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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 March 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-28818
DECHTAR DIRECT INC.
(Exact name of small business issuer
as specified in its charter)
California 94-3100168
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
245 Eleventh Street, San Francisco, CA 94103
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (415) 863-3005
Former fiscal year ended on the fourth Wednesday in December
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes \X\ No \ \
As of April 30, 1997, there were issued and outstanding
12,887,000 shares of common stock of the issuer.
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DECHTAR DIRECT INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
Balance Sheet at March 31, 1997............................... 1
Statements of Income for the Three
Months Ended March 31, 1997 and
March 27, 1996................................................ 3
Statements of Cash Flows for the
Three Months Ended March 31, 1997
and March 27, 1996............................................ 4
Notes to Financial Statements................................. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 8
Item 2. Changes in Securities......................................... 8
Item 3. Defaults Upon Senior Securities............................... 8
Item 4. Submission of Matters to a Vote of
Security Holders......................................... 8
Item 5. Other Information............................................. 8
Item 6. Exhibits and Reports on Form 8-K.............................. 8
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DECHTAR DIRECT INC.
BALANCE SHEET (UNAUDITED)
ASSETS
MARCH 31,
1997
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CURRENT ASSETS:
Cash $ 65,992
Accounts receivable, net 516,921
Due from affiliates 698,955
Prepaid marketing expense 1,204,955
Prepaid expenses 17,424
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Total current assets 2,504,247
PROPERTY AND EQUIPMENT, NET 901,505
OTHER ASSETS:
Mailing list development costs, net 1,463,822
Purchased mailing lists, net 324,072
Deferred stock offering costs 672,595
Deposits 37,142
Other assets 2,181
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Total other assets 2,499,812
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Total assets $5,905,564
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See accompanying notes to financial statements.
1
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DECHTAR DIRECT INC.
BALANCE SHEET (UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31,
1997
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CURRENT LIABILITIES:
Notes payable $ 582,351
Note payable, stockholder 11,377
Capital leases 35,941
Accounts payable and accrued expenses 2,074,425
Deferred income taxes 483,373
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Total current liabilities 3,187,467
NOTES PAYABLE 30,158
CAPITAL LEASES 45,172
DEFERRED INCOME TAXES 82,631
DEFERRED REVENUE 746,937
COMMON STOCK SUBJECT TO REDEMPTION,
1,680,000 SHARES AT MARCH 31, 1997 5,033
STOCKHOLDERS' EQUITY:
Common stock, 25,000,000 shares authorized,
11,207,000 shares issued and outstanding at
March 31, 1997 433,626
Preferred stock A, $10 par value, 10,000,000
shares authorized, 58,130 shares issued and
outstanding at March 31, 1997 474,478
Preferred stock B, $3 par value, 300,000 shares
authorized, 180,000 shares issued and
outstanding at March 31, 1997 533,978
Retained earnings 366,084
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Total stockholders' equity 1,808,166
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Total liabilities and stockholders' equity $5,905,564
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See accompanying notes to financial statements.
2
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DECHTAR DIRECT INC.
STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
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MARCH 31, MARCH 27,
1997 1996
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Revenue $2,224,807 $2,302,734
Cost of revenue 1,356,096 1,561,398
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Gross profit 868,711 741,336
Selling, general and
administrative expense 875,677 730,017
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Income (loss) from operations (6,966) 11,319
Interest expense, net 17,242 15,924
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Net loss before income taxes (24,208) (4,605)
Benefit for income taxes (7,136) (2,302)
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Net loss $ (17,072) $ (2,303)
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Net loss per share $(0.00) $(0.00)
---- ----
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Weighted average common
shares outstanding 13,473,723 13,082,043
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See accompanying notes to financial statements.
3
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DECHTAR DIRECT INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
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MARCH 31, MARCH 27,
1997 1996
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CASH FLOWS PROVIDED BY (USED FOR)
OPERATING ACTIVITIES:
Net loss $ (17,072) $ (2,303)
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization:
Mailing list development costs 79,629 59,842
Purchased mailing lists 16,438 16,438
Property and equipment 52,457 47,361
Deferred income taxes (7,136) (2,302)
Bad debts 2,000 1,250
(Increase) decrease in operating assets:
Accounts receivable (7,191) (12,500)
Due from affiliates (17,264) (449,694)
Prepaid marketing expense 76,034 (234,244)
Prepaid expenses (404) 37,340
Deposits (2,952) (4,562)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 286,660 630,204
Deferred revenue (35,623) 84,511
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Net cash provided by operating
activities 425,576 171,341
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CASH FLOWS USED FOR
INVESTING ACTIVITIES:
Costs for development of mailing lists (125,175) (122,533)
Payments to acquire property and equipment (88,952) (60,559)
Advances to stockholder (21,211) (6,508)
Costs for purchases of mailing lists - (5,494)
Payments to acquire other assets - (936)
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Net cash used for investing activities (235,338) (196,030)
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See accompanying notes to financial statements.
4
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DECHTAR DIRECT INC.
STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED
THREE MONTHS ENDED
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MARCH 31, MARCH 27,
1997 1996
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CASH FLOWS PROVIDED BY (USED FOR)
FINANCING ACTIVITIES:
Proceeds from notes payable $ 130,000 $ -
Payments on notes payable (12,828) (135,994)
Payments on capital leases (9,333) (2,462)
Proceeds from issuance of preferred stock,
net of $0 and $55,906 respectively,
of stock offering costs 4,000 115,354
Common stock issuance costs (247,088) (39,430)
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Net cash used for financing activities (135,249) (62,532)
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Net increase (decrease) in cash 54,989 (87,221)
Cash at beginning of period 11,003 194,329
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Cash at end of period $ 65,992 $ 107,108
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SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid $ 13,042 $ 8,909
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Income taxes paid $ - $ -
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See accompanying notes to financial statements.
5
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DECHTAR DIRECT INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
THREE MONTHS ENDED MARCH 27, 1996 AND MARCH 31, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared from the records of the Company without audit and, in the opinion of
management, include all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position at March 31,
1997, and the interim results of operations and cash flows for the three months
then ended. Certain reclassifications have been made in the financial
statements for the period ended March 27, 1996, to conform to the March 31,
1997, presentation.
Accounting policies followed by the Company are described in Note 1 to the
audited financial statements included in the Company's special financial
report on Form 10-KSB for the year ended December 25, 1996. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted for purposes of the financial statements. These
quarterly financial statements should be read in conjunction with the
financial statements, including notes thereto, for the year ended December
25, 1996.
The results of operations for the three-month periods herein presented are not
necessarily indicative of the results to be expected for the full year.
NOTE 2 - CHANGE IN FISCAL YEAR
On March 17, 1997, the Board of Directors changed the Company's fiscal year to
a calendar year. As a result, reporting for the quarter ending March 31, 1997,
includes the days December 26, 1996, through March 31, 1997. The change in
fiscal year has no material effect on the Company's balance sheet, statements of
income and statements of cash flows for the periods ending March 31, 1997, and
March 27, 1996, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to historical information, this Quarterly Report on Form 10-QSB
contains forward-looking statements. These statements refer to, among other
things, liquidity and capital expenditures and are subject to risks and
uncertainties. Factors that could cause the Company's actual results to differ
materially from management's projections, estimates and expectations include,
but are not limited to, success and timing of the Company's current public
offering of securities, amount and timing of expenditures associated with such
public offering, and the factors identified under "Risk Factors--Business Risks"
in the Company's prospectus dated February 6, 1997.
THREE MONTHS ENDED MARCH 31, 1997, COMPARED TO THREE MONTHS ENDED MARCH 27, 1996
Total revenues for the first three months of 1997 were approximately $2.2
million, a decrease of 3% from revenues of $2.3 million for the first three
months of 1996. Catalog request program revenues decreased 3%, from $1.02
million to $994,000, due primarily to a decrease in the quantity of catalogs
mailed by the Company. Catalog ad space revenues decreased 36%, from $134,000
to $86,000, primarily because of the same decrease in catalog circulation.
Agency services revenues increased 4%, from $958,000 to $999,000, as a result of
increased consulting and order processing revenue offset in part by a decrease
in print brokerage volume. List rental revenue decreased $47,000, from $155,000
to $108,000, due primarily to a decrease in average client order size. Other
revenues increased 6%, from $36,000 to $38,000, due primarily to increases in
audiotext advertising sales.
Cost of revenues decreased 13%, from approximately $1.56 million for the first
three months of 1996 to $1.36 million for the first three months of 1997, while
gross profit margins increased from 32% in 1996 to 38% in 1997. Margins
increased in the first three months of 1997 primarily because of an increase in
consulting and order processing revenues, and a decrease in printing brokerage
revenues.
Selling, general and administrative expense increased 20% from $730,000 for the
first three months of 1996 to $876,000 for the first three months of 1997. This
was attributable primarily to increases in payroll expense and professional
fees.
The Company incurred a net loss of $17,072 for the first three months of 1997
compared to net loss of $2,303 for the first three months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Total assets increased 20% from $4.9 million as of March 27, 1996, to $5.9
million as of March 31, 1997, while total liabilities increased 11% from $3.7
million as of March 27, 1996, to $4.1 million as of March 31, 1997. Current
assets decreased $114,000, or 4%, from March 27, 1996, to March 31, 1997, while
current liabilities increased $367,000, or 13%. Total working capital remained
negative, declining by $480,000 from a negative $203,000 as of March 27, 1996,
to a negative $683,000 as of March 31, 1997. This was attributable to an
increase in the current portion of notes payable.
Total stockholders' equity rose approximately 47% from $1.2 million as of March
27, 1996, to $1.8 million as of March 31, 1997, primarily as a result of the
sale of Series B Convertible Preferred Stock. The Company's debt-to-equity
ratio improved from 3.0 as of March 27, 1996, to 2.3 as of March 31, 1997.
7
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The Company has no material capital expenditure commitments as of March 31,
1997. However, the Company expects that its capital expenditures will increase
as the Company's employee base continues to grow. The Company expects to be
able to fund its working capital requirements with a combination of cash flows
from operations, normal trade credit, debt and equity financing arrangements and
continued use of lease financing.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- - Not Applicable -
ITEM 2. CHANGES IN SECURITIES
- - Not Applicable -
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- - Not Applicable -
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - Not Applicable -
ITEM 5. OTHER INFORMATION
- - Not Applicable -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None -
(b) A current report on Form 8-K was filed on March 28, 1997, reflecting
the change in fiscal year to a calendar year.
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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.
DECHTAR DIRECT INC.
Name Title Date
---- ----- ----
/S/ Terri N. Hess Chief Executive Officer May 8, 1997
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Terri N. Hess
/S/ Thomas L. Lackman President, Chief Financial May 8, 1997
- ---------------------------- Officer
Thomas L. Lackman
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