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 August 31, 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 August 31, 1999, 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
DITA, INC.
BALANCE SHEETS
08-31-99 02-28-99
(Unaudited) Audited
--------- ---------
ASSETS
Current assets:
Cash $ 15,364 $ 65,822
Cash - restricted 3,244 55,694
Accounts receivable - trade, net of allowance
for doubtful accounts of $37,160 and $37,160,
respectively 105,633 71,249
Inventory 132,931 71,587
Prepaid expenses 2,163 20,103
--------- ---------
Total current assets 259,335 284,455
Property and equipment, net of
accumulated depreciation and amortization 90,133 87,732
Other assets 2,434 2,434
--------- ---------
$ 351,902 $ 374,621
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 288,921 $ 209,578
Advances from officers-stockholders 26,546 36,531
Note payable, bank 4,762 19,000
Current maturities of obligations under
capital lease 14,600 14,600
--------- ---------
Total current liabilities 334,829 279,709
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 613,339 613,339
Deficit (644,548) (567,696)
--------- ---------
Total stockholders' equity 190 77,043
--------- ---------
$ 351,902 $ 374,621
========= =========
See notes to financial statements.
2
DITA, INC.
STATEMENT OF OPERATIONS
Three months ended Three months ended Six months ended Six months ended
August 31, 1999 August 31, 1998 August 31, 1999 August 31, 1998
----------------- ----------------- ----------------- -----------------
Amount Amount Amount Amount
(Unaudited) Percent (Unaudited) Percent (Unaudited) Percent (Unaudited) Percent
----------- ------- ----------- ------- ----------- ------- ----------- -------
Net sales $ 241,892 100.0% $ 198,907 100.0% $ 531,179 100.0% $ 525,245 100.0%
Cost of sales 112,508 46.5 96,077 48.3 246,875 46.5 253,140 48.2
---------- ----- ---------- ----- ---------- ----- ---------- -----
Gross profit 129,384 53.5 102,830 51.7 284,303 53.5 272,105 51.8
Operating expenses 205,889 85.1 129,823 65.3 361,155 68.0 256,929 48.9
---------- ----- ---------- ----- ---------- ----- ---------- -----
Net income (loss) $ (76,505) (31.6) $ (26,993) (13.6) $ (76,852) (14.5) $ 15,176 (2.9)
========== ===== ========== ===== ========== ===== ========== =====
Net income (loss) per share -
basic and diluted $ (0.024) $ (0.01) $ (0.024) $ 0.005
========== ========== ========== ==========
Weighted average shares
outstanding - basic and diluted 3,140,000 2,623,311 3,140,000 2,623,311
========== ========== ========== ==========
See notes to financial statements.
3
DITA, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Six months ended August 31,
-------------------------------
1999 1998
(Unaudited) (Unaudited)
----------- -----------
Cash flows provided by (used for)
operating activities:
Net income (loss) $ (76,852) $ 15,176
--------- ---------
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 $ (34,385) $ (11,310)
Inventory (61,344) (14,922)
Prepaid expenses 17,940 (1,335)
Increase (decrease) in liabilities -
Accounts payable and accrued expenses $ 84,863 $ 24,493
--------- ---------
Total adjustments $ 7,074 $ (3,037)
--------- ---------
Net cash used for operating activities $ (69,778) $ 12,139
--------- ---------
Cash flows used for investing activities:
Acquisition of property and equipment $ (2,400) $ (4,008)
Increase in other assets - -
--------- ---------
Net cash used for investing activities $ (2,400) $ (4,008)
--------- ---------
Cash flows provided by (used for)
financing activities:
(Payments on) advances from
officer-stockholders $ (9,985) $ (903)
(Payments on) proceeds from
note payable (19,000) -
(Payments on) proceeds from other
current liabilities (757) 14
(Payments on) obligations under capital lease (987) (7,203)
Proceeds from issuance of common stock - 200,000
--------- ---------
Net cash provided by financing activities $ (30,730) $ 191,908
--------- ---------
Net increase (decrease) in cash $(106,152) $ 200,039
Net increase in cash-reserve 3,244 -
Cash, beginning of year 121,516 17,806
--------- ---------
Cash, end of year $ 18,608 $ 217,845
========= =========
See notes to financial statements.
4
DITA, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 28, 1999 AND
INTERIM PERIOD ENDED AUGUST 31, 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 AUGUST 31, 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 August 31, 1999, and the
results of operations and cash flows for the six-month periods ended
August 31, 1999 and 1998 have been included. The results of operations
for the six-month period ended August 31, 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 AUGUST 31, 1999
(2) Property and Equipment:
08-31-99 02-28-99
-------- --------
Display cases $ 76,254 $ 73,854
Computers and software 34,939 34,939
Furniture and fixtures 9,670 9,670
-------- --------
120,863 118,463
Less accumulated depreciation
and amortization 30,731 30,731
-------- --------
$ 90,133 $ 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 was secured by a collateral savings account in the amount of $55,000.
As of July 16, 1999, the line of credit was paid off and the secured
savings account was released to the Company.
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 AUGUST 31, 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 six months ended August 31, 1999 amounted to $10,199.
(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 AUGUST 31, 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 October 20, 1999, 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 information
appearing elsewhere. See "Item 1. Financial Statements."
Financial condition, changes in financial condition and results of
- --------------------------------------------------------------------------------
operations - Second Quarter of Fiscal Year 2000 Compared to Second Quarter of
- --------------------------------------------------------------------------------
Fiscal Year 1999
- ----------------
Dita's sales increased from $198,907 in the three-month period ended August
31, 1998 (Q2:1999) to $241,892 in the three-month period ended August 31, 1999
(Q2:2000), a 21.6 percent increase. The increase is due to an increase of
$43,454 in international sales.
The cost of sales increased from $96,077, or 48.3 percent of sales, in
Q2:1999 to $112,508, or 46.5 percent of sales, in Q2:2000, an increase of only
17.1 percent and a slight improvement when considered as a percentage of sales.
Operating expenses, however, increased from $129,823 - or 65.3 percent of
sales - in Q2:1999 to $205,889 - or 85.1 percent of sales - in Q2:2000. This
increase is due primarily to -
o an increase in advertising expense from $625 or 0.3 percent of sales
in Q2:1999 to $42,815 or 17.7 percent of sales in Q2:2000;
o an increase in travel expense from $1,305 or 0.7 percent of sales in
Q2:1999 to $10,283 or 4.3 percent of sales in Q2:2000;
o an increase in accounting fees from $4,400 or 2.2 percent of sales
in Q2:1999 to $13,600 or 3.6 percent of sales in Q2:2000; and
o an increase in equipment leasing expense from $506 or 0.3 percent of
sales in Q2:1999 to $6,694 or 2.8 percent of sales in Q2:2000.
Dita suffered a net loss from operations of $26,993 in Q2:1999, which loss
increased to a net loss of $76,505 in Q2:2000. The increases in advertising
expense and travel expense alone account for more than the increase in net loss
from operations. These increases reflect management's decision to increase
consumer awareness of our brands, particularly in new markets.
Our accounts receivable increased by $34,384 from $71,249 at the end of
fiscal year 1999 to $105,633 at the end of Q2:2000, and our accounts payable and
accrued expenses increased by $79,343 from $209,578 at the end of FY 1999 to
$288,921 at the end of Q2:2000. A cash position of $65,822 at the end of FY 1999
was reduced to $15,364 at the end of Q2:2000, but inventory increased from
$71,587 at the end of FY 1999 to $132,931 at the end of Q2:2000. Stockholders'
equity decreased from $77,043 at the end of FY 1999 to only $190 at the end of
Q2:2000.
10
Financial condition, changes in financial condition and results of
- --------------------------------------------------------------------------------
operations - First Half of Fiscal Year 2000 Compared to First Half of Fiscal
- --------------------------------------------------------------------------------
Year 1999.
- ---------
Sales in the first half of FY 2000 were comparable to sales in the first
half of FY 1999 - $531,179 compared to the earlier $525,245. Of significance,
however, is the increase in international sales of $171,006 - from $53,703 in FY
1999, or 10.2 percent of sales, to $224,709, or 42.3 percent of sales. Boutique
sales remained constant at 29.4 percent of sales, but optical sales decreased
from $353,593 in the first half of FY 1999 or 67.3 percent of sales to $158,674
in the first half of FY 2000 or 29.9 percent of sales.
The cost of sales decreased slightly from $253,140 or 48.2 percent of sales
in the first half of FY 1999 to $246,875 or 46.5 percent of sales in the first
half of FY 2000.
Operating expenses increased from $256,929 - or 48.9 percent of sales - in
the first half of FY 1999 to $361,155 - or 68 percent of sales - in the first
half of FY 2000. The increase is due primarily to -
o an increase in advertising expense from $3,119 or 0.6 percent of
sales in the first half of FH 1999 to $86,643 or 16.3 percent of
sales in the first half of FY 2000;
o an increase in travel expenses from $2,776 or 0.5 percent of
sales in the first half of FY 1999 to $16,750 or 3.2 percent of
sales in the first half of FY 2000;
o an increase in equipment leasing from $2,466 or 0.5 percent of
sales in the first half of FY 1999 to $12,124 or 2.3 percent of
sales in the first half of FY 2000.
Dita realized net income from operations of $15,176 in the first half of
1999 but a net loss from operations of $76,852 in the first half of FY 2000. The
increase in advertising and travel expenses account for more than the difference
in net operating results.
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 $186,270 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 second quarter of fiscal 2000 (August 31, 1999) our cash
position had fallen to $18,608 from $121,516 at the end of fiscal 1999. Our net
loss from operations was $76,852 during the first half of
11
DITA, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED FEBRUARY 28, 1999 AND
INTERIM PERIOD ENDED AUGUST 31, 1999
FY 2000, but we increased our inventory by $61,344 and repaid debt of $9,985 to
officers and $14,238 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 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
12
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: October __, 1999 Dita, Inc.
By/s/ Troy Schmidt
---------------------------
Troy Schmidt, President and
Chief Financial Officer
13