U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Dita, Inc.
(Exact name of registrant as specified in its charter)
Nevada 0-27057 33-0696051
------------- ------------------------ -------------
(state of (Commission File Number) (IRS Employer
incorporation) I.D. Number)
6519 Fountain Avenue
Hollywood, CA 90028
323-953-9565
-------------------------------------------------------
(Address and telephone number of registrant's principal
executive offices and principal place of business)
As of November 30, 1999, there were 3,140,000 shares of the Registrant's
Common Stock, par value $0.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one): Yes ___
No X
---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DITA, INC.
BALANCE SHEETS
11-30-99 02-28-99
(Unaudited) Audited
----------- -----------
ASSETS
Current assets:
Cash $ 11,568 $ 65,822
Cash - restricted 3,753 55,694
Accounts receivable - trade, net of allowance
for doubtful account of $37,160 94,943 71,249
Inventory 148,735 71,587
Prepaid expenses 1,663 20,103
--------- ---------
Total current assets 260,662 284,455
Property and equipment, net of
accumulated depreciation and amortization 88,436 87,732
Other assets 2,434 2,434
--------- ---------
$ 351,532 $ 374,621
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 282,273 $ 209,578
Advances from officers-stockholders 25,043 36,531
Note payable, bank 3,771 19,000
Current maturities of obligations under
capital lease 14,600 14,600
--------- ---------
Total current liabilities 325,687 279,709
Obligations under capital lease, less
current maturities 16,883 17,869
--------- ---------
Stockholders' equity:
Common stock; $0.01 par value, 10,000,000
shares authorized, 3,140,000 shares
issued and outstanding, respectively 31,400 31,400
Additional paid-in capital 613,338 613,339
Deficit (635,775) (567,696)
--------- ---------
Total stockholders' equity 8,962 77,043
--------- ---------
$ 351,352 $ 374,621
========= =========
See notes to financial statements.
2
DITA, INC.
STATEMENT OF OPERATIONS
Three months ended Three months ended Nine months ended Nine months ended
November 30, 1999 November 30, 1998 November 30, 1999 November 30, 1998
------------------ ------------------ ----------------- -----------------
Amount Amount Amount Amount
(Unaudited) Percent (Unaudited) Percent (Unaudited) Percent (Unaudited) Percent
----------- ------- ----------- ------- ----------- ------- ----------- -------
Net sales $ 205,426 100.0% $ 179,460 100.0% $ 736,605 100.0% $ 704,705 100.0%
Cost of sales 66,381 32.3 102,013 56.8 318,830 43.3 355,153 50.4
---------- ----- ---------- ----- ---------- ----- ---------- -----
Gross profit 139,045 67.7 77,447 43.2 417,725 56.7 349,552 49.6
Operating expenses 125,199 60.9 152,987 85.3 485,853 65.9 409,917 58.2
---------- ----- ---------- ----- ---------- ----- ---------- -----
Net income (loss) $ 13,846 6.7 $ (75,540) (42.1) $ (68,078) (9.2) $ (60,365) (8.6)
========== ===== ========== ===== ========== ===== ========== =====
Net income (loss) per
share - basic and diluted $ 0.004 $ (0.024) $ (0.022) $ (0.019)
========== ========== ========== ==========
Weighted average shares
outstanding - basic
and diluted 3,140,000 3,140,000 3,140,000 3,140,000
========== ========== ========== ==========
See notes to financial statements.
3
DITA, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Nine months ended November 30,
------------------------------
1999 1998
(Unaudited) (Unaudited)
----------- -----------
Cash flows provided by (used for)
operating activities:
Net income (loss) $ (68,079) $ 60,365
--------- ---------
Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities:
Depreciation and amortization - -
Provision for doubtful accounts - 37
Other - -
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable $ (23,694) $ (4,466)
Inventory (77,150) 4,191
Prepaid expenses 18,440 (2,287)
Increase (decrease) in liabilities -
Accounts payable and accrued expenses $ 70,475 $ 36,063
--------- ---------
Total adjustments $ (11,929) $ 33,538
--------- ---------
Net cash used for operating activities $ (80,008) $ (26,826)
--------- ---------
Cash flows used for investing activities:
Acquisition of property and equipment $ (704) $ (8,634)
Increase in other assets - -
---------- ----------
Net cash used for investing activities $ (704) $ (8,634)
--------- ----------
Cash flows provided by (used for)
financing activities:
(Payments on) advances from
officer-stockholders $ (11,488) $ (1,530)
(Payments on) proceeds from
note payable (19,000) 19,000
(Payments on) proceeds from other
current liabilities 5,991 978
(Payments on) obligations under capital lease (987) (8,216)
Proceeds from issuance of common stock - 200,000
--------- ---------
Net cash provided by financing activities $ (25,485) $ 210,232
--------- ---------
Net increase (decrease) in cash $(106,196) $ 119,663
Net increase in cash-reserve 55,108
Cash, beginning of year 121,516 17,806
--------- ---------
Cash, end of year $ 15,320 $ 192,577
========= =========
See notes to financial statements.
4
DITA, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 28, 1999 AND
INTERIM PERIOD ENDED NOVEMBER 30, 1999
(1) Summary of Significant Accounting Policies:
Business Activity:
The Company is a wholesaler of unique, alternative and
fashionable women's sunglasses and sells to retailers throughout
the United States, Japan and Europe.
Use of Estimates:
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.
Fair Value:
Unless otherwise indicated, the fair values of all reported
assets and liabilities which represent financial instruments
(none of which are held for trading purposes) approximate the
carrying values of such amounts.
Cash:
Equivalents
-----------
For purposes of the statement of cash flows, cash equivalents
include all highly liquid debt instruments with original
maturities of three months or less which are not securing any
corporate obligations.
Concentration
-------------
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts.
Inventory:
Inventory is valued at the lower of cost (first-in, first-out) or
market.
5
DITA, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 28, 1999 AND
INTERIM PERIOD ENDED NOVEMBER 30, 1999
(1) Summary of Significant Accounting Policies, Continued:
Income Taxes:
Deferred income taxes are reported using the liability method.
Deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws
and rates on the date of enactment (see Note 8).
Net Loss Per Share:
The Company has adopted Statement of Financial Accounting
Standard No. 128, Earnings per Share ("SFAS No. 128"), which is
effective for annual and interim financial statements issued for
periods ending after December 15, 1997. SFAS No. 128 was issued
to simplify the standards for calculating earnings per share
("EPS") previously in APB No. 15, Earnings per Share. SFAS No.
128 replaces the presentation of primary EPS with a presentation
of basic EPS. The new rules also require dual presentation of
basic and diluted EPS on the face of the statement of operations.
Net loss per common share is computed based on the weighted
average number of common shares outstanding.
Unaudited Interim Financial Statements:
In the opinion of the Company's management, all adjustments
(consisting of normal recurring accruals) necessary to present
fairly the Company's financial position as of November 30, 1999,
and the results of operations and cash flows for the nine-month
periods ended November 30, 1999 and 1998 have been included. The
results of operations for the nine-month period ended November
30, 1999, are not necessarily indicative of the results to be
expected for the full fiscal year. For further information, refer
to the financial statements and footnotes thereto included in the
Company's Form 10-SB filed for the year ended February 28, 1999
and 1998.
6
DITA, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 28, 1999 AND
INTERIM PERIOD ENDED NOVEMBER 30, 1999
(2) Property and Equipment:
11-30-99 02-28-99
-------- --------
Display cases $ 73,854 $ 73,854
Computers and software 35,643 34,939
Furniture and fixtures 9,670 9,670
-------- --------
119,167 118,463
Less accumulated depreciation
and amortization 30,731 30,731
-------- --------
$ 88,436 $ 87,732
======== ========
(3) Advances from Officer-Stockholders:
This amount represents the unpaid balance of non-interest bearing
short-term advances received from officer-stockholders. Such advances
are unsecured and payable on demand.
(4) Note Payable, Bank:
The Company has a line of credit with its bank in the amount of $55,000
which originally was secured by a collateral savings account in the
amount of $55,000. As of November 30, 1999, the line of credit was paid
down to $3,771 and the secured savings account was reduced to $3,753.
Interest paid on all corporate borrowings, exclusive of related party
interest and other bank interest amounted to $798 for the year ended
February 28, 1999.
(5) Obligations under Capital Lease:
The Company leases computer equipment, software, lens cutters and trade
show booths under the terms of a capital lease, which is secured by the
related equipment costing $41,440. The following is a schedule by years
of future minimum lease payments required under the capital leases,
together with the present value of the net minimum lease payments:
7
DITA, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 28, 1999 AND
INTERIM PERIOD ENDED NOVEMBER 30, 1999
Year ending February 28,
2000 $14,600
2001 16,431
2002 1,438
-------
Present value of minimum lease payments 32,469
Less current maturities 14,600
-------
$17,869
=======
Interest expense for the year ended February 28, 1999 amounted to $3,492
and for the nine months ended November 30, 1999 amounted to $16,353.
(6) Common Stock:
Between April 18, 1997 and July 10, 1997, the Company's principal
supplier of sunglasses, who is also a shareholder and member of the
Board of Directors, purchased 425,000 shares of common stock for
$100,000. Also, on April 18, 1997, three officer-stockholders of the
Company were issued a total of 275,000 shares for services previously
provided on behalf of the Company.
As of February 28, 1999 and 1998, there were 92,900 shares outstanding
that had been sold through a December 1995 public offering made in
reliance upon an exemption from registration under federal and state
securities laws provided by Regulation D, Rule 504 of the Securities and
Exchange Commission.
(7) Related Party Transactions:
The Company's principal supplier of sunglasses is also a shareholder and
a member of the Board of Directors. Total product purchased from this
supplier for the year ended February 28, 1999 was $313,746. Accounts
payable and accrued expenses at February 28, 1999 include $131,162
payable to this supplier. The Company also pays interest on outstanding
accounts payable balances at a rate of 9% per year to this related
party.
(8) Income Taxes:
For federal income tax return purposes, the Company has available net
operating loss carryforwards of approximately $556,000 and $381,000,
which expire through 2013 and 2012 and are available to offset future
income tax liabilities for the years ended February 28, 1999 and 1998,
respectively.
Temporary differences which give rise to deferred tax assets and
liabilities at February 28, 1999 are as follows:
8
DITA, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 28, 1999 AND
INTERIM PERIOD ENDED NOVEMBER 30, 1999
Net operating loss carryforwards $ 226,548 $ 152,400
Valuation allowance (226,548) (152,400)
--------- ---------
Net deferred taxes $ - $ -
========= =========
(9) Subsequent Event:
The Company has had discussions with two companies that would like to
acquire the Company's corporate shell. As of January 12, 2000, no
negotiations have been finalized and none are under way. Upon completion
of any such proposed sale, the Company would be under different
management and would conduct a different business. The present business
of the Company would presumably be sold.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction
with the financial statements and the accompanying notes thereto and is
qualified in its entirety by the foregoing and by more detailed financial
informaton appearing elsewhere. See "Item 1. Financial Statements."
Financial condition, changes in financial condition and results of
------------------------------------------------------------------------
operations - Third Quarter of Fiscal Year 2000 Compared to Third Quarter of
- --------------------------------------------------------------------------------
Fiscal Year 1999
- ----------------
Dita's sales increased from $179,460 in the three-month period ended
November 30, 1998 (Q3:1999) to $205,426 in the three-month period ended November
30, 1999 (Q3:2000), a 14.5 percent increase of $25,966. The increase is due
primarily to an increase of $22,174 in sales of optical sunglasses.
The cost of sales decreased from $102,013, or 56.8 percent of sales, in
Q3:1999 to $66,382, or 32.3 percent of sales, in Q3:2000, a decrease of 24.5
percent when considered as a percentage of sales.
Operating expenses also decreased from $152,987 - or 85.2 percent of
sales - in Q3:1999 to $125,199 - or 60.9 percent of sales - in Q3:2000.
This decrease is due primarily to -
o a decrease in photography expense from $15,412 or 0.6 percent of
sales in Q3:1999 to none in Q3:2000;
o a decrease in travel expense from $10,442 or 5.8 percent of
sales in Q3:1999 to $4,973 or 2.4 percent of sales in Q3:2000;
o an increase in legal and accounting fees from $4,460 or 2.5
percent of sales in Q3:1999 to $16,311 or 8.0 percent of sales
in Q3:2000;
o a decrease in research and development expense from $3,648 or
2.0 percent of sales in Q3:1999 to nothing in Q3:2000;
o a decrease in collection expense and bad debts from $9,785 or
5.5 percent of sales in Q3:1999 to none in Q3:2000; and
o a decrease in office salaries from $10,283 or 5.7 percent of
sales in Q3:1999 to $6,250 or 3.0 percent of sales in Q3:2000.
Dita suffered a net loss from operations of $75,541 in Q3:1999 but had
net income of $13,846 in Q3:2000. This $89,387 turnaround is attributable to the
above-described increase in sales, decrease in cost of sales and decrease in
operating expenses.
Our accounts receivable increased by $23,674 from $71,249 at the end
of fiscal year 1999 to $94,943 at the end of Q3:2000, and our accounts payable
and accrued expenses increased by $72,695 from $209,578 at the end
of FY 1999 to $282,273 at the end of Q3:2000. A cash position of $65,822
at the end of FY 1999 was reduced to $11,568 at the end of Q3:2000, but
10
inventory increased from $71,587 at the end of FY 1999 to $148,735 at the end of
Q3:2000. Stockholders' equity decreased from $77,043 at the end of FY 1999 to
$8,962 at the end of Q3:2000.
Financial condition, changes in financial condition and results of
------------------------------------------------------------------------
operations - First Nine Months of Fiscal Year 2000 Compared to First Nine
- --------------------------------------------------------------------------------
Months of Fiscal Year 1999.
- --------------------------
Sales in the first nine months of FY 2000 increased by $31,900 or 4.5
percent over sales in the first nine months of FY 1999 - $736,605 compared to
the earlier $704,705. Of greatest significance is the increase in international
sales of $160,687 - from $134,225 in the first nine months of FY 1999, or 19.0
percent of sales, to $294,912, or 40.0 percent of sales in the first nine months
of FY 2000. Boutique sales remained fairly constant, but optical sales decreased
from $389,137 in the first nine months of FY 1999 or 55.2 percent of sales to
$216,390 in the first nine months of FY 2000 or 29.4 percent of sales.
The cost of sales decreased slightly from $355,153 or 50.4 percent of
sales in the first nine months of FY 1999 to $318,830 or 43.3 percent of sales
in the first nine months of FY 2000.
Operating expenses increased from $409,917 - or 58.2 percent of sales -
in the first nine months of FY 1999 to $485,853 - or 66 percent of sales - in
the first months of FY 2000. The increase is due primarily to -
o an increase in advertising expense from $4,231 or 0.6 percent of
sales in the first nine months of FY 1999 to $87,143 or 11.8
percent of sales in the first nine months of FY 2000;
o a decrease in photography expense from $15,642 or 2.2 percent of
sales in the first nine months of FY 1999 to $1,400 or 0.2
percent of sales in the first nine months of FY 2000;
o a decrease in printing and reproduction expense from $4,343 or
0.6 percent of sales in the first nine months of FY 1999 to $839
or 0.1 percent of sales in the first nine months of FY 2000;
o a decrease in sales commission expense from $82,565 or 11.7
percent of sales in the first nine months of FY 1999 to $59,930
or 8.1 percent of sales in the first nine months of FY 2000;
o an increase in automobile expense from nothing in the first nine
months of FY 1999 to $14,332 or 1.9 percent of sales in the first
nine months of FY 2000;
o a decrease in postage expense from $5,408 or 0.8 percent of sales
in the first nine months of FY 1999 to $1,527 or 0.2 percent of
sales in the first nine months of FY 2000;
11
o an increase in legal and accounting fees from $29,237 or 4.1
percent of sales in the first nine months of FY 1999 to $46,918
or 6.4 percent of sales in the first nine months of FY 2000;
o an increase in equipment leasing expense from $6,960 or 1.0
percent of sales in the first nine months of FY 1999 to $17,503
or 2.4 percent of sales in the first nine months of FY 2000;
o a decrease in research and development from $6,098 or 0.9 percent
of sales in the first nine months of FY 1999 to $1,017 or 0.1
percent of sales in the first nine months of FY 2000;
o a decrease in collection expense and bad debts from $11,956 or
1.7 percent of sales in the first nine months of FY 1999 to
$1,481 or 0.2 percent of sales in the first nine months of FY
2000; and
o an increase in interest expense from $11,263 or 1.6 percent of
sales in the first nine months of FY 1999 to $16,353 or 2.2
percent of sales in the first nine months of FY 2000.
Dita had a net loss from operations of $60,365 in the first nine months
of 1999 and a net loss from operations of $68,079 in the first nine months of FY
2000.
Liquidity and Outlook.
---------------------
We have been able to stay in operation only (1) from the services
provided by Glance, Inc., a manufacturer of sunglasses under the control of
Bendar Wu, the chairman of our board of directors, which company funds and
warehouses a considerable portion of our inventory and (2) from the proceeds
realized from the sale of capital stock.
With respect to the sales of stock, we covered our loss from operations
in fiscal 1999 by the sale of $200,000 in capital stock. In fiscal 1999 we also
borrowed $19,000 on our bank line of credit. We ended fiscal 1999 with $121,516
cash in the bank.
By the end of the third quarter of fiscal 2000 (November 30, 1999) our
cash position had fallen to $15,321 from $121,516 at the end of fiscal 1999. Our
net loss from operations was $68,078 during the first nine months of FY 2000,
but we increased our inventory by $77,148 and repaid debt of $11,488 to officers
and $15,229 on our bank line of credit.
Glance provides liquidity as follows: standard payment terms in our
industry are to provide a secured letter of credit to the manufacturer for the
entire amount of a purchase order submitted. The letter of credit matures upon
the manufacturer's shipment of the product. Glance requires no letter of credit
or deposit of any type to secure a purchase order from us. In addition, Glance
takes shipment of the inventory ordered and warehouses it until we need it. Once
we order the inventory to be delivered from Glance's warehouse, we have 30 days
to pay for it.
We perceive our long-term solution to our continuing losses to be an
improvement in our gross margin. The essential services provided by
12
Glance, Inc. come at a cost to us - they increase our cost of goods sold from 20
to 30 percent above industry standard. Yet, it is impossible to dispense with
these services without the cash to pay for and warehouse all our inventory. We
are working on obtaining lines of credit from lending institutions that cater to
small businesses. When we have exhausted these possibilities, we will attempt to
obtain capital through the sale of shares of common stock.
Unfortunately, our inability to demonstrate profitable operations makes
it difficult to sell capital stock. At this time, we have not identified the
sources of additional lines of credit or of equity capital we need to break out
of our dilemma. Short term, we need to increase our bank line of credit from
$45,000 to approximately $100,000 to help pay for the implementation of new
prescription glasses lines.
Long term, we need an additional line of credit of approximately
$150,000 to decrease our dependence on Glance, Inc. and thereby improve our
profit margins.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedule
(b) Forms 8-K
None
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.
Date: January 13, 2000 Dita, Inc.
By/s/ Troy Schmidt
-------------------------------------
Troy Schmidt, President and
Chief Financial Officer
13