U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 29, 2000
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-27057
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)
2214 Beverly Boulevard, Los Angeles, CA 90057
---------------------------------------------
(Address of principal executive offices)
213-368-3968
---------------------------
(Issuer's Telephone Number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: None.
Name of each exchange on which registered: None.
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.01 par value
-----------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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[ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in
<PAGE>
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $875,892.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days: $923,295 computed by
reference to the $1.50 average of the bid and asked price of the Company's
Common Stock on May 12, 2000.
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 3,140,000 shares of Common
Stock, $0.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (3) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The list documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990). None.
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
2
<PAGE>
TABLE OF CONTENTS
Page
----
Item 1. Description of Business .................................. 1
Business Development ..................................... 1
Business of the Company .................................. 1
Products .......................................... 1
Raw Materials, Supplies and Manufacturing ......... 2
Distribution Methods .............................. 3
Competition ....................................... 3
Advertising and Promotion ......................... 3
Dependence on Major Customers ..................... 4
Patents, Trademarks and Licenses .................. 4
Government Approval and Regulations ............... 4
Year 2000 Computer Problems ....................... 4
Research and Development .......................... 5
Cost of Compliance with Environmental Laws ........ 5
Seasonality ....................................... 5
Employees ......................................... 5
New Products ...................................... 5
Item 2. Properties ............................................... 6
Item 3. Legal Proceedings ........................................ 6
Item 4. Submission of Matters to a Vote of Security
Holders ........................................... 6
Item 5. Market for Common Equity and Related Stockholder
Matters ........................................... 6
Holders .................................................. 7
Dividends ................................................ 7
Recent Sales of Unregistered Securities .................. 7
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............... 7
Results of Operations .................................... 7
Sales .................................................... 8
Gross Margin ...................................... 8
Selling, General and Administrative Expenses ...... 8
Net Loss .......................................... 9
Balance Sheet Items ............................... 9
Liquidity and Outlook ............................. 9
Possibility of a Reverse Acquisition and
Reorganization ............................. 10
Item 7. Financial Statements ..................................... 10
Item 8. Changes in and Disagreements With Accountants On
Accounting and Financial Disclosure ............... 11
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with
Section 16(a) of the Exchange Act ................. 11
Section 16(a) Beneficial Ownership
Reporting Compliance ....................... 13
Item 10. Executive Compensation ................................... 13
i
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners
and Management .................................... 13
Changes in Control ....................................... 14
Item 12. Certain Relationships and Related Transactions ........... 14
Item 13. Exhibits and Reports on Form 8-K ......................... 15
(a) Exhibits .......................................... 15
(b) Reports on Form 8-K ............................... 16
Signatures .............................................................. 17
ii
<PAGE>
ITEM 1. 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 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.
1
<PAGE>
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 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."
We have no written agreement with any of Mazzucchelli, Golden Gate
Optical or Glance. We operate under a standard contractor relationship with
Mazzucchelli and Golden Gate Optical. As for Mazzucchelli, we order products
from its catalog. Mazzucchelli confirms our purchase orders and delivers the
products, f.o.b. Calalzo, Italy, to destinations we designate.
We provide each of Golden Gate Optical and Glance with designs made by
us by hand. Each company then provides us a price for production of samples. We
then place purchase orders for supplies. Once the samples are delivered and
approved by us, we submit a purchase order for the production of the frames,
outlining our delivery requirements, prices and timing.
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
2
<PAGE>
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.
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.
3
<PAGE>
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 29 percent of our sales are international sales and are divided
among two customers - 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. 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
4
<PAGE>
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 $6,098 in fiscal 1999 and $1,000 in fiscal
2000 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.
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.
5
<PAGE>
We have no time frame for the commercialization of our handbag line.
ITEM 2. PROPERTIES
We lease approximately 3,200 square feet of office and warehouse space
in Los Angeles, California for a monthly rental of $3,200. The lease is a term
lease that expires December 31, 2002.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the OTC Bulletin
Board. Its symbol is "DITA."
During the last two calendar years, 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
---- ---
1998
----
<S> <C> <C>
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
3rd Qtr. 1.4375 1.0000
4th Qtr. 1.7500 1.2500
2000
----
1st Qtr. 1.625 1.25
</TABLE>
On May 12, 2000 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.
6
<PAGE>
Holders
As of May 12, 2000 there were approximately thirty-three holders of
record of our Common Stock. Some 476,650 shares of Common Stock are held in
brokerage accounts under the record name of "Cede & Co."
Dividends
We have paid no cash dividends since inception, and it is unlikely that
any cash dividend will be paid in the foreseeable future. There are no
restrictions that would or are likely to limit the ability of the company to pay
dividends on its common stock, but it has no plans to pay dividends in the
foreseeable future and intends to use earnings for the expansion of its
business. The declaration in the future of any cash or stock dividends will be
at the discretion of the board depending upon the earnings, capital requirements
and financial position of the company, general economic conditions and other
pertinent factors. There are no dividend restrictions held by any creditor or
other agreement to which the company is a party.
Recent Sales of Unregistered Securities
During the last fiscal year the company sold no securities.
ITEM 6. 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 29, 2000 and February 28,
1999:
<TABLE>
<CAPTION>
Year Ended
----------
2-29 2-28
2000 1999
------ ------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 42.9 47.2
----- -----
Gross margin 57.1 52.8
Selling, general and
administrative
expenses 72.1 73.9
----- -----
Net income (loss) (15.0) (21.1)
Sales
</TABLE>
Sales decreased slightly to $875,892 in the fiscal year ended February
29, 2000 from $882,921 in the fiscal year ended
7
<PAGE>
February 28, 1999, a decrease of less than one percent. Of significance is the
increase in international sales of $166,113 - from $180,329 in FY 1999, or
an increase of 92 percent in international sales, to $346,442, or 40 percent
of total sales in FY 2000. Boutique sales remained fairly constant, but
optical sales decreased from $438,131 in FY 1999 or 49.6 percent of total sales
to $258,351 in FY 2000 or 29.5 percent of total sales.
We are not exposed to currency risks with regard to our international
sales, which account for approximately 39.6 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 50 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 in Austrialia and New Zealand
than on sales in Japan, Canada and the U.S.
Gross Margin
------------
Gross margin improved to $500,557, or 57.1 percent of sales, in fiscal
year 2000 from $465,889, or 52.8 percent of sales, in fiscal year 1999, an
improvement of 4.3 percent. This improvement is attributed to
the negotiation of lower product cost with the company's major supplier, Glance,
Inc.
Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative expenses decreased to $631,645 in
fiscal year 2000, or 72.1 percent of sales, from $652,159 in fiscal year 1999,
or 73.9 percent of sales. The decrease reflects a preponderance of significant
decreases over significant increases in line item expenses, as follows:
<TABLE>
<CAPTION>
Fiscal Year
Operating Expenses 2000 1999
------------------ -------- --------
Decreases:
<S> <C> <C>
Bad debt $ 8,458 $ 35,827
Equipment rental 5,320 10,066
Freight out 17,180 25,482
Postage and delivery 2,093 8,203
Printing and reproduction 877 18,306
Research and development 1,017 6,098
Telephone 15,662 20,447
Increases:
Auto 18,622 117
Interest expense 34,658 15,687
Office expenses and supplies 22,622 13,358
Professional fees 50,960 33,822
</TABLE>
8
<PAGE>
Net Loss
--------
We had a net loss from operations in fiscal year 2000 of $131,088, or 15
percent of sales and $0.04 a share of our common stock. In fiscal year 1999 we
had a net loss from operations of $186,270, or 21.1 percent of sales and $0.06 a
share of common stock.
Balance Sheet Items
-------------------
Our current assets decreased from $284,455 at the end of fiscal year
1999 to $241,212 at the end of fiscal year 2000 and represented a much less
liquid financial posture. Cash was reduced from $121,516 to $17,234. Accounts
receivable were reduced from $71,249 to $60,283. Prepaid expenses were reduced
from $20,103 to $1,697. Inventory, however, increased from $71,587 to $161,998.
None of the $161,998 in inventory represented sales awaiting delivery.
Accounts payable and accrued expenses increased from $209,578 at the end
of fiscal year 1999 to $283,783 at the end of fiscal year 2000.
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 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 and increased this to $25,113 in
fiscal 2000.
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
9
<PAGE>
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.
Possibility of a Reverse Acquisition and Reorganization
-------------------------------------------------------
We have been approached by several development-stage companies that are
interested in acquiring our corporate shell. Each proposes that our present
sunglasses business either be spunoff to our shareholders or sold, leaving the
company as a trading public shell. Our management is open to the proposals but
none of the development-stage companies has secured adequate financing or
commenced meaningful operations. Until such occurs, there is no point in
negotiating a contract with a company that is not viable.
10
<PAGE>
Board of Directors
Dita, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of Dita, Inc. as of February 29,
2000 and February 28, 1999, and the related statements of operations,
stockholders' equity (deficit) 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 29,
2000 and February 28, 1999, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company has incurred net losses from operations, has negative cash flows
from operations and has a net capital deficiency. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
These financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
/s/Stonefield Josephson, Inc.
----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
April 11, 2000
F-1
<PAGE>
DITA, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
February 29, February 28,
ASSETS 2000 1999
------------ ------------
Current assets:
<S> <C> <C>
Cash $ 17,234 $ 65,822
Cash - restricted - 55,694
Accounts receivable - trade, net of allowance
for doubtful accounts of $27,363 and $37,160,
respectively 60,283 71,249
Inventory 161,998 71,587
Prepaid expenses 1,697 20,103
----------- -----------
Total current assets 241,212 284,455
Property and equipment, net of
accumulated depreciation and amortization 68,333 87,732
Other assets 3,396 2,434
----------- -----------
$ 312,941 $ 374,621
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 283,783 $ 209,578
Advances from officers-stockholders 23,474 36,531
Note payable, bank 25,113 19,000
Current maturities of obligations under
capital lease 16,241 14,600
------------ -----------
Total current liabilities 348,611 279,709
------------ -----------
Obligations under capital lease,
less current maturities 1,628 17,869
------------ -----------
Note payable 16,747 -
------------ -----------
Stockholders' equity (deficit):
Common stock; $.01 par value, 10,000,000
shares authorized, 3,140,000 shares issued
and outstanding 31,400 31,400
Additional paid-in capital 613,339 613,339
Deficit (698,784) (567,696)
------------ -----------
Total stockholders' equity (deficit) (54,045) 77,043
------------ -----------
$ 312,941 $ 374,621
============ ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
F-2
<PAGE>
DITA, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Year ended
February 29, 2000 February 28, 1999
----------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Net sales $ 875,892 100.0% $ 882,921 100.0%
Cost of sales 375,335 42.9 417,032 47.2
----------- ------- ----------- ------
Gross profit 500,557 57.1 465,889 52.8
Operating expenses 631,645 72.1 652,159 73.9
----------- ------- ----------- ------
Net loss $ (131,088) (15.0)% $ (186,270) (21.1)%
=========== ======= =========== ======
Net loss per share -
basic and diluted $ (0.04) $ (0.06)
=========== ===========
Weighted average shares
outstanding - basic
and diluted 3,140,000 2,980,000
=========== ===========
</TABLE>
See accompanying independent auditors' report and notes to financial statements.
F-3
<PAGE>
DITA, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
Additional Total
Common stock paid-in stockholders'
------------
Shares Amount capital Deficit equity/(deficit)
------ ------ ------- ------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at March 1, 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 year ended
February 29, 2000 (131,088) (131,088)
---------- --------- ---------- ---------- ---------
Balance at February 29, 2000 3,140,000 $ 31,400 $ 613,339 $ (698,784) $ (54,045)
========== ========= ========== ========== =========
</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
February 29, February 28,
2000 1999
------------ ------------
Cash flows provided by (used for)
operating activities:
Net loss $ (131,088) $ (186,270)
----------- ----------
Adjustments to reconcile net loss to
net cash provided by (used for)
operating activities:
Depreciation and amortization 22,158 22,249
Provision for doubtful accounts 8,458 35,827
Changes in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 2,508 4,669
Inventory (90,411) (6,866)
Prepaid expenses 18,405 (19,053)
Increase (decrease) in liabilities -
accounts payable and accrued
expenses 74,207 52,354
Total adjustments 35,325 89,180
----------- ----------
Net cash used for operating
activities (95,763) (97,090)
----------- ----------
Cash flows used for investing activities:
Acquisition of property and equipment (2,759) (22,761)
Increase in other assets (963) -
----------- ----------
Net cash used for investing activities (3,722) (22,761)
----------- ----------
Cash flows provided by (used for) financing activities:
(Payments on) advances from officer-stockholders (13,057) 8,013
(Payments on) proceeds from note payable, bank 6,113 19,000
Proceeds from other current liabilities - 5,519
(Payments on) obligations under capital lease (14,600) (8,971)
Proceeds from note payable 16,747 -
Proceeds from issuance of common stock - 200,000
----------- ----------
Net cash provided by (used for)
financing activities (4,797) 223,561
----------- -----------
Net increase (decrease) in cash (48,588) 48,016
Net increase (decrease) in cash - reserve (55,694) 55,694
Cash, beginning of year 121,516 17,806
----------- ----------
Cash, end of year $ 17,234 $ 121,516
=========== ==========
Supplemental disclosure of cash flow information:
Income taxes paid $ 800 $ 800
=========== ==========
Interest paid $ 34,658 $ 15,687
=========== ==========
Supplemental disclosure of non-cash financing
activities -
capital lease obligation incurred for use
of equipment $ - $ 15,232
========== ==========
See accompanying independent auditors' report and notes to financial statements.
F-5
<PAGE>
DITA, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(1) Summary of Significant Accounting Policies:
Going Concern:
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has
negative cash flows from operations. This factor raise substantial
doubt about the Company's ability to continue as a going concern.
Management recognized that the Company must generate additional
resources to enable it to continue operations. The Company has a
revolving line of credit through their bank to be used as working
capital. Further, the Company is in the process of negotiating to
sell its corporation to a third party. There can be no assurance
that the Company will achieve profitability or positive cash flow.
If management is unable to achieve profitability or positive cash
flow, the Company will not be able to meet its obligations and will
have to cease operations.
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.
F-6
See accompanying independent auditors' report.
<PAGE>
DITA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(1) Summary of Significant Accounting Policies, Continued:
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
10).
Recent Accounting Pronouncements Effective Subsequent to 1998:
In June 1998, the United States Financial Accounting Standards Board
(FASB) issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities", the effective date for which was deferred
by SFAS No. 137 until fiscal years beginning after June 15, 1999.
The Company anticipates that due to its limited use of derivative
instruments, the adoption of SFAS No. 133 will not have a material
effect on its financial statements.
(2) Major Customers:
Total sales to two customers amounted to approximately $256,000 for the
year ended February 29, 2000. Included in accounts receivable at February
29, 2000 is approximately $5,000 due from these customers. There were no
major customers for the year ended February 28, 1999.
(3) Property and Equipment:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
------------ ------------
<S> <C> <C>
Display cases $ 73,854 $ 73,854
Computers and software 34,939 34,939
Furniture and fixtures 9,670 9,670
Leasehold improvements 2,000 -
----------- ----------
120,463 118,463
Less accumulated depreciation
and amortization 52,130 30,731
----------- ----------
$ 68,333 $ 87,732
=========== ==========
</TABLE>
F-7
See accompanying independent auditors' report.
<PAGE>
DITA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(4) 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.
(5) Note Payable, Bank:
The Company has a line of credit with its bank in the amount of $35,000
and is unsecured. As of February 29, 2000, the line of credit had a
remaining balance in the amount of $25,113.
Interest paid on all corporate borrowings, exclusive of related party
interest and other bank interest amounted to $3,912 and $798 for the years
ended February 29, 2000 and February 28, 1999, respectively.
(6) 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>
February 29, February 28,
2000 1999
----------- ------------
Year ending:
<S> <C> <C>
February 29, 2000 $ - $ 14,600
February 28, 2001 16,241 16,431
February 28, 2002 1,628 1,438
---------- ----------
Present value of minimum
lease payments 17,869 32,469
Less current maturities 16,241 14,600
---------- ----------
$ 1,628 $ 17,869
========== ==========
</TABLE>
Interest expense for the years ended February 29, 2000 and February 28,
1999 amounted to $4,559 and $3,492, respectively.
(7) Note Payable:
Note payable is non-interest bearing and is due upon the sale of the
corporation.
F-8
See accompanying independent auditors' report.
<PAGE>
DITA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(8) 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 29, 2000 and February 28, 1999 was
$339,997 and $313,746, respectively. Accounts payable and accrued expenses
at February 29, 2000 and February 28, 1999 include $229,807 and $131,162
payable to this supplier, respectively. The Company also pays interest on
outstanding accounts payable balances at a rate of 1.25% per month to this
related party.
(9) Income Taxes:
For federal income tax return purposes, the Company has available net
operating loss carryforwards of approximately $687,000 and $556,000, which
expire through 2014 and 2013 and are available to offset future income tax
liabilities for the years ended February 29, 2000 and February 28, 1999,
respectively.
Temporary differences which give rise to deferred tax assets and
liabilities at February 28, 1999 are as follows:
<TABLE>
<CAPTION>
February 29, February 28,
2000 1999
------------ ------------
<S> <C> <C>
Net operating loss carryforwards $ 274,835 $ 226,548
Valuation allowance (274,835) (226,548)
----------- -----------
Net deferred taxes $ - $ -
=========== ===========
</TABLE>
(10) Commitments and Other:
The following is a schedule by years of future minimum rental payments
required under an operating lease that has a noncancellable lease term in
excess of one year as of February 29, 2000:
<TABLE>
<CAPTION>
Year ending February 28,
<S> <C>
2001 $ 36,720
2002 30,600
-----------
$ 67,320
===========
</TABLE>
Rent amounted to $28,375 and $24,518 for the years ended February 29, 2000
and February 28, 1999, respectively.
A deposit consisting of $3,060 was paid upon signing of the lease.
Advertising Costs
Advertising expense for the years ended February 29, 2000 and February 28,
1999 amounted to $92,809 and $33,491, respectively.
F-9
See accompanying independent auditors' report.
<PAGE>
DITA, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
(11) Subsequent Event:
The Company is in the process of negotiating to sell its corporation to a
third party. As of April 11, 2000, no negotiations have been finalized.
Upon completion of the proposed sale, the Company will reorganize and
continue to operate under a different entity.
F-10
See accompanying independent auditors' report.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There has been no change in the company's principal independent
accountant during the last two fiscal years.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The company's directors, officers and significant employees occupying
executive officer positions, their ages as of May 15, 2000, 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> <C>
Bendar Wu, 54 Chairman of the Board 1996 2000
of Directors
Troy Schmidt, 34 President and Director 1996 2000
Jeff Solorio, 30 Secretary, Director of 1996 2000
Operations, and Director
Micky Dhillon, 34 Director 1998 2000
John Juniper, 30 Director of Marketing, and 1996 2000
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
11
<PAGE>
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 and 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 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,
12
<PAGE>
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.
Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
There was no person who, at any time during the 2000 fiscal year, was a
director, officer or beneficial owner of more than ten percent of our common
stock, and who failed to file on a timely basis reports required by Section
16(a) of the 1934 Exchange Act during fiscal year 1999, as disclosed on Forms 3
and 4 and amendments thereto furnished to our company under the SEC's Rule
16a-3(c) during fiscal year 1999 and Forms 5 and amendments thereto furnished to
our company with respect to fiscal year 1999 and any written representations
furnished to our company.
ITEM 10. EXECUTIVE COMPENSATION
Set forth below is the aggregate compensation during fiscal years 1998,
1999 and 2000 of the chief executive officer of the Company. During the period,
no executive officer of the Company received compensation that exceeded
$100,000.
<TABLE>
<CAPTION>
Fiscal Annual Other
Name Year Salary Compensation
---- ------ ------ ------------
<S> <C> <C> <C>
Troy Schmidt, 2000 $45,000 None
President
1999 $45,000 None
1998 $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, other than its president, Troy Schmidt, has been granted stock in
exchange for services. The company has no long-term incentive plan intended to
serve as incentive for performance to occur over a period longer than one fiscal
year.
Directors of the company receive no compensation for their services as
directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The table below sets forth, as of May 10, 2000, 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.
13
<PAGE>
<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.
ITEM 12. 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
14
<PAGE>
year 1999 were $313,746 and in fiscal year 2000 were $337,122. Our
accounts payable and accrued expenses owed to Glance at fiscal year-end 1999
were $131,162 and at fiscal year-end 2000 were $229,806. The interest rate we
pay on outstanding payable balances to Glance is fifteen percent a year.
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. A leading manufacturer of eyewear advises us that we
cannot get comparable terms anywhere.
In 1997 we obtained $100,000 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
$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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this Form 10-KSB:
Exhibit No. Description
----------- -----------
3 - Articles of Incorporation of Dita, Inc.*
3.1 - Bylaws of Dita, Inc.*
10 - Dita, Inc. Distributor Agreement of
September 1, 1999, between Dita, Inc. and
15
<PAGE>
Levante, a representative distributorship
agreement of the Registrant**
27 - Financial Data Schedule
* Previously filed with Form 10-SB; Commission File No. 0-27057, incorporated
herein by reference.
** Previously filed with Amendment No. 1 to Form 10- SB; Commission File No.
0-27057, incorporated herein by reference.
(b) Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this to be signed on its behalf by the undersigned,
thereunto duly authorized.
BAD TOYS, INC.
Date: May 30, 2000 By /s/ Troy Schmidt
-------------------------------------
Troy Schmidt, President
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: May 30, 2000 /s/ Troy Schmidt
----------------------------------------
Troy Schmidt, Chief Financial
Officer and Director
Date: May 30, 2000 /s/ Bendar Wu
----------------------------------------
Bendar Wu, Director
Date: May 30, 2000 /s/ Jeff Solorio
----------------------------------------
Jeff Solorio, Secretary and Director
Date: May 30, 2000 /s/ John Juniper
----------------------------------------
John Juniper, Director
Date: May ____, 2000
----------------------------------------
Micky Dhillon, Director
17
