U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB SEC File No:
33-14982-LA
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ___________
DIGITAL D.J. HOLDINGS, 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)
657 Third Street, San Francisco, California 94107
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (415) 597-8878
--------------------
1658 E. Capitol Expressway, Suite 294, San Jose, California 95121
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
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 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.
[X] Yes [ ] No
1
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
14,017,526 Shares as of the date of this report.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
2
BREAKTHROUGH ELECTRONICS
Form 10-QSB for the Quarter ended September 30, 2000
Table of Contents
Page
FINANCIAL INFORMATION 4
PART 1 - ITEM 2..............................................................4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR DIGITAL D.J. HOLDINGS, INC............4
CAUTION REGARDING FORWARD-LOOKING INFORMATION...........................4
---------------------------------------------
OVERVIEW OF THE COMPANY.................................................4
-----------------------
PART II - OTHER INFORMATION..................................................8
ITEM 1 - LEGAL PROCEEDINGS..............................................8
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS......................9
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES................................9
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............9
ITEM 5 - OTHER INFORMATION..............................................9
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K...............................9
SIGNATURES..............................................................9
3
DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
September 30, 2000
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash $ 21,108
Accounts receivable 45,000
Prepaid income taxes 20,000
Other current assets 5,966
----------------
Total current assets 92,074
Property and equipment, net 29,870
Other assets 28,420
----------------
Total assets $ 150,364
================
The accompanying notes are an integral part of these financial statements
F-1
DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
September 30, 2000
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 182,307
Short-term loans 35,665
Notes payable 100,000
Accrued expenses and other current liabilities 181,399
Deferred revenue 1,262,500
Current portion of capital lease obligations 19,243
----------------
Total current liabilities 1,781,114
Capital lease obligations, net of current portion 10,938
----------------
Total liabilities 1,792,052
----------------
Commitments and contingencies
Minority interest 1,142
----------------
Shareholders' deficit
Preferred stock, no par value
6,000,000 shares authorized
no shares issued and outstanding -
Common stock, $0.001 par value
50,000,000 shares authorized
528,701 shares issued and outstanding 529
Additional paid-in capital 13,323,874
Deficit accumulated during the development stage (14,967,233)
----------------
Total shareholders' deficit (1,642,830)
----------------
Total liabilities and shareholders' deficit $ 150,364
================
The accompanying notes are an integral part of these financial statements
F-2
DIGITAL HOLDINGS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended September 30, 2000 and 1999 and
for the Period from December 6,1991 (Inception) to September 30, 2000
- --------------------------------------------------------------------------------
For the
Period from
December 6,
1991
For the Years Ended (Inception) to
September 30, September 30,
2000 1999 2000
------------ ------------ ------------
Revenues
Revenues $ 465,000 $ 444,449 $ 1,587,921
Rental income -- 99,094 218,050
------------ ------------ ------------
Total revenues 465,000 543,543 1,805,971
------------ ------------ ------------
Costs and expenses
Cost of revenues 245 24,261 1,208,096
Cost of rental income -- 80,398 199,542
Loss on inventory write down -- -- 2,271,203
Loss on sales or write down of property and
equipment -- 12,188 600,296
Research and development 411,808 371,859 4,173,132
Selling, general, and administrative 1,093,261 803,867 9,576,645
------------ ------------ ------------
Total costs and expenses 1,505,314 1,292,573 18,028,914
------------ ------------ ------------
Loss from operations (1,040,314) (749,030) (16,222,943)
------------ ------------ ------------
Other income (expense)
Gain on sale of property and equipment 19,137 -- 19,137
Interest expense, net (96,988) (86,379) (201,069)
Other 25,560 (6,804) 21,898
------------ ------------ ------------
Total other income (expense) (52,291) (93,183) (160,034)
------------ ------------ ------------
Loss before provision for income taxes and
extraordinary item (1,092,605) (842,213) (16,382,977)
Provision for income taxes -- 3,000 10,290
------------ ------------ ------------
Loss before extraordinary item (1,092,605) (845,213) (16,393,267)
Extraordinary item
Gain on restructuring of accounts payable, net of
income tax expense of $0, $10,000, and $10,000 55,314 1,370,720 1,426,034
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements
F-3
PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR DIGITAL D.J. HOLDINGS, INC.
The following discussion of the financial conditions and results of
operations of the Company should be read in conjunction with the financial
statements, including notes thereto, for the Company.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
- ---------------------------------------------
This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words
"anticipate," "believe," "estimate," "expect" and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward- looking statements. Such statements reflect the current view
of the Company regarding future events and are subject to certain risks,
uncertainties and assumptions, including the risks or uncertainties noted.
Should one or more of these risks or uncertainties materialize, or should
underlying assumption prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. In each instance, forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.
OVERVIEW OF THE COMPANY
- -----------------------
Digital D.J. Holdings, Inc. (the "Company") was incorporated as "Golden
Queens Mining Company" on July 31, 1986 under the laws of the State of Nevada,
primarily for the purpose of exploration, development and production of certain
mining properties located in Esmeralda County, Nevada. In July, 1987, the
Company changed its name to "Breakthrough Electronics, Inc.," terminated its
activities in the mining business, and began efforts to develop and market
electronic products, including a telephone device designed to screen telephone
calls, acquired from its then President. This business was terminated several
years ago. On November 22, 1999, the Company acquired Digital D.J., Inc.,
pursuant to a reverse triangular merger in a transaction in which approximately
12,466,992 shares of the Company's common stock were issued to the shareholders
of Digital D.J., Inc. (the "Reorganization"). The Reorganization resulted in
control of the Company transferring from the former shareholders to the former
shareholders of Digital D.J., Inc. The terms and conditions of the
Reorganization are set forth in the Company's Form 8-K filed with the Commission
for the period beginning on November 22, 1999.
Digital DJ Inc. was incorporated in December 1991. Its primary business
activity was 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 provided
a
4
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 (approximately 23%
interest) to Nichimen America, Inc. (Nichimen) in consideration of the
cancellation of accounts payable to Nichimen in the amount of $951,980.
Subsequent Events and Changes
On August 30, 2000, the Company's shareholders and its Board of
Directors voted to distribute the majority of the outstanding shares of each of
the Company's subsidiaries, Digital D.J., Inc., a California corporation ("DDJ
California"), Latin American Subcarrier Services, a California corporation
("LASS"), European Licensing Group, a California corporation ("ELG") and
Domestic Transmission Technologies, a California corporation ("DTT"), to the
Company's shareholders. Ninety-five percent (95%) of the outstanding shares of
each of the subsidiaries were distributed to the shareholders, ratably, based
upon their ownership interest. Approximately 13,316,649 shares of DDJ California
and approximately 532,666 shares of each of DTT, LASS and ELG were distributed
to the Company's shareholders. The Company retained approximately 700,877 shares
of DDJ California and approximately 28,035 shares of each of ELG, LASS and DTT.
The shareholders and the Board of Directors also voted to amend the Company's
Articles of Incorporation to change the Company's name to Digital Holdings,
Inc., and to conduct a twenty-five for one reverse stock split of the Company's
common stock. After distributing out ninety-five percent (95%) of the core
businesses of the Company to its shareholders, the Company elected to seek other
acquisition candidates and to sell up to 1,000,000 shares of its common stock
for up to $.10 per share, to be paid in goods, services or cash.
Results of Operations
As of September 30, 2000, the Company is in the development stage.
Until August 30, 2000, the Company was primarily engaged in research and
development activities. On August 30, the Company elected to divest its
operating subsidiary and search for an acquisition candidate. 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 hopes that it will be able to obtain
such financing from new investors, and restructure its liabilities.
The Company had no operations or revenues, or significant assets or
liabilities over the past several years until completion of the Reorganization
on November 22, 1999. All representations of the Company prior to November 22,
1999, set forth in this Management's Discussion and Analysis are therefore
provided on a pro forma basis as if the Reorganization had occurred in such
period. In August, 1998, the Company entered into a License Agreement with
Deutsche Telekom AG to use the Company's Radio Information System - Europe
Version, for a term of 5 years for a total license fee of $1,625,000, paid
$1,250,000 in 1998, and $125,000, in March of the years 1999, 2000 and 2001 (the
"DT Contract"). The DT Contract constituted the Company's sole source of revenue
5
in 1998. In January 1999, the Company entered into a license agreement with its
only other customer, the Netherlands Broadcasting Transmission Company, for the
same technology for a five year contract, which constituted the Company's sole
new source of revenue in 1998. The Netherlands Broadcasting contract was for a
five year term for total license fees of $300,000, paid $200,000 in 1999 and
$25,000 per year in 2000, 2001, 2002 and 2003. Because the Company licensed its
technology over a five year term it was forced to recognize the revenue from the
licenses over a five year period, rather than on a cash basis.
Three Months Ended September 30, 2000
Revenue. The Company had no revenues during the quarter ended September
30, 2000. The decrease in revenue is the result of the lack of new sales in the
quarter ended September 30, 2000.
Cost of Sales. The Company incurred no cost of sales for the quarter
ended September 30, 2000. This decrease is primarily due to the fact that the
Company did not sell any new products during the quarter ended September 30,
2000.
Operating Expenses. The Company has operating expenses for the three
months ended September 30, 1999 of $_______.
Liquidity and Capital Resources
Cash and cash equivalents and net working capital (deficit) totaled $0
and ($0), respectively, as of September 30, 2000. The primary source of cash has
been net proceeds generated from debt financings. The Company has relied upon
loan proceeds from convertible promissory notes and annual payments under its
two license agreements to fund its operations during the periods discussed. +
The Company does not have existing cash and cash equivalents or cash
flow from operations or cash raised through private placements that will be
sufficient to meet the Company's presently anticipated working capital needs for
the next 13 months. The Company will be required to obtain additional funds, if
available, through borrowings or equity financings. There can be no assurance
that such capital will be available on acceptable terms. If the Company is
unable to obtain sufficient financing, it may be unable to continue to operate.
Material Changes in Operations
As discussed above, in the three months ended September 30, 2000, the
Company's Board of Directors and shareholders voted to change the focus of its
6
business plan to shift from a retail and wholesale provider of FM subcarrier
content and hardware and software (and committed to divest itself of 95% of its
operating and other subsidiaries) to search for an acquisition target.
Year 2000 Compliance
The Company experienced no Year 2000 complications with its products or
services and experienced no problems due to Year 2000 complications with any of
its key customers, licensees, licensors or vendors.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to or aware of any legal proceeding,
involving the Company and the Company is not aware of any proceedings involving
any of the Company's directors, officers, agents, representatives or persons
that beneficially own 5% or more of the Company's voting securities.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 30, 2000, the Company's shareholders and Board of Directors
voted to:
1. Amend the Company's Articles of Incorporation to conduct a 1:25
reverse split of the Company's common stock in which each 25 shares of the
Company's common stock outstanding would be converted into 1 share. The
resulting reverse split will reduce the outstanding shares of common stock from
approximately 14,017,526 to 560,701.
2. Amend the Company's Articles of Incorporation to change the name of
the Company.
3. To distribute 95% of the outstanding shares of each of the Company's
four direct subsidiaries to the Company's shareholders. Shares of the Company's
primary operating subsidiary, Digital D.J., Inc., a California corporation, will
be distributed prior to the reverse split on a one for one basis in a
distribution in which 95% of the full 14,017,526 outstanding prior to the split
will be distributed to the Company's shareholders .95 shares of DDJ California
prior to the reverse split.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At 10:00 a.m. on August 30, 2000, a special meeting of the Company's
shareholders was held in Irvine, California. The meeting involved the election
of directors in which Tsutomu Takahisa, Clifford Wildes and Mark Van Wagoner
7
were elected as directors of the Corporation and Yasuhiko Ohmnori and Koyo
Hasagawa were removed. The shareholders were also asked to vote in favor or
against the following ballot items:
1. The Amendment to the Company's Articles of Incorporation to
authorize the reverse split of the Company's outstanding shares, one share for
every twenty five and the change of the Company's name;
2. The distribution of 95% of the outstanding shares of each of the
Company's four subsidiaries to the Company shareholders, ratably;
3. The private placement by the Company of up to 1,000,000 post split
shares for $.01 per share; and
4. A private placement by each of the Company's subsidiaries.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The Company's financial statements for the periods described herein are
attached.
The Form 8-K filed by the Company as of August 17, 2000, and exhibits
and financial statements filed therewith, including a copy of the Company's
Notice of Shareholders Meeting and the Company's Proxy, are hereby incorporated
herein by reference.
8
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
November 20, 2000 DIGITAL DJ HOLDINGS, INC.
By: /S/ Thomas Takahisa
-----------------------
Thomas Takahisa, President
DIGITAL DJ HOLDINGS, INC.
By: /S/ Thomas Takahisa
-----------------------
Thomas Takahisa, Secretary/Treasurer
9