,592 1.159
========= ===== ========= =====
Options exercisable
at end of year 899,707 1.135 845,748 1.043
========= ===== ========= =====
Weighted-average
fair value of options
granted during the year 0.236
11
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
Options outstanding Options exercissable
as of June 30, 1999 as of June 30, 1999
------------------- -------------------
Weighted- Weighted- Weighted-
Range of remaining average average
exercise contractual exercise exercise
prices Number life(years) price Number price
- ------ ------ ----------- ----- ------ -----
$ 0.80 300,000 5.00 $ 0.80 300,000 $ 0.800
1.00-1.30 485,540 6.86 1.23 397,583 1.227
1.40-1.54 494,377 9.01 1.45 202,124 1.452
--------- --------- --------- --------- ---------
0.80-1.54 1,279,917 7.25 1.21 899,707 1.135
========= ========= ========= ========= =========
(8) Warrants
The Company issued 666,670 shares of common stock to investors during
fiscal 1994. In accordance with the common stock and warrant purchase
agreement, each investor received a warrant to purchase an additional
50,000 or 100,000 shares of common stock depending on the amount
invested. The total number of warrants granted as of June 30, 1994, was
450,000 at an exercise price of $0.70 per share. On December 30, 1997,
the term of the warrants, which originally expired in December 1997 and
March 1998, was extended to December 31, 1998, and on September 29, 1998
further extended to July 31, 2000. The fair value of the extended
warrants was estimated at approximately $353,000 and $384,000 as of the
December 30, 1997 and September 29, 1998 grant dates, respectively. The
extensions of the term of the warrants were determined to be capital
transactions similar to the issuance of a divided-in-kind; however, there
is no accounting impact on the Company's financial statements since the
Company does not have retained earnings. The fair value of the extended
warrants was estimated using the Black-Scholes option pricing model with
the following weighted-average assumptions: at December 30, 1997 -
expected dividend yield of 0%, risk-free interest rate of 5.5%$,
contractual life of one year, and a volatility of 70%; at September 29,
1998 - contractual dividend yield of 0%, risk-free interest rate of 4.6%,
contractual life of 1.8 years, and a volatility of 70%.
The Company granted 165,000 warrants to 12 individuals and 2 companies in
connection with $165,000 in loans it received from July through December
1993. In fiscal 1995, the Company repaid $33,000 of these loans and
converted the remaining $132,000 of principal and $16,810 of accrued
interest into 148,810 shares of common stock. Each investor has a right
to purchase the Company's common stock at an exercise price of $1.00 per
share. On September 29, 1998, the term of the warrants which originally
expired in September through December 1998 was extended to July 31, 2000.
The extension of the term of the warrant was determined to be a capital
transaction similar to the issuance of a dividend-in-kind; however, there
is no accounting impact on the Company's financial statements since the
Company does not have retained earnings. The fair value of the extended
warrants was estimated at approximately $115,000 as of the September 29,
1998 grant date, using the Black-Scholes option pricing model with the
following weighted-average assumptions; expected dividend yield of 0%,
risk-free interest rate of 4.4%, contractual life of 1.8 years, and a
volatility of 70%.
12
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(9) Inventory and Property and Equipment Write Down
Management of the Company decided to close substantially all of its
operations in the United States and focus its marketing efforts in
Europe. As a result, the Company commenced a series of actions to
liquidate its property, equipment, and inventory in the United States. In
May 1998, the Company sold property and equipment with a net carrying
value of approximately $576,000 for cash proceeds of $238,000. The
Company also wrote down property and equipment with a carrying value of
approximately $250,000 that was no longer in use as a result of closing
its U.S. operations and which had no reasonably determinable disposal
value. The Company also wrote down approximately $2,271,000 of inventory,
consisting primarily of receivers produced for the U.S. market, because
the cost to refit the receiver inventory for sale in the European market
was uneconomical.
(10) Extraordinary Item
On April 1, 1999, the Company established a wholly owned subsidiary, FM
Intelligent Transportation Systems, Inc. (FMITS), with an initial
investment of $5,000 for 5,000,000 shares of common stock. On June 1,
1999, 1,142,376 shares of common stock of FMITS (approximate 23%
interest) were transferred to Nichimen America, Inc. (Nichimen) in
consideration for the cancellation of the accounts payable to Nichimen in
the amount of $951,980. The difference between the amount payable to
Nichimen and the carrying amount of 1,142,376 shares of common stock of
FMITS ($1,142) was recognized as an extraordinary gain resulting from the
restructuring of the accounts payable.
In addition, the Company and certain other creditors arrived at
settlements whereby $429,882 of the Company's accounts payable were
forgiven in fiscal 1999. This forgiveness of accounts payable has also
been included as a component of the $1,380,720 extraordinary gain
recognized in the accompanying consolidated statement of operations.
(11) Credit Concentrations
In fiscal 1999, revenue from one customer accounted for approximately 61%
of the Company's revenue.
In fiscal 1998, revenue from one customer accounted for approximately 62%
of the Company's revenue. As of June 30, 1998, one customer accounted for
approximately 91% of the Company's accounts receivable.
(12) Consulting Agreement with Mackenzie Shea, Inc. (MSI)
The Company entered into a business consulting agreement with Mackenzie
Shea, Inc. (MSI) on June 9, 1999, whereby MSI assists the Company in the
recruitment of officers and directors for the Company, advises the
Company in its negotiation with individuals, firms or entities who may
have an interest in providing investment capital in the form of bridge
financing, private placement financing, media financing, or in a form of
business combination with the Company. In consideration for the services
to be rendered by MSI, the Company issued 800,000 shares of the Company's
common stock (engagement stock) to a mutually agreed escrow agent. The
engagement stock will be released to MSI on an installment basis as
specified services are rendered by MSI. None of the services specified in
the business consulting agreement were provided as of June 30, 1999, and
all engagement stock was maintained by the escrow agent at that date. The
800,000 shares of engagement stock transferred to the escrow agent were
not included in shares issued or outstanding in the accompanying
consolidated balance sheet.
13
DIGITAL DJ INC. AND SUBSIDIARY
(A Development Stage Company)
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(13) Subsequent Events
The Company issued convertible notes to borrow $208,090 from eight
individuals and one corporation in October and November 1999. These notes
generally bear interest at 10% and mature on October 31, 2000. The entire
principal amount of these notes, at the option of the holders, can be
converted into shares of common stock of the Company, at the price of $
1.00 per share.
Effective October 31, 1999, each outstanding share of preferred stock was
converted into one share of common stock, subject to adjustment for
certain antidilution provisions, upon the approval of the majority
holders of the outstanding shares of preferred stock.
On November 22, 1999, the Company entered into an Agreement and Plan of
Merger (Merger) with Breakthrough Electronics, Inc. (BRELE), an inactive
corporation whose shares are quoted on the NASDAQ electronic bulletin
board, and Digital DJ Subsidiary Inc. (Merger Sub), a newly formed,
wholly-owned subsidiary of Breakthrough Electronics, Inc., whereby Merger
Sub will be merged with and into the Company, which will be the surviving
entity. The name of the surviving company will be Digital DJ Inc. The
Merger will become effective at the time of the completion of a filing
with the California Secretary of State. As of December 9, 1999, the
Merger is not yet effective.
Upon execution of the Merger, BRELE will issue common stock to the
Company's common shareholders in exchange for all of the issued and
outstanding shares of the Company's common stock.
As a result of the transactions, Digital DJ Inc., the surviving company,
will become a wholly-owned subsidiary of BRELE. The transaction is
intended to qualify as a tax-free reorganization under Section 368(a) of
the Code.
14
Digital DJ, Inc. & Subsidiaries
Pro Forma Financial Statements - Balance Sheet
June 30, 1999
Breakthrough Consolidated
Assets Technologies Digital DJ ADJUSTMENTS TOTAL
============= ============ =========== =============
Current Assets
Cash $ 5,861 $ 1,029,379 $ 1,035,240
Restricted Cash $ 0
Accounts Receivable $ 904 $ 904
Other Current Assets $ 3,607 $ 3,607
---------- ------------ ------------ ------------
Total Current Assets $ 5,861 $ 1,033,890 $ 0 $ 1,039,751
Fixed Assets $ 171,936 $ 171,936
Less: Accum Depr $ 120,729 $ 120,729
---------- ------------ ------------ ------------
Fixed Assets, Net $ 0 $ 51,207 $ 0 $ 51,207
Other Assets $ 28,920 $ 28,920
---------- ------------ ------------ -----------
Total Assets $ 5,861 $ 1,114,017 $ 0 $ 1,119,878
========== ============ ============ -===========
Liabilities & Equity
Current Liabilities
Accounts Payable $ 1,500 $ 174,336 $ 175,836
Notes Payable $ 0
Deferred Income $ 1,557,500 $ 1,557,500
Accrued Taxes $ 7,580 $ 7,580
Accrued Liabilities $ 343,729 $ 343,729
---------- ------------ ------------ ------------
Total Current Liabilities $ 9,080 $ 2,075,565 $ 0 $ 2,084,645
Long-Tem Liabilities
Notes Payable - Long Term $ 2,412,705 $ 2,412,705
Other Liabilities $ 19,894 $ 19,894
---------- ------------ ------------ ------------
Total Liabilities $ 9,080 $ 4,508,164 $ 0 $ 4,517,244
Minority Interest $ 1,142 $ 1,142
Equity
Preferred Stock $ 9,549,251 $ (9,549,251) 1 $ 0
Common Stock $ 711 $ 985,402 $ (975,963) 1 $ 10,150
Paid in Capital $ 807,120 $ 9,714,164 1 $ 10,521,284
Retained Earnings $ (803,985) $(14,455,449) $ 803,985 2 $(14,455,449)
Net Income (Loss) $ (7,065) $ 525,507 $ 7,065 2 $ 525,507
---------- ---------- ------------ ------------
Total Equity $ (3,219) $ (3,395,289) $ 0 $ (3,398,508)
---------- ---------- ------------ ------------
Total Liabilities & Equity $ 5,861 $ 1,114,017 $ 0 $ 1,119,878
=========== ============== ============ ============
June 30, 1999 balances
1 Adjustment reflects conversion of 3,408,476 shares of preferred of DDJ into
shell common on 1-to-1 basis and conversion of 6,030,700 shares of DDJ
common into shell common on 1-to-1 basis. Par value of shell is $0.001.
710,536 shell common issued prior to the reverse merger.
2 Adjustment reflects reclass of Retained Earnings of the shell into Paid in
Capital of the operating company.
15
Digital DJ, Inc. And Subsidiaries
Pro Forma Financial Statements - Statement of Operations
June 30, 1999
Breakthrough Consolidated
Technologies Digital DJ ADJUSTMENTS TOTAL
=============================================================================
REVENUES $ 543,543 $ 543,543
COST OF SALES $ 24,261 $ 24,261
------------- ------------- ------------- --------------
GROSS PROFIT $ 0 $ 519,282 $ 0 $ 519,282
OPERATING EXPENSES:
Cost of rental income $ 80,398 $ 80,398
Loss on property write down $ 12,188 $ 12,188
Research and Development $ 371,859 $ 371,859
Selling, General & Admin $ 7,065 $ 803,867 $ 810,932
------------- ------------- ------------- --------------
TOTAL OPERATING EXPENSES $ 7,065 $1,268,312 $ 0 $ 1,182,791
------------- ------------- ------------- --------------
INCOME (LOSS) FROM OPERATIONS $(7,065) $ (749,030) $ 0 $ (663,509)
------------- ------------- ------------- --------------
OTHER INCOME (EXPENSE):
MINORITY INTEREST $ 0
OTHER INCOME (EXPENSE) $ (6,804) $ (6,804)
INTEREST EXPENSE $ (86,379) $ (86,379)
INTEREST INCOME $ 0
TOTAL OTHER INCOME (EXPENSE) $ 0 $ (93,183) $ 0 $ (93,183)
------------- ------------- ------------- --------------
INCOME (LOSS) BEFORE TAXES $(7,065) $ (842,213) $ 0 $ (756,692)
------------- ------------- ------------- --------------
INCOME TAX PROVISION $ 3,000 $ 3,000
------------- ------------- ------------- --------------
NET INCOME (LOSS) $(7,065) $ (845,213) $ 0 $ (759,692)
EXTRAORDINARY ITEM - GAIN $1,370,720 $ 1,370,720
------------- ------------- ------------- --------------
NET INCOME (LOSS) $(7,065) $ 525,507 $ 0 $ 611,028
============= ============= ============= ==============
16
Digital DJ
Unaudited Interim Financial Statements - Balance Sheet
Three Months Ended 9/30/99
9/30/1999
----------------
ASSETS
Cash 709,380
Restricted Cash 0
Accounts Receivable 674
Other Current Assets 1,519
----------------
Current Assets 711,573
Fixed Assets 174,633
Less: Accum Depr 120,729
----------------
Fixed Assets, Net 53,904
Restricted Cash 0
Other Assets 28,920
----------------
Total Assets 794,397
================
17
Digital DJ
Unaudited Interim Financial Stateemnts - Balance Sheet
Three Months Ended 9/30/99
9/30/1999
----------------
LIABILITIES & SHAREHOLDERS' DEFICIT
Accounts Payable 154,691
Notes Payable 2,412,705
Deferred Revenue 465,000
Accrued Expenses and
Other Current Liabilities 336,393
----------------
Current Liabilities 3,368,789
Deferred Revenue 1,092,500
Oher Liabilities 19,894
----------------
Total Liabilities 4,481,183
----------------
Minority Interest 1,142
Preferred Stock 9,549,251
Common Stock 986,802
Retained Earnings (13,929,942)
Net Income (Loss) (294,039)
----------------
Shareholders' Deficit (3,687,928)
----------------
Total Liabilities &
Shareholders' Deficit 794,397
================
18
Digital DJ
Unaudited Interim Financial Statements - Statements of Operations
Three Months Ended 9/30/99 and 9/30/98
9/30/1999 9/30/1998
--------------- --------------
Revenues
Revenues 3,671 25,784
Rental income 91,125
--------------- --------------
Total revenues 3,671 116,909
Costs and Expenses
Cost of revenues 0 8,750
Cost of rental income 0 0
Research and development 77,220 0
Selling, general and adminisrative 224,337 146,239
--------------- --------------
Total costs and expenses 301,557 154,989
--------------- --------------
Loss from Operations (297,886) (38,080)
OTHER INCOME & (EXPENSE)
Interest Income 3,847 24
Interest Expense 0 0
--------------- --------------
Total Other 3,847 24
--------------- --------------
Income Before Tax Provision (294,039) (38,056)
Provision for Income Taxes 0 0
--------------- --------------
Net Income (Loss) (294,039) (38,056)
=============== ==============
19
Digital DJ, Inc. & Subsidiaries
Pro Forma Financial Statements - Balance Sheet
September 30, 1999
Breakthrough Consolidated
Assets Technologies Digital DJ ADJUSTMENTS TOTAL
===========================================================================
Current Assets
Cash $ 4,459 $ 709,380 $ 713,839
Restricted Cash $ 0
Accounts Receivable $ 674 $ 674
Other Current Assets $ 1,519 $ 1,519
------------ ------------ ----------- -----------
Total Current Assets $ 4,459 $ 711,573 $ 0 $ 716,032
Fixed Assets $ 174,633 $ 174,633
Less: Accum Depr $ 120,729 1 20,729
------------ ------------ ----------- -----------
Fixed Assets, Net $ 0 $ 53,904 $ 0 $ 53,904
Other Assets $ 28,920 $ 28,920
------------ ------------ ----------- -----------
Total Assets $ 4,459 $ 794,397 $ 0 $ 798,856
============ ============ =========== ============
Liabilities & Equity
Current Liabilities
Accounts Payable $ 1,500 $ 154,691 $ 156,191
Notes Payable $ 2,412,705 $ 2,412,705
Deferred Income $ 465,000 $ 465,000
Accrued Taxes $ 7,580 $ 7,580
Accrued Liabilities $ 336,393 $ 336,393
------------ ------------ ----------- -----------
Total Current Liabilities $ 9,080 $ 3,368,789 $ 0 $ 3,377,869
Long-Tem Liabilities
Deferred Income $ 1,092,500 $ 1,092,500
Notes Payable - Long Term $ 0
Other Liabilities $ 19,894 $ 19,894
------------ ------------ ----------- -----------
Total Liabilities $ 9,080 $ 4,481,183 $ 0 $ 4,490,263
Minority Interest $ 1,142 $ 1,142
Equity
Preferred Stock $ 9,549,251 $(9,549,251) 1 $ 0
Common Stock $ 711 $ 986,802 $ (977,363) 1 $ 10,150
Paid in Capital $ 807,120 $ 9,714,162 1 $ 10,521,282
Retained Earnings $ (811,050) $(13,929,942) $ 811,050 2 $(13,929,942
Net Income (Loss) $ (1,402) $ (294,039) $ 1,402 2 $ (294,039
------------ ------------ ----------- -----------
Total Equity $ (4,621) $ (3,687,928) $ 0 $ (3,692,549)
------------ ------------ ----------- -----------
Total Liabilities & Equity $ 4,459 $ 794,397 $ 0 $ 798,856
============ ============ =========== ============
Spetember 30, 1999 balances
1 Adjustment reflects conversion of 3,408,476 shares of preferred of DDJ into
shell common on 1-to-1 basis and conversion of 6,031,200 shares of DDJ
common into shell common on 1-to-1 basis. Par value of shell is $0.001.
710,536 shell common issued prior to the reverse merger.
2 Adjustment reflects reclass of Retained Earnings of the shell into Paid in
Capital of the operating company.
20
Digital DJ, Inc. And Subsidiaries
Pro Forma Financial Statements - Statement of Operations
September 30, 1999
Breakthrough Consolidated
Technologies Digital DJ ADJUSTMENTS TOTAL
===================================================================
REVENUES $ 3,671 $ 3,671
COST OF SALES $ 0 $ 0
------------- ------------ ------------ -----------
GROSS PROFIT $ 0 $ 3,671 $ 0 $ 3,671
OPERATING EXPENSES:
Cost of rental income $ 0 $ 0
Loss on property write down $ 0
Research and Development $ 77,220 $ 77,220
Selling, General & Admin $ 1,402 $ 224,337 $ 225,739
TOTAL OPERATING EXPENSES $ 1,402 $ 301,557 $ 0 $ 302,959
------------- ------------ ------------ -----------
INCOME (LOSS) FROM OPERATIONS $ (1,402) $ (297,886) $ 0 $ (299,288)
------------- ------------ ------------ -----------
OTHER INCOME (EXPENSE):
MINORITY INTEREST $0
OTHER INCOME (EXPENSE) $0
INTEREST EXPENSE $0
INTEREST INCOME $ 3,847 $ 3,847
------------- ------------ ------------ -----------
TOTAL OTHER INCOME (EXPENSE) $ 0 $ 3,847 $ 0 $ 3,847
------------- ------------ ------------ -----------
INCOME (LOSS) BEFORE TAXES $ (1,402) $ (294,039) $ 0 $ (295,441)
INCOME TAX PROVISION $ 0 $ 0
------------- ------------ ------------ -----------
NET INCOME (LOSS) $ (1,402) $ (294,039) $ 0 $ (295,441)
EXTRAORDINARY ITEM - GAIN $ 0
------------- ------------ ------------ -----------
NET INCOME (LOSS) $ (1,402) $ (294,039) $ 0 $ (295,441)
============= ============ ============ ===========
21
EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
(a) Exhibits
(2) 2.1 Agreement and Plan of Merger
2.2 Agreement of Merger
(3) 3.1 Amended Articles of Incorporation of Breakthrough Electronics,
Inc
(5) 5.1 Opinion of Counsel of James Lewis
(17) 17.1 Resignation and Termination for Lawrence Sapperstein
17.2 Resignation and Termination for Lawrence Grobstein
17.3 Resignation and Termination for Anthony Adimey
(21) 21.1 List of Subsidiaries of the Company
(99) 99.1 Press Release
22
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned President duly authorized.
DIGITAL DJ HOLDINGS, INC.
(Formerly known as Breakthrough Electronics, Inc.)
By:/s/Tsutoma Takahisa Date: November 22, 1999
-------------------
Tsutomu Takahisa
President
23