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, 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 0-27057 33-0696051 -------------- -------------------------- -------------- (state of (Commission File Number) (IRS Employer incorporation) 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 January 10, 2002, 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 NOVEMBER 30, 2001 (Unaudited) ASSETS ------ CURRENT ASSETS: Cash & cash equivalent $ 8,057 Accounts receivable, net 125,610 Prepaid expenses 4,071 Inventory 255,935 ----------- Total current assets 393,673 PROPERTY AND EQUIPMENT, net 73,148 OTHER ASSETS 3,610 ----------- $ 470,431 =========== LIABILITIES AND STOCKHOLDERS' DEFICIT ------------------------------------- CURRENT LIABILITIES: Accounts payable $ 401,339 Accrued expense 7,537 Advance from officers 72,292 Note payable-Bank 43,983 Note Payable 16,747 Current maturities of obligations under capital lease 6,103 ----------- Total current liabilities 548,001 Obligations under capital lease less current maturities 1,728 STOCKHOLDERS' DEFICIT 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 (724,037) ----------- Total stockholders' deficit (79,298) ----------- $ 470,431 =========== The accompanying notes are an integral part of these financial statements. 3 DITA, INC STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Nine Months Ended November 30, November 30, 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Net Sales $ 170,339 $ 188,143 $ 752,515 $ 865,763 Cost of Sales 80,086 76,346 329,727 338,603 ----------- ----------- ----------- ----------- Gross Profit 90,253 111,797 422,788 527,160 Total operating expenses 116,021 127,051 444,645 440,184 ----------- ----------- ----------- ----------- Income/(loss) from Operations (25,768) (15,254) (21,857) 86,976 Non-Operating Income (expense): Interest expense (11,940) - (35,925) - ----------- ----------- ----------- ----------- Income/(loss) before income taxes (37,708) (15,254) (57,782) 86,976 Provision for income taxes - - 800 800 ----------- ----------- ----------- ----------- Net Income/(Loss) $ (37,708) $ (15,254) $ (58,582) $ 86,176 =========== =========== =========== =========== Basic weighted and diluted average number of common stock outstanding 3,142,530 3,142,530 3,142,530 3,142,530 =========== =========== =========== =========== Basic & diluted net Income/ (loss) per share $ (0.012) $ (0.005) $ (0.019) $ 0.027 =========== =========== =========== =========== The accompanying notes are an integral part of these financial statements. 4 DITA, INC STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED NOVEMBER 30, 2001 AND 2000 (Unaudited) 2001 2000 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net Income/(Loss) $ (58,582) $ 86,176 Adjustments to reconcile net income to net cash provided by/(used in) operating activities: Depreciation and amortization 8,856 15,000 Provision for doubtful accounts - (63) (Increase)/decrease in current assets: Accounts receivable (28,463) (47,745) Inventory (89,951) (10,429) Deposit - (550) Prepaid Expense 9,551 1,698 Increase (decrease) in current liabilities: Accounts payable and accrued expenses 114,322 (37,107) ------------- ------------ Total adjustments 14,315 (79,196) ------------- ------------ Net cash provided by/(used in) operating activities (44,267) 6,980 ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (10,110) (2,105) Increase in other assets - (3,711) ------------- ----------- Net cash used in investing activities (10,110) (5,816) ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from/(repayment of) loans from officers 53,795 (4,409) Proceeds from/(repayment of) note payable, bank 3,948 - Payment of other current liability - 10,054 Payments of obligations under capital lease (5,370) (8,272) ------------- ----------- Net cash provided by/(used in) financing activities 52,373 (2,627) ------------- ----------- NET DECREASE IN CASH & CASH EQUIVALENTS (2,004) (1,463) CASH & CASH EQUIVALENTS, BEGINNING BALANCE 10,061 17,233 ------------- ----------- CASH & CASH EQUIVALENTS, ENDING BALANCE $ 8,057 $ 15,770 ============= =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Income tax paid $ 800 $ 800 ============= =========== Interest paid $ 5,250 $ 4,300 ============= =========== The accompanying notes are an integral part of these financial statements. 5 DITA, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS 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 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 Regulation 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 nine months ended November 30, 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. 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. 6 DITA, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS 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 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. 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 November 30, 2001 was $12,000. Advertising The Company expenses advertising costs as incurred. Advertising expense for the periods ended November 30, 2001 and 2000 amounted to $2,919 and $1,135, respectively. 7 DITA, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS Segment Reporting During the periods ended November 30, 2001 and 2000, the Company only operated in one segment therefore segment disclosure has not been presented. Recent Pronouncements In January 2001, the Financial Accounting Standards Board Emerging Issues Task Force issued EITF 00-27 effective for convertible debt instruments issued after November 16, 2000. This pronouncement requires the use of the intrinsic value method for recognition of the detachable and imbedded equity features included with indebtedness, and requires amortization of the amount associated with the convertibility feature over the life of the debt instrument rather than the period for which the instrument first becomes convertible. Management is in the process of evaluating the requirements of EITF 00-27, but does not expect this pronouncement will materially impact the Company's financial position or results of operations. 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." The implementation of this standard did not have any material impact on the financial statements of the Company. On July 20, 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." These statements make significant changes to the accounting for business combinations, goodwill, and intangible assets. SFAS No. 141 establishes new standards for accounting and reporting requirements for business combinations and will require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests method will be prohibited. This statement is effective for business combinations completed after June 30, 2001. SFAS No. 142 establishes new standards for goodwill acquired in a business combination and eliminates amortization of goodwill and instead sets forth methods to periodically evaluate goodwill for impairment. Intangible assets with a determinable useful life will continue to be amortized over that period. This statement becomes effective January 1, 2002. Management is in the process of evaluating the requirements of SFAS No. 141 and 142, but does not expect these pronouncements will materially impact the Company's financial position or results of operations. In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement Obligations". SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. The impact of the adoption of SFAS 143 on the Company's reported operating results, financial position and existing financial statement disclosure is not expected to be material. In August 2001, Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), was issued. 8 DITA, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and broadens the definition of what constitutes a discontinued operation and how the results of a discontinued operation are to be measured and presented. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001. The impact of the adoption of SFAS 144 on the Company's reported operating results, financial position and existing financial statement disclosure is not expected to be material. Certain significant risks and uncertainties 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 two major sources for the supply of several components. Total purchases from these sources amounted to $355,233 in the period ended November 30, 2001. In the event of the loss of the sources, the Company has identified an alternate source that 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 November 30, 2001 amounted to approximately $294,000. Account receivable from the major customers at November 30, 2001, amounted to $24,000. 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. 4. NOTE PAYABLE: Note payable is non-interest bearing, unsecured 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 $27,540 and $28,110 in the periods ended November 30, 2001 and 2000, respectively. A deposit consisting of $3,060 was paid upon signing of the lease. 6. SUBSEQUENT EVENT: The Company is trying to sell its corporation to a third party. As of December 31, 2001, no negotiations have been finalized. Upon completion of the proposed sale, the Company will reorganize and continue to operate under a different entity. 9 DITA, INC. NOTES TO UNAUDITED FINANCIAL STATEMENTS 7. GOING CONCERN The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern. The Company has accumulated deficit of $724,037 including a net loss of $58,582 for the nine-month period ended November 30, 2001. The continuing loss has adversely affected the liquidity of the Company. The Company faces continuing significant business risks, including but not limited to, its ability to maintain vendor and supplier relationships by making timely payments when due. In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. Management devoted considerable effort during the period ended November 30, 2001, towards (i) controlling salaries and general and administrative expenses (ii) management of accounts payable and (iii) evaluation of its distribution and marketing methods. 10 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 - Third Quarter of Fiscal Year 2002 Compared to Third Quarter of - -------------------------------------------------------------------------------- Fiscal Year 2001 - ------------------ Dita's sales decreased by $17,804 from $188,143 in the three-month period ended November 30, 2000 (Q3:2001) to $170,339 in the three-month period ended November 30, 2001 (Q3:2002), a 9.46 percent decrease. There were, however, significant changes in the origin of these sales, as follows: Q3:2001 Q3:2002 Per- Per- Origin of Sales Amount cent Amount cent ----------------- --------- ----- --------- ----- Optical $ 65,725 34.9 $ 62,768 36.8 Boutique 59,300 31.5 53,323 31.3 Department store 29,228 15.5 11,127 6.5 International 44,451 23.6 66,255 38.9 Private Label 540 0.3 Freight income 2,320 1.2 3,063 1.8 Miscellaneous 3,353 1.8 422 2 Returns & exchanges (16,236) (8.6) (27,070) (15.9) Discounts (8) 0.0 (88) .0 Interest income 10 0.0 0 .0 -------- ----- -------- ----- Totals $188,143 100.0 $170,339 100.0 Of particular note are the above increases in international sales resulting mainly from an increase in sales to our distributors out of the country. The cost of sales increased from 40.6 percent of sales in Q3:2001 to 47.0 percent of sales in Q3:2002. This increase was due to the increase in sales to distributors, as margins are smaller on sales to distributors. Operating expenses decreased insignificantly, from $127,051 - or 67.5 percent of sales - in Q3:2001 to $116,021 - or 68.1 percent of sales - in Q3:2002. Dita had $37,708 net loss from operations in Q3:2002, compared to a net loss of $15,254 in Q3:2001. This decline is attributed to the decrease in sales as noted above. Our accounts receivable increased by $17,519 from $108,191 at the end of Q3:2000 to $125,610 at the end of Q3:2001. Our accounts payable and accrued expenses increased by $171,462 from $237,414 at the end of Q3:2000 to $408,876 at the end of Q3:2001. A cash balance of $15,770 at the end of Q3:2000 was reduced to $8,057 at the end of Q3:2001, but inventory increased from $172,427 at the end of Q3:2000 to $255,935 at the end of Q3:2001. Stockholders' equity of $32,130 at the end of FY 2000 was changed to a deficit of $79,298 at the end of Q3:2001. 11 Financial condition, changes in financial condition and results of --------------------------------------------------------------------------- operations - 9 months ended November 30, 2001 Compared to 9 months ended - -------------------------------------------------------------------------------- November 30, 2000. - -------------------- Sales during the first 9 months of the 2002 FY decreased by $113,248 (13.08 percent) from sales during the first 9 months of FY 2001 - $752,515 compared to the earlier $865,763. 1st 9 mo:FY2001 1st 9 mo:FY2002 ----------------- ---------------- Per- Per- Origin of Sales Amount cent Amount cent ----------------- -------- ----- -------- ----- Optical $247,853 28.6 $218,261 29.0 Boutique 234,164 27.0 216,443 28.8 Department store 103,748 12.0 102,105 13.5 International 305,680 35.2 317,291 42.1 Private Label 2,484 .3 Freight income 8,718 1.0 9,825 1.3 Miscellaneous 8,353 1.0 4,522 0.6 Returns & exchanges (42,780) (4.9) (117,669) (15.6) Discounts (6) 0.0 (748) 0.0 Interest income 33 0.0 1 .0 -------- ----- -------- ----- Totals $865,763 100.0 $752,515 100.0 Sales have increased in the international division due to higher sales to distributors. Decreases in the other categories can be attributed to a slowing economy. Our gross margin decreased from 60.9 percent ($527,160) of sales in the first 9 months of FY 2001 to 56.2 percent ($422,788) of sales in the first 9 months of FY 2002. Operating expenses increased by $4,461 from $440,184 - or 50.8 percent of sales - in the first 9 months of FY 2001 to $444,645 - or 59.1 percent of sales - - in the first 9 months of FY 2002. The increase is due primarily to - - an increase in photography expense of approximately $14,000 - an increase in office salaries of approximately $7,000 - an increase in officer salaries of approximately $3,000 - an increase in office expense of approximately $7,000 - an increase in promotional expense of approximately $5,000 The above increases were offset, however, by several decreases in operating expenses, primarily the following: - a decrease in trade show expense of approximately $8,000 - a decrease in travel expense of approximately $7,000 12 - a decrease in salesman commission of approximately $4,000 - a decrease in auto expense of approximately $4,000 - a decrease in repairs and maintenance of approximately $6,000 - a decrease in accounting fees of approximately $4,000. Dita realized a net loss from operations of $58,205, or 7.8 percent of sales, in the first 9 months of 2002 as contrasted with a net income from operations of $86,176 in the first 9 months of FY 2001. Liquidity and Outlook ----------------------- The company's limited liquidity position was supported in Q3:2002 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 Fiscal year 2001 to be two fold. Fist 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. 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. 13 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 None (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 10, 2002 Dita, Inc. By:/s/Jeff Solorio -------------------------------- Jeff Solorio, President and Chief Financial Officer 14