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 May 31, 2001
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 33-0696051
(state of 0-27057 (IRS Employer
incorporation) (Commission File Number) I.D. Number)
2214 Beverly Boulevard
Los Angeles, CA 90057
213-368-3968
(Address and telephone number of registrant's principal
executive offices and principal place of business)
As of May 31, 2001, there were 3,142,530 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
2
DITA, INC
BALANCE SHEET
May 31, 2001
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash & cash equivalent $ 14,624
Accounts receivable, net 186,222
Prepaid expenses 9,541
Inventory 221,018
------------
Total current assets 431,405
PROPERTY AND EQUIPMENT, net 68,778
OTHER ASSETS 3,609
-------------
$ 503,792
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 370,488
Accrued expense 14,131
Advance from officers 18,466
Note payable-Bank 49,232
Note Payable 16,747
Current maturities of obligations under capital lease 6,007
-------------
Total current liabilities 475,071
Obligations under capital lease less current maturities 4,934
STOCKHOLDERS' EQUITY
Common stock, $.001 par value;
Authorized shares 10,000,000,
3,142,530 shares issued and outstanding 31,425
Additional paid in capital 613,314
Accumulated deficit (620,952)
-------------
Total stockholders' equity 23,787
$ 503,792
=============
The accompanying notes are an integral part of
these consolidated financial statements.
3
DITA, INC
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MAY 31, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
Net Sales $ 395,970 $ 371,546
Cost of Sales 160,981 142,833
------------- ------------
Gross Profit 234,989 228,713
Total operating expenses 178,034 163,229
------------- -------------
Income from Operations 56,955 65,484
Non-Operating Income (expense):
Interest expense (11,652) (6,865)
Interest income - 11
------------ -------------
Income before income taxes 45,303 58,630
Provision for income taxes 800 800
------------ -------------
Net Income $ 44,503 $ 57,830
============ ============
Basic weighted and diluted average number of
common stock outstanding* 3,142,530 3,142,530
============ ============
Basic net Income per share $ 0.01 $ 0.02
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
4
DITA, INC
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MAY 31, 2001 AND 2000
(Unaudited)
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 44,503 $ 57,830
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 3,116 6,000
Provision for doubtful accounts - 13,297
(Increase)/decrease in current assets:
Accounts receivable (89,075) (122,420)
Inventory (55,034) 13,160
Deposit - (275)
Prepaid Expense 4,081 1,698
Increase/(decrease) in current
liabilities:
Accounts payable and accrued
expenses 90,066 20,856
------------ ------------
Total adjustments (46,846) (67,684)
------------ ------------
Net cash used in operating activities (2,343) (9,854)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in other assets - (3,711)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans from officers (31) (1,616)
Proceeds from note payable, bank 9,197 5,271
Proceeds from other current liability - 3,550
Payments on obligation under capital
lease (2,260) -
------------- ------------
Net cash provided by financing
activities 6,906 7,205
------------ ------------
NET INCREASE (DECREASE) IN CASH &
CASH EQUIVALENT 4,563 (6,360)
CASH & CASH EQUIVALENT, BEGINNING BALANCE 10,061 17,234
------------- ------------
CASH & CASH EQUIVALENT, ENDING BALANCE $ 14,624 $ 10,874
============= ============
Supplemental disclosure of cash
flow information:
Income tax paid - -
============= ============
Interest paid 5,000 2,600
============= ============
The accompanying notes are an integral part of
these consolidated financial statements.
5
DITA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MAY 31, 2001 AND 2000
1. ORGANIZATIONS AND BASIS OF PRESENTATION
Dita, Inc. (the "Company") was incorporated on October 3, 1995 in the State of
Nevada. The Company is a wholesaler of unique, alternative and fashionable
women's sunglasses and sells to retailers throughout the United States, Japan
and Europe.
Basis of Preparation
The accompanying Interim Condensed Financial Statements are prepared in
accordance with rules set forth in Retaliation SB of the Securities and Exchange
Commission. As said, these statements do not include all disclosures required
under generally accepted principles and should be read in conjunction with the
audited financial statements for the year ended February 28, 2001. In the
opinion of management all adjustments consisting of normal reoccurring accruals
have been made to the financial statements. The results of operation for the
three months ended May 31, 2001 are not necessarily indicative of the results to
be expected for the fiscal year ending February 28, 2002.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
The Company considers all liquid investments with a maturity of three months or
less from the date of purchase that are readily convertible into cash to be cash
equivalents.
Inventories
Inventories, comprising mostly of finished goods, are stated at the lower of
cost (first-in, first-out method) or market.
Property & Equipment
Property and equipment is carried at cost. Depreciation of property and
equipment is provided using the declining balance method over the estimated
useful lives (generally two to seven years) of the assets. Expenditures for
maintenance and repairs are charged to expense as incurred.
Long-lived assets
The Company accounts for the impairment and disposition of long-lived assets in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of long-lived Assets and for long-lived Assets to
be disposed of." In accordance with SFAS No. 121, long-lived assets to be held
6
DITA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MAY 31, 2001 AND 2000
are reviewed for events or changes in circumstances, which indicate that their
carrying value may not be recoverable. As of May 31, 2001, no impairment has
been indicated.
Income taxes
Deferred income tax assets and liabilities are computed annually for differences
between the financial statements and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted laws
and rates applicable to the periods in which the differences are expected to
affect taxable income (loss). Valuation allowance is established when necessary
to reduce deferred tax assets to the amount expected to be realized.
Revenue Recognition
Revenue is recognized when merchandise is shipped to a customer. Generally, the
Company extends credit to its customers and does not require collateral. The
Company performs ongoing credit evaluations of its customers and historic credit
losses have been within management's expectations.
Basic and diluted net loss per share
Net loss per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128
superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average number
of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilutive convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
Stock-based compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS No. 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using the existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for stock issued to employees" (APB 25) and
related interpretations with proforma disclosure of what net income and earnings
per share would have been had the Company adopted the new fair value method. The
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DITA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MAY 31, 2001 AND 2000
company uses the intrinsic value method prescribed by APB25 and has opted for
the disclosure provisions of SFAs No.123. The implementation of this standard
did not have any impact on the Company's financial statements.
Fair value of financial instruments
Statement of financial accounting standard No. 107, Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
Costs of start-up activities
In April 1998, the ASEC of AICPA issued SOP No. 98-5, "Reporting on the costs of
start-up activities", effective for fiscal years beginning after December 15,
1998. SOP 98-5 requires the costs of start-up activities and organization costs
to be expensed as incurred. The implementation of this standard did not have a
material impact on the Company's financial statements.
Research and Development
Expenditures for software development costs and research are expensed as
incurred. Such costs are required to be expensed until the point that
technological feasibility is established. The period between achieving
technological feasibility and the general availability of such software has been
short. Consequently, costs otherwise capitalizable after technological
feasibility is achieved are generally expensed because they are insignificant.
Allowance for doubtful accounts
In determining the allowance to be maintained, management evaluates many factors
including industry and historical loss experience. The allowance for doubtful
accounts is maintained at an amount management deems adequate to cover estimated
losses. Allowance for bad debts as of May 31, 2001 and 2000, was $11,000 and
$41,000, respectively.
Advertising
The Company expenses advertising costs as incurred. Advertising expense for the
periods ended May 31, 2001 and 2000 amounted to $4,700 and $1,400, respectively.
8
DITA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MAY 31, 2001 AND 2000
Segment Reporting
During the periods ended May 31, 2001 and 2000, the Company only operated in one
segment therefore segment disclosure has not been presented.
Recent Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133, as amended by SFAS No. 137 and SFAS No. 138, is effective for fiscal
quarters of fiscal years beginning after June 15, 2000. This statement is not
applicable to the Company.
In June 2000, the FASB issued Financial Accounting Standards (SFAS) No. 138,
"Accounting for Certain Instruments and Certain Hedging Activities." This
statement is not applicable to the Company.
In June 2000, the FASB issued Financial Accounting Standards (SFAS) No. 139,
"Rescission of FASB Statement No. 53 and Amendments to Statements No. 63, 89,
and 121." This statement is not applicable to the Company.
In September 2000, the FASB issued Financial Accounting Standards SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, and a replacement of FASB Statement No. 125." This statement is
not applicable to the Company.
In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes the SEC's views on the application of GAAP
to revenue recognition. In June 2000, the SEC released SAB No. 101B that delays
the implementation date of SAB 101 until no later than the fourth fiscal quarter
of fiscal year beginning after December 15, 1999. The Company has reviewed SAB
No. 101 and believes that it is in compliance with the SEC's interpretation of
Revenue recognition.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions involving Stock Compensation." This Interpretation clarifies (a)
the definition of employee for purposes of applying APB Opinion No. 25, (b) the
criteria for determining whether a plan qualifies as a no compensatory plan, (c)
the accounting consequence of various modifications to the terms of a previously
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DITA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MAY 31, 2001 AND 2000
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. The adoption of this
Interpretation has not had a material impact on the Company's financial position
or operating results.
Certain significant risks and uncertainties
General business - The Company's success is dependent, in part, to its
introduction of products which are perceived to represent an improvement in
performance over products available in the market. The Company's future success
will depend, in part, upon its continued ability to develop and introduce such
innovative products, and there can be no assurance of the Company's ability to
do so. The consumer products industry, including the sunglass, apparel,
footwear, and watch categories, is fragmented and highly competitive. In order
to retain its market share, the Company must continue to be competitive in the
areas of quality, technology, method of distribution, style, brand image,
intellectual property protection and customer service. These industries are
subject to changing consumer preferences; shifts in consumer preferences may
adversely affect companies that misjudge such preferences. If management is
unable to anticipate or manage growth effectively, the Company's operating
results could be materially adversely affected.
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 periods. Actual results could differ from those estimates.
Vulnerability due to supplier concentrations - The Company uses a single source
for the supply of several components. Total purchases from the source amounted
to $102,006 in the period ended May 31, 2001. In the event of the loss of the
source, the Company has identified an alternate source which may be available.
The effect of the loss of any of these sources or a disruption in their business
will depend primarily upon the length of time necessary to find a suitable
alternative source and could have a material adverse effect on the Company's
results of operations.
Vulnerability due to customer concentrations - Net sales to two major customers
in the period ended May 31, 2001 amounted to approximately $146,000. Account
receivable from the major customers at May 31, 2001, amounted to $39,000.
3. ADVANCES FROM 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.
10
DITA, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
MAY 31, 2001 AND 2000
4. NOTE PAYABLE:
Note payable is non-interest bearing and is due upon the sale of the
corporation.
5. COMMITMENTS:
The Company occupies office space under lease agreements expiring on December
31, 2001. The lease requires the Company to pay for utilities, insurance, taxes
and maintenance, and contains renewal options. Total rent expense charged to
operations was $9,100 and $8,700 in the periods ended May 31, 2001 and 2000,
respectively.
Future minimum payments relating to operating leases for 2002 amounted to
$23,000.
A deposit consisting of $3,060 was paid upon signing of the lease.
6. SEBSEQUENT EVENT:
The Company is in the process of negotiating to sell its corporation to a third
party. As of June 30, 2001, no negotiations have been finalized. Upon
completion of the proposed sale, the Company will reorganize and continue to
operate under a different entity.
11
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 information
appearing elsewhere. See "Item 1. Financial Statements."
Financial condition, changes in financial condition and results of
operations - First Quarter of Fiscal Year 2002 Compared to First Quarter of
Fiscal Year 2001
Dita's sales increased in the three-month period ended May 31, 2001
(Q2:2002)over sales achieved in the three months ended May 31, 2000 (Q2:2001), a
total of $24,413. The increase in overall sales is due primarily to increases
in International and Department store sales. However, the increase in the
aforementioned sales categories was partially offset by decreases in Boutique
and Optical sales as well as increased returns and allowances, all attributable
to the slowing economy.
The cost of sales increased in the three-month period ended May 31, 2001
(Q1:2002) over cost of sales incurred in the three-month period ended May 31,
2001 (Q2:2002), a total of $31,081. This increase is attributable to the above
noted increase in sales as well is decreased margins caused by increased
international sales. International distributors are given volume discounts
ranging from 20% to 50% off U.S. wholesale prices thus reducing the overall
gross margin.
Operating expenses increased from $169,894 - in Q1:2001 to $177,381 - in
Q1:2002. The only significant changes were -
* an increase in advertising expense from $0.00 in Q1:2001 to $2,776 in
Q1:2002;
* an increase in photography expense from $0.00 in Q1:2001 to $7,779 in
Q1:2002;
* a decrease in tradeshow expense from $11,029 in Q1:2001 to $4,009 in
Q1:2002;
* an increase in printing and reproduction expense from $176.73 in
Q1:2001 to $9,480 in Q1:2002;
* a decrease in accounting fees from $18,563 in Q1:2001 to $11,8753 in
Q1:2002;
* a decrease in equipment leasing expense from $8,693 in Q1:2001 to
$0.00 in Q1:2002;
* a decrease in bad debt expense from $13,297 in Q1:2001 to $0.00 in
Q1:2002;
12
* a decrease in finance charge expense from $6,865 in Q1:2001 to $2,533
in Q1:2002;
* an increase in salaries office expense from $6,750 in Q1:2001 to
$11,074 in Q1:2002;
* an increase in salaries officers expense from $29,250 in Q1:2001 to
$34,650 in Q1:2002; and
* an increase in interest expense from $0.00 in Q1:2001 to $8,737 in
Q1:2002.
Dita had a decrease in net income from operations in Q1:2002 over the net
income accomplished in Q1:2001 of ($14,155). This decline is attributable to
two factors. First the decrease in Operating expenses noted above and second
the increase in cost of goods sold as noted above.
Our accounts receivable, net of allowances for doubtful accounts, increased
by $89,075 from the end of fiscal year 2001 to the end of Q1:2002, and our
accounts payable and accrued expenses increased by $82,765 from the end of FY
2001 to the end of Q1:2002. Our cash position increased by $4,583 from the end
of FY 2001 to the end of Q1:2002. Inventory increased by $55,034 from the end
of FY 2001 to the end of Q1:2002. Stockholders' equity increased by $44,503
from the end of FY 2001 to the end of Q1:2002.
Liquidity and Outlook
-----------------------
The company's limited liquidity position was supported in Q1:2002 mainly by
three factors: (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 a considerable portion of our inventory; (2) from
the small profit realized in fiscal year 2001; and (3) from maintaining a large
accounts payable.
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 for continued improvement upon profits
shown in FY 2001 to be two fold. First our gross margin must continue to
improve. The company showed improvement in this area by bettering its gross
margin in fiscal year 2001 over fiscal 2000. However, gross margin needs to be
continually improved. The essential services provided by Glance, Inc. come at a
cost - they increase our cost of goods sold from 10 to 20 percent above industry
standard. Yet, it is impossible to dispense with these services without the
cash to pay for a considerable portion of our inventory that Glance provides.
13
We are still working on obtaining additional 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. The second area in which the company can increase its
profitability is to move into licensing of additional brands. With Dita's
relationship with Glance, the company has the ability to fund the production
requirements of a new sunglass license. The company has not identified a source
of funds required for the implementation of a new licensing program. In order
for Dita to enter into a licensing agreement with another brand it will be
necessary to form a partnership with the proposed licensor. In this partnership
Dita would fund the production, utilize its existing property plant equipment,
in-house sales, shipping and customer service staff and the licensor would fund
the remaining capital deficiencies. Currently Dita is researching several
different markets where licensing could be profitable.
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 improve the overall stability of our liquidity position.
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.
Possibility of a Reverse Acquisition and Reorganization
-------------------------------------------------------------
We have been approached by several development-stage companies that are
interested in acquiring our corporate shell. Each proposes that our present
sunglasses business either be spun-off to our shareholders or sold, leaving the
company as a trading public shell. Our management is open to the proposals but
none of the development-stage companies has secured adequate financing or
commenced meaningful operations. Until such occurs, there is no point in
negotiating a contract with a company that is not viable.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3 - Articles of Incorporation of Dita, Inc.*
3.1 - Bylaws of Dita, Inc.*
10 - Dita, Inc. Distributor Agreement of September 1, 1999,
between Dita, Inc. and Levante, a representative
distributorship agreement of the Registrant**
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* Previously filed with Form 10-SB; Commission File No. 0-27057,
incorporated herein by reference.
** Previously filed with Amendment No. 1 to Form 10-SB; Commission File
No. 0-27057, incorporated herein by reference.
(b) Forms 8-K
Form 8-K - Item 4. Changes in Registrant's Certifying Accountant (SEC File
#0-27057) filed February 23, 2001.
Amendment No. 1 to Form 8-K - Item 4. Changes in Registrant's Certifying
Accountant (SEC File #0-27057) filed March 8, 2001.
Amendment No. 2 to Form 8-K - Item 4. Changes in Registrant's Certifying
Accountant (SEC File #0-27057) filed March 14, 2001.
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: July 13, 2001 Dita, Inc.
By/s/ Troy Schmidt
------------------------------
Troy Schmidt, President and
Chief Financial Officer
15