U. S. Securities and Exchange Commission
Washington, D. C. 20549
AMENDMENT NO. 1 TO FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
DITA, INC.
(Name of Small Business Issuer in its charter)
Nevada 33-0696051
- ---------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6519 Fountain Avenue, Hollywood, CA 90028
--------------------------------------------------
(Address of principal executive offices)
323-953-9565
------------------------------
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.01 par value
--------------------------------
(Title of Class)
<PAGE>
TABLE OF CONTENTS
Page
Preliminary Statement .................................................... 1
Description of Business................................................... 1
Business Development ............................................. 1
Business of the Company .......................................... 2
Products .................................................. 2
Raw Materials, Supplies and Manufacturing ................. 2
Distribution Methods ...................................... 3
Competition ............................................... 3
Advertising and Promotion ................................. 4
Dependence on Major Customers ............................. 4
Patents, Trademarks and Licenses .......................... 4
Government Approval and Regulations ....................... 4
Year 2000 Computer Problems ............................... 5
Research and Development .................................. 5
Cost of Compliance with Environmental Laws ................ 5
Seasonality ............................................... 5
Employees ................................................. 5
New Products .............................................. 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 6
Results of Operations ............................................ 6
Sales ..................................................... 6
Gross Margin .............................................. 7
Selling, General and Administrative Expenses .............. 7
Net Loss .................................................. 8
Balance Sheet Items ....................................... 8
Liquidity and Outlook ..................................... 9
Possibility of a Reverse Acquisition and
Reorganization ..................................... 10
Costs of Filing Periodic Reports .......................... 10
Properties ............................................................... 10
Security Ownership of Certain Beneficial Owners and
Management ....................................................... 11
Changes in Control ........................................ 11
Directors, Executive Officers and Control Persons ........................ 11
Executive Compensation ................................................... 13
Certain Relationships and Related Transactions ........................... 14
Description of Securities ................................................ 15
Common Stock ..................................................... 15
Voting Rights ............................................. 15
Dividend Rights ........................................... 15
Liquidation Rights ........................................ 15
Preemptive Rights ......................................... 15
ii
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Registrar and Transfer Agents ............................. 16
Dissenters' Rights ........................................ 16
Market for Common Stock and Related Stockholder Matters .................. 16
Holders .......................................................... 16
Dividends ........................................................ 17
Legal Proceedings ........................................................ 17
Recent Sales of Unregistered Securities .................................. 17
Indemnification of Directors and Officers ................................ 18
Financial Statements ..................................................... 20
iii
<PAGE>
PRELIMINARY STATEMENT
Dita, Inc. (the "Company") is filing this registration statement on a
voluntary basis under Section 12(g) of the Securities Exchange Act of 1934. Our
common stock trades in the over-the-counter market and is quoted by NASD market
makers on the OTC Bulletin Board. A recent rule change requires that all
companies whose securities are approved for quotation on the OTC Bulletin Board
must file periodic financial reports with governmental authorities such as the
Securities and Exchange Commission. The effectiveness of this registration
statement subjects the Company to the periodic reporting requirements imposed by
Section 13(a) of the Securities Exchange Act.
We will electronically file with the Commission the following periodic
reports:
o Annual reports on Form 10-KSB;
o Quarterly reports on Form 10-QSB;
o Periodic reports on Form 8-K of matters of material
interest to shareholders;
o Annual proxy statements to be sent to our shareholders in
the notices of our annual shareholders' meetings.
In addition to the above reports to be filed with the Commission, we will
prepare and send to our shareholders an annual report that will include audited
financial statements.
The public may read and copy any materials we file with the Commission at
the Commission's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. Also, the Commission
maintains an Internet site (http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers that
electronically file reports with the Commission.
DESCRIPTION OF BUSINESS
Business Development
Dita, Inc. (the "Company") was incorporated on October 3, 1995 in the State
of Nevada. Our original assets consisted of 4,572 sunglasses and sunglass
frames. We raised $185,800 in a non-registered public offering of our common
stock during the first half of 1996 and commenced the distribution of our
sunglasses. We initially operated out of offices in Dana Point, California. In
April, 1997, we moved our offices to
1
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Hollywood, California. We first had revenues from operations in 1996.
Business of the Company
The Company
o wholesales fashion sunglasses and optical frames;
o designs, markets, and distributes these products from
our Hollywood headquarters; and
o distributes our products in "high-end" optical,
boutique and department store accounts throughout the
U.S. and in Canada, Japan, New Zealand and Australia.
"High-end" refers to retailers that offer products at
the high end of the price scale in relationship to the
sunglasses market as a whole. The percentages of our
revenues attributable to sales in these countries are
approximately as follows:
o United States - 59%
o Canada - 16%
o Japan - 14%
o New Zealand and Australia - 11%.
Products
We have two principal products -
o sunglasses, and
o optical frames.
We offer our sunglasses in two ranges:
o fashion, at mid-range prices, and
o couture, at high-end prices.
We offer our optical frames in seven frame styles and each frame style in
three colors.
Raw Materials, Supplies and Manufacturing
-----------------------------------------
Our frames are 100 percent plastic. The plastic to produce the frames is
ordered by us from the Mazzucchelli factory in Italy. Mazzucchelli supplies
approximately 60 percent of the plastic for the high-end sunglass and eyeglass
brands in the world.
When our plastic orders are ready for delivery, Mazzucchelli ships the
plastic to sunglass and eyeglass manufacturers we designate. Our sunglass
products are then manufactured in China by subcontractors selected by Glance,
Inc. The optical frames
2
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are manufactured in the U.S. by Golden Gate Optical. Glance is an affiliated
company located in New York and under the control of Bendar Wu, a director of
Dita. See "Certain Relationships and Related Transactions."
The typical turnaround time for our orders is four to six months, as
follows:
o two to four months for Mazzucchelli to manufacture and
ship the plastic, and
o one-and-a-half to two months for the assembly of the
frames.
Four months is the longest period of time Mazzucchelli has taken to manufacture
and ship to assemblers the plastic we ordered. Despite its slowness in delivery
of plastic, Mazzucchelli is dependable.
We purchase more than 90 percent of our sunglass lenses from Glance as part
of the frame that is assembled in China, or we purchase the frames from Glance
without a lens and purchase the lens from either of two separate lens
manufacturers. The sunglass lens manufacturers that we buy from are Sola in
Florida, from whom we usually purchase directly from their stock, and Christian
Dalloz in France, from whom we purchase both from stock and on special order.
Distribution Methods
We distribute our products through independent contractors:
o Planet 3 Australais, in New Zealand and Australia;
o Levante, in Japan;
o Overdrive, in Canada; and
o Paul Baltiste, Jeff Chiuminatto, and Steven Choen,
independent contracts in the U.S. who work under the
direction of our in-house sales manager and of our
president, Troy Schmidt.
The international distributors are responsible for all aspects of sales and
marketing in their respective territories. They each manage their own inventory,
warranty, billings, sales and customer service departments.
Competition
-----------
The fashion optical industry is highly competitive. Well- known designer
brands such as Bausch & Lomb, Luxottica and Bolla occupy a majority of the
sunglass market. We believe that the demand for optical frames has somewhat
deteriorated due to the development of corrective laser eye surgery.
3
<PAGE>
Dita holds a special niche in the optical and sunglass market. We have
established an upscale image of fashion and innovative style at prices that are
aggressively competitive. We offer, for $100 to $200 at retail, sunglasses that
are comparable in style, quality and image to those of the leading brands that
are offered at $250 to $400 at retail. We offer optical glasses for $180 to $221
at retail that are comparable in style, quality and image to those of the
leading brands that are offered at $180 to $400 at retail.
Advertising and Promotion
-------------------------
The market we target and sell to consists of fashion-forward men and women
between the ages of 19 and 35 with average household incomes from $40,000 and
up. We estimate that 65% of our products are purchased by women and 35% by men.
Our average customer is very concerned about fashion and usually somewhat
educated about current fashion. Our designs are usually more forward than some
of our competitors, and the wearer is usually more forward in the manner in
which she or he dresses.
All our advertising and promotional materials employ striking,
fashion-forward and edgy photography to project our image.
We price our products significantly lower than our competitors do. Yet, our
quality, image and design are comparable - and sometimes better - than the
leaders in the sunglass industry.
We design our sunglasses to be extremely wearable, yet still fashionable.
Our philosophy is to give the average consumer of designer products a sunglass
product that is fashionable, yet suitable for everyday use, at a price that is
most competitive. We protect our upscale image by limiting the retail
distribution of our sunglasses to the high-end boutiques and outlets where
sunglasses are sold.
Dependence on Major Customers
-----------------------------
We are not dependent on any major customers in the U.S. However,
approximately 41 percent of our sales are international sales and are divided
among three customers - Planet 3 in Australia and New Zealand - 11 percent,
Levante in Japan - 14 percent, and Overdrive in Canada - 16 percent.
Patents, Trademarks and Licenses
--------------------------------
We have registered the trademark "Dita" in the U.S. and internationally.
Government Approval and Regulations
-----------------------------------
We need no governmental approval for the design and marketing of sunglasses
made for us by manufacturing companies.
4
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We are not aware of any proposed governmental regulations that would affect our
operations.
Year 2000 Computer Problems
---------------------------
We have determined that we do not face material costs, problems or
uncertainties about the year 2000 computer problem. This problem affects many
companies and organizations and stems from the fact that many existing computer
programs use only two digits to identify a year in the date field and do not
consider the impact of the year 2000. We are newly organized, use off- the-shelf
and easily replaceable software programs, and have yet to devise our own
software programs.
We have been advised by our manufacturers that they are Year 2000
compliant. Our worst-case scenario would be that they are not Year 2000
compliant and they would not be able to access information concerning our orders
or concerning their own suppliers. Our computer system backs up all data every
night. We can provide our manufacturers with all information concerning our
orders on a moment's notice. As for a manufacturer's inability to access
information concerning its suppliers, we would have to wait for this problem to
be solved by the manufacturer or its suppliers. Should a significant delay
become apparent, we would replace our order with a different manufacturer.
Our contingency plans are to produce manual invoices and packing slips, if
these are needed, and to shift our orders to other sunglass and optical glass
manufacturers if necessary and if the plastic produced for us by Mazzucchelli is
able to be diverted to other manufacturers.
Research and Development
------------------------
We expended approximately $10,000 in 1998 researching new materials for
sunglass frames.
Cost of Compliance with Environmental Laws
------------------------------------------
There are no environmental laws that impact our operations of designing,
marketing and distributing sunglasses made for us by manufacturing companies.
Seasonality
-----------
Our sales of sunglasses in the U.S., Canada and Japan are 50 to 100 percent
higher in the period from March to September. Sales are 50 to 100 percent higher
in New Zealand and Australia in the period from September to March.
Employees
---------
We employ seven persons full time. We have no part-time employees.
5
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New Products
------------
We have designed a new handbag line that we propose to offer to our
sunglass accounts. We are currently talking to several manufacturers about their
producing our line. We are also seeking a source of capital to finance such
production, but we have not located the capital. As an alternative to our
raising capital to enable us to contract out the production of our handbag line,
we are also seeking a partnership with a handbag manufacturer that would produce
the handbags with our "Dita" trade name on them and for us to distribute in the
markets we have established for our sunglasses and optical glasses. We have not
located or identified such a prospective partner.
We have no time frame for the commercialization of our handbag line.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table presents, as a percentage of sales, certain selected
financial data for the two fiscal years ended February 28, 1999 and for the
three-month periods ended May 31, 1998 and May 31, 1999:
<TABLE>
<CAPTION>
Year Ended 2-28 3-Mos. Ended 5-31
1998 1999 1998 1999
--------------------- ---------------------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 48.2 47.2 45.4 43.1
----- ----- ----- -----
Gross margin 51.8 52.8 54.6 56.9
Selling, general and
administrative
expenses 65.5 73.9 41.7 58.1
----- ----- ----- -----
Net income (loss) (13.7) (21.1) 12.9 (1.2)
</TABLE>
Sales
-----
Sales increased from $709,591 in the fiscal year ended February 28, 1998 to
$882,921 in the fiscal year ended February 28, 1999, an increase of 24.4
percent. The increase in sales was attributable to an increased advertising
budget and the addition of a line of prescription glasses.
We are not exposed to currency risks with regard to our international
sales, which account for approximately 41 percent of our sales. All our
contracts are expressed in U.S. dollars and require payment in U.S. dollars.
However, we generally discount our prices by approximately 15 percent for sales
made to Australia and New Zealand, due to the high price our distributor there
has to pay for the U.S. dollar and due to high sales taxes in effect there. This
results in a lower gross margin on sales made there than on sales in Japan,
Canada and the U.S.
6
<PAGE>
Interim results.
---------------
Sales decreased 11.4 percent from $326,339 in the three-month period
ended May 31, 1998 (Q1 1999) to $289,286 in the three-month period ended May 31,
1999 (Q1 2000). The reason for the decrease was a late start for summer weather
in the U.S. in 1999. March is usually the kick-off month for summer sunglass
sales, but cool weather continued in most of the U.S. until April 1999. March
sales in 1998 were $101,970, as compared to sales of only $45,434 in March 1999.
Gross Margin
------------
Gross margin improved from $367,419, or 51.8 percent of sales, in fiscal
year 1998 to $465,889, or 52.8 percent of sales, in fiscal year 1999, an
improvement of 1.0 percent. This improvement is attributed to the better margin
we receive on our added line of prescription glasses.
Interim results.
---------------
Gross margin improved from $178,185, or 54.6 percent of sales in Q1
1999 to $164,598, or 56.9 percent of sales, in Q1 2000, an improvement of 2.3
percent. This improvement is attributed by management to a slight reduction in
the inventory carrying costs we pay to Glance, Inc. by reason of an improvement
in our payment history with regard to Glance, Inc.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses increased from $465,069 in
fiscal year 1998, or 65.5 percent of sales, to $652,159 in fiscal year 1999, or
73.9 percent of sales. The increase is due primarily to -
o an increase of $54,728 in commissions from $58,553 or 8.3 percent
of sales to $113,281 or 12.8 percent of sales - a 93.5 percent
increase, of which increase approximately $42,000 was
attributable to the addition of a new sales representative;
o an increase of $49,443 in photography, graphics and video
expenses from $1,230 or 0.2 percent of sales in fiscal 1998 to
$50,673 or 5.7 percent of sales in fiscal 1999, the increase
being related to a new print advertising campaign;
o an increase of $15,160 in travel and entertainment from only $179
in fiscal 1998 to $15,339 or 1.7 percent of sales in fiscal 1999
and reflecting increased travel by our president to trade shows;
o an increase of $18,312 in freight out from $7,170 or one percent
of sales in fiscal 1998 to $25,482 or 2.9 percent of sales in
fiscal 1999 - a 255 percent increase, the increase being
attributable to the 24.4 percent increase in sales, and
7
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o an increase of $13,855 in interest expense from $1,832 or 0.3
percent of sales in fiscal 1998 to $15,687 or 1.8 percent of
sales in fiscal 1999, the increase being attributable to our line
of credit and interest payments to Glance, Inc. on outstanding
accounts payable.
Interim results.
---------------
Selling, general and administrative expenses increased by $32,036 from
$136,017, or 41.7 percent of sales, in Q1 1999 to $168,053, or 58.1 percent of
sales in Q1 2000. The increase is due primarily to -
o an increase of $41,334 in advertising expense from $2,494 or 0.8
percent of sales in Q1 1999 to $43,828 or 15.2 percent of sales
in Q1 2000; and
o an increase of $4,996 in travel and entertainment from $1,471 or
0.5 percent of sales in Q1 1999 to $6,467 or 2.2 percent of sales
in Q1 2000; which increases were offset by
o a decrease of $19,259 in sales commissions from $36,055 or 11.2
percent of sales in Q1 1999 to $16,796 or 5.8 percent of sales in
Q1 2000.
Net Loss
--------
We had a net loss from operations in fiscal year 1998 of $97,650, or $0.04
a share of our common stock. In fiscal year 1999 we had a net loss from
operations of $186,270, or $0.06 a share of common stock. This deepening loss -
despite an increase of 24.4 percent in sales - is attributed by management
primarily to increases of $122,646 we made in marketing and advertising
expenses.
Interim results.
---------------
We had net income from operations of $42,168 during Q1 1999 but a net
loss from operations of $3,455 on 11.4 percent less sales during Q1 2000. An
increase in advertising expense from $2,494 to $43,828 accounts for more than
the difference. The advertising increase reflects the decision of management to
increase consumer awareness of our brands, particularly in new markets.
Balance Sheet Items
-------------------
Despite a loss from operations of $186,270 for the fiscal year ended
February 28, 1999, stockholders' equity increased by $13,730 from $63,313 at the
end of fiscal year 1998 to $77,043 at the end of fiscal year 1999. The increase
is attributed entirely to the sale of $200,000 in common stock during the last
fiscal year. Our cash position improved from $17,806 to $121,516 at the end of
fiscal year 1999, but $55,000 of this cash was held in a savings account as
collateral for a $55,000 line of credit with our bank. Accounts receivable
improved slightly from $111,745 to
8
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$71,249 while inventory increased from $64,721 to $71,587 at the end of fiscal
year 1999.
Interim balance sheet items.
---------------------------
During the three months ended May 31, 1999, our accounts receivable
have increased by $78,929 from $71,249 at fiscal year-end to $150,178 and our
accounts payable and accrued expenses have increased by $79,300 from $209,578 at
fiscal year-end to $288,878. A cash position of $121,516 at fiscal year-end on
February 28, 1999 was reduced to $68,540 by May 31, 1999, but inventory was
increased from $71,587 at fiscal year-end to $115,831 on May 31, 1999.
Stockholders' equity of $77,043 at fiscal year-end was reduced by $3,455 in net
operating loss to $73,588 on May 31, 1999.
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 essentially covered our $97,650 loss
from operations in fiscal 1998 by the sale of $100,000 in capital stock, and 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, in contrast to our
having only $17,806 cash in the bank at the end of fiscal 1998.
By the end of the first quarter of fiscal 2000 (May 31, 1999) our cash
position had fallen to $68,540 from $121,516 at the end of fiscal 1999. Our net
loss from operations was only $3,455 during Q1 2000, but we increased our
inventory by $44,244 and repaid debt of $6,200 to officers and $14,000 on our
bank line of credit. Our accounts receivable and accounts payable in Q1 2000
virtually cancelled each other - accounts receivable increased by $78,929, and
accounts payable increased by $79,582.
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
9
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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 have recently obtained a bank line of credit of
$45,000. We are 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.
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.
Possibility of a Reverse Acquisition and Reorganization
-------------------------------------------------------
We have been approached by two development-stage companies that are
interested in acquiring our corporate shell. Each proposes that our present
sunglasses business either be spunoff to our shareholders or sold, leaving the
company as a trading public shell. Our management is open to the proposals but
not at this time. Neither 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.
Costs of Filing Periodic Reports
--------------------------------
The filing of this Form 10-SB registration statement subjects the Company
to certain requirements of the Exchange Act of 1934. These requirements include
the filing of an annual report on the Company's business, which must include
audited financial statements; quarterly reports, which must include unaudited
interim financial statements; and periodic reports of certain material events of
which investors should be made aware. Legal and accounting expertise are
required to prepare these reports. The Company's president prepares unaudited
financial statements for the Company. The services of the Company's securities
law attorney and the annual auditor's services must be paid for in cash. Should
cash not be available to pay for these legal and auditor's services, the Company
will have to borrow these needed funds from sources not yet identified.
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<PAGE>
PROPERTIES
We lease approximately 2,600 square feet of office and warehouse space in
Hollywood, California for a monthly rental of $2,205. The lease expires October
14, 1999.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of June 30, 1999, the number of shares of
Common Stock of the Company beneficially owned by each officer and director of
the Company, individually and as a group, and by each person known to the
Company to be the beneficial owner of more than five percent of the Common
Stock.
<TABLE>
<CAPTION>
Number of
Shares of
Name and Address Common Stock Percent
--------------------- -------------- ---------
<S> <C> <C>
Bendar Wu 650,000 20.7
384 East Shore Road
Great Neck, NJ 11024
Troy Schmidt 325,000 10.4
942 Alandale Avenue
Los Angeles, CA 90036
Jeff Solorio 576,000 18.4
336 North Sycamore Avenue
Los Angeles, CA 90036
Micky Dhillon(1) 400,000 12.7
6 Liberty
Aliso Viejo, CA 92656
John Juniper 576,000 18.4
336 North Sycamore Avenue
Los Angeles, CA 90036
Officers and Directors 2,527,000 80.5
as a group (5 persons)
-------------------------
</TABLE>
(1) These shares are owned of record by the Micky Dhillon Trust,
which is under the control of Micky Dhillon.
Changes in Control
There are no arrangements which may result in a change in control of the
Company.
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
The Company's directors, officers and significant employees occupying
executive officer positions, their ages as of June 30,
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1999, the directors' terms of office and the period each director has served are
set forth in the following table:
<TABLE>
<CAPTION>
Director's
Director Term
Person Positions and Offices Since Expires
- ------------------ ---------------------- -------- ----------
<S> <C> <C>
Bendar Wu, 53 Chairman of the Board 1996 1999
of Directors
Troy Schmidt, 33 President and Director 1996 1999
Jeff Solorio, 29 Secretary, Director of 1996 1999
Operations, and Director
Micky Dhillon, 33 Director 1998 1999
John Juniper, 29 Director of Marketing, and 1996 1999
Director
</TABLE>
BENDAR WU.
---------
Mr. Wu has been in the optical industry for over 23 years as a distributor
or manufacturer. Mr. Wu is the founder, owner and is the president of Glance
Eyewear, a worldwide distributor of eyewear with annual sales exceeding $20
million. The company has been in business for over fifteen years. Glance has
manufactured eyewear for companies such as J. Crew, Limited and Nordstrom. Mr.
Wu received a law decree in Taiwan at Soo Chow University and an MBA from Wager
College in New York.
TROY SCHMIDT.
------------
For five years prior to starting Dita, Inc., Mr. Schmidt managed a better
than $53 million real estate portfolio owned by Ox Pierside Corporation, Haseko
Marina Development Inc., Shin-Ei Corporation and Echo Usa. Mr. Schmidt has
extensive experience in financial management including budgeting, accounting and
cash flow management, implementation of expense minimization procedures,
collection and collection- related litigation, inventory control, financial
reporting and supervision of investment and operation accounts. Mr. Schmidt
received a degree in business management with an emphasis in finance from Point
Loma Nazarene College in 1990. Over the last three and a half years Mr. Schmidt
has acted as a director and president of Dita, Inc. Mr. Schmidt's
responsibilities include financial management, supervision of the Dita staff,
corporation direction, product, pricing, securing new investment and alternative
sources of cash flow to fund growth, overseeing all company operations, product
development and design, and management of both domestic sales and of
international sales.
JEFF SOLORIO.
------------
Prior to starting Dita Mr. Solorio founded a marketing firm, Hollywood died
Independence. Mr. Solorio acted as president of Hollywood died Independence for
three years and produced creative marketing materials for companies such as
Rusty, Capital Distribution (Spare, Ezekiel, Blond) and Herbie Fletcher. Mr.
Solorio also provided film production and other marketing materials for action
sports related companies such as Rusty, Morrow Snowboards, Purged Snowboards,
Lib-Tech, Herbie
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<PAGE>
Fletcher, Capital Distribution, Black Flys and Arnet. Mr. Solorio's marketing
and promotional work has won several industry awards. Over the last three and a
half years Mr. Solorio has acted as a director and vice president of operations
of Dita, Inc. Mr. Solorio's duties at Dita include inventory management, product
development and design, processing of accounts payable, management of warehouse
staff, processing of payroll and pricing.
MICKY DHILLON.
-------------
Mr. Dhillon is the founder of, and has been the chairman of the board of
directors and chief executive officer of, Main Street Trading Company for the
past eight years. Main Street Trading Company is a privately held, Mission
Viejo, California based, retail commodities brokerage firm with more than 260
employees. Mr. Dhillon provides guidance to the directors with respect to
financial growth, cash flow management and new sources of funding.
JOHN JUNIPER.
------------
Prior to joining Dita, Mr. Juniper was employed by Crown Distribution and
was responsible for creating and implementing marketing programs and sales
materials for Crown Distribution's family of companies, which included Purged
Snowboards, BPS Binding Company, Mantle Snowboards, 1159 Snowboards, Dynamics
Sled Manufacturing and Holly Grail Productions. Mr. Juniper's responsibilities
included all advertising concepts, design and layout of advertisements,
selection of models, photographers, cinematographers, graphic artists,
photography and coordination of media publication advertisements. He produced
over 150 full-page color advertisements and editorials in both national and
international publications in a twelve-month period. In addition, Mr. Juniper is
a freelance photographer and has worked with action sports companies including
Morrow Snowboards, Black Flys, Evol Casuals, Blond, Spare, Ezekiel, Original Sin
and Rusty Clothes. Over the last three and a half years Mr. Juniper has acted as
a director and vice president of marketing for Dita, Inc. Mr. Juniper's duties
at Dita as marketing director include development of annual advertising
campaigns, selection of photographers, models, stylists, hair and makeup
artists, development of company catalogs, print and outdoor ads, selection of
graphic artists and development of all mailers, trade show invitations, public
relations and product development and design.
EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation during fiscal years 1996,
1997 and 1998 of the chief executive officer of the Company. During the period,
no executive officer of the Company received compensation that exceeded
$100,000.
13
<PAGE>
<TABLE>
<CAPTION>
Fiscal Annual Other
Name Year Salary Compensation
-------------- -------- --------- ------------
<S> <C> <C> <C>
Troy Schmidt, 1998 $45,000 None
President
1997 $45,000 None
1996 $45,000 None
</TABLE>
During the last three fiscal years, no executive officer of the Company has
been granted stock options or stock appreciation rights and no executive officer
has been granted stock in exchange for services. The Company has no long-term
incentive plan intended to serve as incentive for performance.
Directors of the Company receive no compensation for their services as
directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We buy a substantial portion of our inventory from Glance, Inc., a
manufacturing company under the direction of and owned by Bendar Wu, a director
and major stockholder of the Company. Due to our lack of sufficient capital to
pay for inventory and then warehouse it, Glance, Inc. manufactures our sunglass
orders in China, pays for the product when it arrives in the U.S. and warehouses
the product for us until the product is needed.
When we need the product, we place orders for it with Glance. Glance ships
the product to us and bills us net, 30 days for each invoice. In exchange for
Glance's funding and warehousing these inventories, Glance charges us a premium.
This premium increases our cost of goods sold from 20 to 30 percent above
industry standard. Our purchases from Glance in fiscal year 1998 were $294,082
and in fiscal year 1999 were $313,746. Our accounts payable and accrued expenses
owed to Glance at fiscal year-end 1998 were $106,154 and at fiscal year-end 1999
were $131,162. The interest rate we pay on outstanding payable balances to
Glance is nine percent a month.
Mr. Bendar Wu advises us that he has no economic interest in any of the
manufacturers he chooses to manufacture sunglasses or frames. He further advises
us that his dealings with such manufacturers are at arm's length and do not
involve any rebate to him of the amounts paid them for their manufacturing
efforts.
These transactions with Glance are as fair to us as we could make with an
unaffiliated party. Leading manufacturers of eyewear advise us that we cannot
get comparable terms anywhere.
In 1997 we obtained $102,000 in equity capital from Bendar Wu, the chairman
of our board of directors then and now. He purchased 425,000 shares of our
common stock at a price of $0.24 a share. At the time of the transaction, our
common stock was trading only sporadically and in a price range of $0.25 to
14
<PAGE>
$0.5625. He was given a discount from the market price due to the fact that he
was purchasing "restricted securities" and could not transfer them for value for
one year. We could not have sold these securities to any other person we knew at
that time.
In 1998 we obtained $200,000 in equity capital from Micky Dhillon, an owner
of a commodities market brokerage firm and a friend of two of our officers and
directors, Jeff Solorio and John Juniper. Mr. Dhillon purchased 400,000 shares
of our common stock at a price of $0.50 a share, which price was above the
prevailing market price. Mr. Dhillon agreed to pay this premium under the
condition that he be elected a director of the company and under the assumption
that his purchase of 400,000 shares in the open market would cause the stock to
jump to a price far higher than $0.50 a share.
DESCRIPTION OF SECURITIES
The Company is authorized to issue ten million shares of Common Stock
($0.01 par value). The presently outstanding shares of Common Stock are fully
paid and nonassessable.
Common Stock
Voting Rights
-------------
Holders of shares of Common Stock have one vote a share on all matters
submitted to a vote of the shareholders. Shares of Common Stock do not have
cumulative voting rights, which means that the holders of a majority of the
shareholder votes eligible to vote and voting for the election of the board of
directors can elect all members of the board of directors.
Dividend Rights
---------------
Holders of record of shares of Common Stock receive dividends when and if
declared by the board of directors out of funds of the Company legally available
therefor.
Liquidation Rights
------------------
Upon any liquidation, dissolution or winding up of the Company, holders of
shares of Common Stock receive pro rata all of the assets of the Company
available for distribution to shareholders after distributions are made to the
holders of the Company's Preferred Stock.
Preemptive Rights
-----------------
Holders of Common Stock do not have any preemptive rights to subscribe for
or to purchase any stock, obligations or other securities of the Company.
15
<PAGE>
Registrar and Transfer Agent
----------------------------
The Company's registrar and transfer agent is Nevada Agency and Trust
Company, 50 West Liberty Street, Suite 880, Reno, Nevada 87501.
Dissenters' Rights
------------------
Under current Nevada law, a shareholder is afforded dissenters' rights
which, if properly exercised, may require the Company to purchase his shares.
Dissenters' rights commonly arise in extraordinary transactions such as mergers,
consolidations, reorganizations, substantial asset sales, liquidating
distributions, and certain amendments to the Company's Certificate of
Incorporation.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the OTC Bulletin Board. Its symbol
is "DITA."
During the last two fiscal years and the subsequent interim period for
which financial statements are provided, the range of high and low bid
information for our Common Stock is set forth below. The source of this
information is the OTC Bulletin Board. The quotations reflect inter-dealer
prices without markup, markdown or commissions and may not represent actual
transactions.
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
1997
---- 1st Qtr. 0.5625 0.25
2nd Qtr. 0.34375 0.3125
3rd Qtr. 0.3125 0.28125
4th Qtr. 0.28125 0.1875
1998
1st Qtr. 0.1875 0.1875
2nd Qtr. 0.21875 0.1875
3rd Qtr. 0.21875 0.15625
4th Qtr. 0.1563 0.1563
1999
1st Qtr. 1.7500 0.0900
2nd Qtr. 1.0000 0.5000
</TABLE>
On June 30, 1999 there were 3,142,530 shares of Common Stock outstanding.
No shares are subject to outstanding options to purchase, or securities
convertible into, such shares of stock.
Holders
As of June 30, 1999 there were approximately thirty-three holders of record
of our Common Stock. Some 476,650 shares of
16
<PAGE>
Common Stock are held in brokerage accounts under the record name of "Cede &
Co."
Dividends
We have paid no dividends to our stockholders and do not plan to pay
dividends on our Common Stock in the foreseeable future. We currently intend to
retain any earnings to finance future growth.
LEGAL PROCEEDINGS
Neither the Company nor our property is a party to any pending legal
proceeding or any known proceeding that a governmental authority is
contemplating.
RECENT SALES OF UNREGISTERED SECURITIES
During the past three years the Company sold 825,000 shares of our Common
Stock in two transactions exempt from registration pursuant to the provisions of
Regulation D, Rule 506 of the Securities and Exchange Commission. No
underwriters were used to effect the sales. The names of the persons who bought
the shares of stock, the dates the shares sold, the number of shares issued and
the price paid in cash for the shares are as follows:
<TABLE>
<CAPTION>
No. of Price
Shares per
Person Date Issued Share
--------------- -------- -------- -----
<S> <C> <C> <C>
Micky Dhillon 7-28-98 400,000 $0.50
Bendar Wu 4-21-97 425,000 $0.24
</TABLE>
Both of the above persons had a preexisting relationship with our Company.
Micky Dhillon was an acquaintance of Jeff Solorio and John Juniper, officers and
directors of the Company, and had followed the Company's progress for some time.
Bendar Wu, at the time of the above purchase, was already a significant
shareholder of the Company and was chairman of the board of directors of the
Company.
Both of the above persons are sophisticated investors within the meaning of
the Commission's Rule 506(b)(2)(ii). Both are "accredited investors" within the
meaning of Rule 501 of Regulation D.
With regard to the above transactions, Dita furnished to Mr. Dhillon
financial statements, a description of our business, a business plan,
information concerning the directors and officers of Dita and other information
required by Rule 502(b) of Regulation D.
17
<PAGE>
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Nevada corporation law, a corporation is authorized to indemnify
officers, directors, employees and agents who are made or threatened to be made
parties to any civil, criminal, administrative or investigative suit or
proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same capacity
for another entity at the request of the corporation. Such indemnification
includes expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such persons if they acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation or, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful.
In the case of any action or suit by or in the right of the corporation
against such persons, the corporation is authorized to provide similar
indemnification, provided that, should any such persons be adjudged to be liable
for negligence or misconduct in the performance of duties to the corporation,
the court conducting the proceeding must determine that such persons are
nevertheless fairly and reasonably entitled to indemnification. To the extent
any such persons are successful on the merits in defense of any such action,
suit or proceeding, Nevada law provides that they shall be indemnified against
reasonable expenses, including attorney fees.
A corporation is authorized to advance anticipated expenses for such suits
or proceedings upon an undertaking by the person to whom such advance is made to
repay such advances if it is ultimately determined that such person is not
entitled to be indemnified by the corporation.
Indemnification and payment of expenses provided by Nevada law are not
deemed exclusive of any other rights by which an officer, director, employee or
agent may seek indemnification or payment of expenses or may be entitled to
under any by-law, agreement, or vote of shareholders or disinterested directors.
In such regard, a Nevada corporation is empowered to, and may, purchase and
maintain liability insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation. As a result of such corporation
law, the Company may, at some future time, be legally obligated to pay judgments
(including amounts paid in settlement) and expenses in regard to civil or
criminal suits or proceedings brought against one or more of its officers,
directors, employees or agents.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
18
<PAGE>
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable.
19
<PAGE>
FINANCIAL STATEMENTS
There appears below the following financial statements of the Company:
Independent accountant's report ........................................ F-1
Balance Sheets at February 28, 1999 and at
February 28, 1998 and (unaudited)
at May 31, 1999................................................. F-2
Statements of Operations for the Years Ended
February 28, 1999 and February 28,
1998 and (unaudited) for the three months
ended May 31, 1999 and May 31, 1998 ............................ F-3
Statements of Changes in Stockholders' Equity for
the Years Ended in February 28, 1999 and
February 28, 1998 and (unaudited) for the
three months ended May 31, 1999 ............................... F-4
Statements of Cash Flows for the Years Ended
February 28, 1999 and February 28,
1998 and (unaudited) for the three months
ended May 31, 1999 and May 31, 1998 ............................ F-5
Notes to Financial Statements for the years ended
February 28, 1999 and February 28, 1998 ........................ F-6
20
<PAGE>
STONEFIELD JOSEPHSON, INC.
1620 26th Street, Suite 400 South
Santa Monica, CA 90404
(310) 453-9400
Board of Directors
Dita, Inc.
Hollywood, California
We have audited the accompanying balance sheets of Dita, Inc. as of February 28,
1999 and 1998, and the related statements of operations, stockholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dita, Inc. as of February 28,
1999 and 1998, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ Stonefield Josephson, Inc.
Santa Monica, California
July 16, 1999
F-1
<PAGE>
DITA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
May 31, February 28,
ASSETS 1999 1999 1998
---- ---- ----
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 12,394 $ 65,822 $ 17,806
Cash - restricted 56,146 55,694 -
Accounts receivable - trade, net of allowance for
doubtful accounts of $37,160 and 18,123, respectively 150,178 71,249 111,745
Inventory 115,831 71,587 64,721
Prepaid expenses 2,163 20,103 1,050
---------- ----------- ----------
Total current assets 336,712 284,455 195,322
Property and equipment, net of
accumulated depreciation and amortization 90,133 87,732 70,261
Other assets 2,434 2,434 4,161
---------- ----------- ----------
$ 429,279 $ 374,621 $ 269,744
========== ===========---==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 288,878 $ 209,578 $ 151,705
Advances from officers-stockholders 30,331 36,531 28,518
Note payable, bank 5,000 19,000 -
Current maturities of obligations under capital lease 13,613 14,600 7,450
---------- ----------- ----------
Total current liabilities 337,822 279,709 187,673
---------- ----------- ----------
Obligations under capital lease, less current maturities 17,869 17,869 18,758
---------- ----------- ----------
Stockholders' equity:
Common stock; $.01 par value, 10,000,000 shares
authorized, 3,140,000 and 2,740,000 shares issued
and outstanding, respectively 31,400 31,400 27,400
Additional paid-in capital 613,339 613,339 417,339
Deficit (571,151) (567,696) (381,426)
---------- ----------- ----------
Total stockholders' equity 73,588 77,043 63,313
---------- ----------- ----------
$ 429,279 $ 374,621 $ 269,744
========== =========== ==========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
F-2
<PAGE>
DITA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Three months ended Year ended Year ended
May 31, 1999 May 31, 1998 February 28, 1999 February 28, 1998
--------------------- ---------------------- -------------------- ----------------------
Amount Percent Amount Percent Amount Percent Amount Percent
-------- -------- -------- ------- -------- -------- -------- ---------
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 289,286 100.0% $ 326,339 100.0% $ 882,921 100.0% $ 709,591 100.0%
Cost of sales 124,688 43.1 148,154 45.4 417,032 47.2 342,172 48.2
----------- ------- ----------- ------ ----------- ------ ---------- ---------
Gross profit 164,598 56.9 178,185 54.6 465,889 52.8 367,419 51.8
Operating expenses 168,053 58.1 136,017 41.7 652,159 73.9 465,069 65.5
----------- ------- ----------- ------ ----------- ------ ---------- ---------
Net income (loss) $ (3,455) (1.2)% $ 42,168 12.9% $ (186,270) (21.1)% $ (97,650) (13.7)%
=========== ======= =========== ====== =========== ====== =========== =========
Net income (loss) per share -
basic and diluted $ - $ 0.02 $ (0.06) $ (0.04)
=========== =========== =========== ===========
Weighted average shares outstanding -
basic and diluted 3,140,000 2,740,000 2,980,000 2,623,311
=========== =========== =========== ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
F-3
<PAGE>
DITA, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
Common stock Additional Total
---------------------- paid-in stockholders'
Shares Amount capital Deficit equity
-------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at February 28, 1997 2,040,000 $ 20,400 $ 321,589 $ (283,776) $ 58,213
Issuance of common stock for
services previously provided 275,000 2,750 2,750
Issuance of common stock 425,000 4,250 95,750 100,000
Net loss for the year ended
February 28, 1998 (97,650) (97,650)
---------- --------- ---------- ---------- ---------
Balance at February 28, 1998 2,740,000 27,400 417,339 (381,426) 63,313
Issuance of common stock 400,000 4,000 196,000 200,000
Net loss for the year ended
February 28, 1999 (186,270) (186,270)
---------- --------- ---------- ---------- ---------
Balance at February 28, 1999 3,140,000 31,400 613,339 (567,696) 77,043
Net loss for the three months
ended May 31, 1999 (unaudited) (3,455) (3,455)
---------- --------- ---------- ---------- ---------
Balance at May 31, 1999 (unaudited) 3,140,000 $ 31,400 $ 613,339 $ (571,151) $ 73,588
========== ========= ========== ========== =========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
F-4
<PAGE>
DITA, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Three months ended May 31, Years ended February 28,
---------------------------- ---------------------------
1999 1998 1999 1998
----------- ---------- ------------ ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows provided by (used for)
operating activities:
Net income (loss) $ (3,455) $ 42,168 $ (186,270) $ (97,650)
----------- ---------- ------------ ----------
Adjustments to reconcile net loss to net
cash provided by (used for) operating
activities:
Depreciation and amortization - - 22,249 $ 10,928
Provision for doubtful accounts - 2,062 35,827 28,248
Other - - - 2,750
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (78,929) (67,686) 4,669 (75,126)
Inventory (44,244) (17,477) (6,866) (3,041)
Prepaid expenses 17,940 (4,599) (19,053) (542)
Increase (decrease) in liabilities -
accounts payable and accrued expenses 79,582 42,436 52,354 87,377
----------- ---------- ------------ ----------
Total adjustments (25,651) (45,264) 89,180 50,594
----------- ---------- ------------ ----------
Net cash used for operating
activities (29,106) (3,096) (97,090) (47,056)
----------- ---------- ------------ ----------
Cash flows used for investing activities:
Acquisition of property and equipment (2,400) (55) (22,761) (34,069)
Increase in other assets - - - (1,340)
----------- ---------- ------------ ----------
Net cash used for investing
activities (2,400) (55) (22,761) (35,409)
----------- ---------- ------------ ----------
Cash flows provided by (used for)
financing activities:
(Payments on) advances from
officer-stockholders (6,200) (495) 8,013 (759)
(Payments on) proceeds from
note payable, bank (14,000) - 19,000 -
(Payments on) proceeds from other
current liabilities (283) - 5,519 -
(Payments on) obligations under
capital lease (987) (3,073) (8,971) -
Proceeds from issuance of common stock - - 200,000 100,000
----------- ---------- ------------ ----------
Net cash provided by financing
activities (21,470) (3,568) 223,561 99,241
----------- ---------- ------------ ----------
Net increase (decrease) in cash (53,428) (6,719) 48,016 16,776
Net increase in cash - reserve 452 - 55,694 -
Cash, beginning of year 121,516 17,806 17,806 1,030
----------- ---------- ------------ ----------
Cash, end of year $ 68,540 $ 11,087 $ 121,516 $ 17,806
=========== ========== ============ ==========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
F-5
<PAGE>
DITA, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Three months ended May 31, Years ended February 28,
-------------------------- ------------------------
1999 1998 1999 1998
----------- ---------- ----------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow
information:
Income taxes paid $ - $ - $ 800 $ 1,723
=========== ========== ============ ==========
Interest paid $ 5,044 $ 1,832 $ 14,870 $ 1,832
=========== ========== ============ ==========
Supplemental disclosure of non-cash
financing activities:
Capital lease obligation incurred for use of
equipment $ - $ - $ 15,232 $ 26,208
=========== ========== ============ ==========
Common stock issuance to officers for
prior service $ - $ - $ - $ 2,750
=========== ========== ============ ==========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
F-6
<PAGE>
DITA, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1999 AND 1998
(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.
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).
See accompanying independent auditors' report.
F-7
<PAGE>
DITA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1999 AND 1998
(1) Summary of Significant Accounting Policies, Continued:
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 May 31, 1999, and the
results of operations and cash flows for the three month periods
ended May 31, 1999 and 1998 have been included. The results of
operations for the three month period ended May 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.
(2) Property and Equipment:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Display cases $ 73,854 $ 51,092
Computers and software 34,939 27,132
Furniture and fixtures 9,670 2,246
------------ ----------
118,463 80,470
Less accumulated depreciation and amortization 30,731 10,209
------------ ----------
$ 87,732 $ 70,261
============ ==========
</TABLE>
(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.
See accompanying independent auditors' report.
F-8
<PAGE>
DITA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1999 AND 1998
(4) Note Payable, Bank:
The Company has a line of credit with its bank in the amount of $55,000
and is 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:
<TABLE>
<CAPTION>
Year ending February 28,
<S> <C>
2000 $ 14,600
2001 16,431
2002 1,438
------------
Present value of minimum lease payments 32,469
Less current maturities 14,600
------------
$ 17,869
============
</TABLE>
Interest expense for the year ended February 28, 1999 amounted to $3,492.
(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
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 and 1998 was $313,746 and
$294,082, respectively. Accounts payable and accrued expenses at February
28, 1999 and 1998 include $131,162 and $106,154 payable to this supplier,
respectively. The Company also pays interest on outstanding accounts
payable balances at a rate of 9% per year to this related party.
See accompanying independent auditors' report.
F-9
<PAGE>
DITA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1999 AND 1998
(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:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net operating loss carryforwards $ 226,548 $ 152,400
Valuation allowance (226,548) (152,400)
------------ ----------
Net deferred taxes $ - $ -
============ ==========
</TABLE>
(9) Subsequent Event:
The Company is in the process of negotiating to sell its corporate shell
to a third party. As of July 16, 1999, no negotiations have been
finalized. Upon completion of the proposed sale, the Company will
reorganize and continue to operate under a different entity.
See accompanying independent auditors' report.
F-10
<PAGE>
EXHIBITS
Index to Exhibits
Exhibit No. Description
----------- -------------
10 - Dita, Inc. Distributor Agreement of
September 1, 1999, between Dita, Inc. and
Levante, a representative distributorship
agreement of the Registrant
21
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
DITA, INC.
Date: September 29, 1999 By /s/ Troy Schmidt
---------------------------------
Troy Schmidt, President and
Chief Financial Officer
dita inc.
DISTRIBUTOR AGREEMENT
1) Dita Inc., a Nevada Corporation, Hereinafter referred to as "Manufacturer"
and Levante, a corporation duly organized under the laws of Japan, Hereinafter
referred to as "Distributor", agree as follows:
RECITALS
Manufacturer and Distributor intend to enter into this Agreement hereinafter
referred to as "Agreement" dated September 1, 1999 for distribution of Dita Inc.
products based upon the items two (2) through (14) defined below:
2) TERM: The term of this Agreement hereinafter referred to as "Term", commences
on the date of this agreement and expires August 31, 2002. Manufacturer agrees
to give Distributor first right of negotiation for an extension of this
Agreement only if Distributor has met the minimum order requirements as set
forth below (see Attachment "B") and is in full compliance with all the terms of
this Agreement.
3) APPOINTMENT: For the Term of the Agreement, on the following terms and
conditions, Manufacturer, appoints Levante, as the exclusive distributor for the
Territory of Japan, Hereinafter referred to as "Territory", and for that
purpose, Manufacturer agrees to sell to Distributor, and Distributor agrees to
purchase Dita Products in bulk at wholesale cost for distribution in the
Territory. Distributor agrees not to purchase for resale or to represent as
Sales representatives or otherwise, any goods competitive with Dita Inc.
products during the Term of this Agreement with out Manufactures prior written
approval which will not be unreasonable withheld.
4) PURPOSE: Manufacturer and Distributor agree that Dita Inc. goods are high
quality premium priced goods and that Manufacturer's primary purpose is to
create and increase markets for Dita Inc. products through high-end specialty
stores. Distributor agrees to distribute Dita Inc. products only through
high-end boutiques, optical stores and streetware/specialty stores and to
represent the Dita Inc. Image according to Dita Inc.'s marketing policy. At no
time are Dita products to be sold to discount or low image stores. Dita reserves
the right to preapproval all stores in which it's products are being sold.
5) TRADEMARK USAGE: Manufacturer grants Distributor, the non exclusive right and
license during the Term of this Agreement to use "Dita" related trademarks
according to the Marketing Policy of Dita, Inc., only in the Territory as
described above. Distributor agrees that Manufacturer reserves and retains any
and all rights to
Exhibit 10
Page 1 of 5 Pages
<PAGE>
the Dita Inc. name, tradename, and or trademarks. Upon Termination of this
Agreement, Distributor agrees to cease using all Dita Inc. trademarks except to
sell any then remaining inventories of Dita products products in Territory.
Distributor agrees that at no time is the Dita trademark to be used in the sale
of any product that has not been preapproved in writing by Dita Inc.
6) INDEPENDENT CONTRACTORS: Distributor and Manufacturer are independent
contractors. neither is the agent of or has any authority to impose any
obligation or liability for the other. Neither may assign any right or duty
under its Agreement (Voluntarily or by change of ownership control) without
prior written consent of the other. Distributor is responsible for paying all
expenses of and taxes on Distributor's activities, and is responsible for
managing and compensating all employees of Distributor and any other sales
representatives and subcontractors Distributor retains. Distributor agrees not
to make any representation or warranty concerning Manufacturer's goods except to
the extent authorized in advance in writing by an officer of Manufacturer.
7) TERMS OF SALE: All sales of goods by Manufacturer to Distributor will be on
the following terms and conditions.
(7a) Prices, quantities, styles and special characteristics of the goods will be
specifically negotiated and included in each applicable purchase order. No
purchase order will be deemed effective unless and until Manufacturer has
formally accepted the order in writing.
(7b) Freight, delivery, risk of loss, damage and destruction of the goods, and
Insurance are the sole responsibility of Distributor. All shipments are F.O.B.
Dita Inc. warehouse located at 6519 Fountain, Hollywood, California 90028, and
all related costs of delivery are borne by Distributor. Distributor is
responsible for paying all income taxes and all other taxes, licenses, duties,
brokerage fees, customs house and any other import expenses, freight, and all
other expenses related to purchasing products from Manufacturer.
(7c) To the extent that payment terms are not expressly stated on the applicable
purchase order confirmation issued by Manufacturer, payment of the full and
other invoiced amounts for each purchase order is due in full by irrevocable
letter of credit drawn on a United States Bank acceptable to Manufacturer and
paid in US Dollars payable on or within fifteen (15) days after shipment date
unless otherwhise approved by Manufacturer in writing. A letter of credit or
some other means of capital acceptable to manufacturer, must accompany any and
all purchase orders turned into Manufacturer by Distributor for formal
acceptance of the purchase order.
Exhibit 10
Page 2 of 5 Pages
<PAGE>
(7d) Shipments and delivery times will be in accordance with manufacturer's
normal operating practices and Manufacturer will not be liable for delay in or
failure of performance due to cause beyond its reasonable control including but
not limited to force Majeure. In accordance with common practice in the United
States optical industry, Manufacturer may at times change or discontinue
manufacture or sale of any goods, model, style, or other characteristics of the
Goods, and may cancel or reduce quantities covered by any purchase order with
prior written notice. Manufacturer agrees to reduce annual minimum for delays in
shipments made in accordance with general ordering procedures which are as
follows: 90 day minimum for all orders.
8) TERMINATION: This agreement may only be terminated by a non breaching party
upon a material breach of this Agreement. A material breach is any action that
violates any of the terms of this agreement. The non breaching party has the
right but is not obligated to terminate this Agreement upon a material breach of
this Agreement. Termination becomes effective after 30 days written notification
to the breaching party via registered or certified mail. Upon termination, this
Agreement will be deemed satisfied in full as follows:
(8a) If either party gives notice of termination of this Agreement as specified
in Section "8" of this agreement, all purchase orders with respect to Goods not
yet shipped, except orders for which a Letter of Credit has therefore been
delivered to Manufacturer will be deemed canceled unless otherwise Agreed upon
by both parties. Distributor Agrees to Pay Manufacturer any and all amounts due
for goods shipped prior to the date termination notice was given.
9) YEARLY MINIMUM: Distributor agrees to purchase the minimum amount of Dita
Inc. products as described in Attachment B of this Agreement. However,
Manufacturer agrees to reduce yearly minimum in the case that is unable to meet
orders made by Distributor placed a minimum of 90 days in advance in compliance
with the terms of sale conditions specified in Section 7 of this agreement.
10) SAMPLES: Distributor agrees to purchase all necessary Samples at wholesale
cost of each sample purchased.
11) SCHEDULING: Distributor agrees to comply with the Dita, Inc.'s schedule of
ordering, payments ect... as established by Manufacturer. Both parties agree
that it is very important that all orders and payments are made on time in order
for Manufacturer to ship accepted orders on time.
12) MARKETING/ADVERTISING: Distributor agrees to pay for and implement marketing
and advertising campaign for it's respective territory. The aforementioned ad
campaign will consist of a minimum of 8% of Gross Sales. Distributor further
agrees to
Exhibit 10
Page 3 of 5 Pages
<PAGE>
provide Manufacturer a proposed marketing plan on an annual basis. All marketing
materials must be approved in advance by Manufacturer. It is the intention of
Manufacturer to cooperate positively with Distributor on all marketing
endeavors. Distributor will pay for any and all related costs of advertisements
i.e. computer graphic work, film output and shipment costs produced by
Manufacturer exclusively for Distributor.
13) CHANGE OF OWNERSHIP: In the case of ownership change of Manufacturer,
Manufacturer Agrees to include this Agreement as a clause of the change of
ownership contract. This Agreement will be honored in full for the term of this
Agreement regardless of any change of ownership control Manufacturer and is
binding upon any acquisitions in title and assigns of manufacturer.
14) GENERAL: This is the entire Agreement between Manufacturer and Distributor.
This Agreement supersedes and terminates all other previous Agreements between
the parties involved. This Agreement will be interpreted, construed and enforced
in accordance with the laws of the State of California.
Executed on Sept. 1-99 at:
Dita Inc.
6519 Fountain Avenue
Hollywood, Ca 90028
Acknowledged and Agreed:
Manufacturer: Distributor:
Dita Inc.
6519 Fountain Avenue
Hollywood, Ca 9028
/s/ Troy Schmidt /s/ Yosuke Moriya
- ------------------------------- ------- ---------------------
Signed: Troy Schmidt President Dated: Signed:
Yosuke Moriya
---------------------
Print/Type Name:
President
---------------------
Title:
9/1/99
---------------------
Dated:
Exhibit 10
Page 4 of 5 Pages
<PAGE>
EXHIBIT "B"
STYLE MODLE # PRICE
Couture All 25% off U.S. whosale
Fashion All 25% off U.S. whosale
Opthamic All 25% off U.S. whosale
YEARLY MINIMUM QUANTITY: No Yearly minimum for the first year of the agreement.
Yearly minimum for second and third years to be determined by mutual agreement
of both parties (3) month prior to the expiration of the first year.
Exhibit 10
Page 5 of 5 Pages
