U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
[ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
Commission File No. 0-26351
DIGS, Inc.
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(Name of Small Business Issuer in its Charter)
Delaware 95-4603237
- ----------------------------------- ------------------------
(State or other jurisdiction of (I.R.S Employer
incorporation of organization) Identification No.)
17327 Ventura Boulevard, Suite 200, Encino, California 91316
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Address of principal executive office
(212) 583-0900
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Issuer's telephone number
Check whether the issuer has (1) filed all reports required by Section 12 or
15(d) of the Exchange Act during the past 12 months, and (2) been subject to
such filing requirements for the past ninety (90) days. Yes ( X ) No ( )
As of September 30, 1999, 6,648,631 shares of the registrant's common stock
were outstanding.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of November 30, 1999 was $31,503,712.
<PAGE>
DIGS, INC. AND SUBSIDIARIES
INDEX
Pages
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PART 1: FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheet (Unaudited)
as of September 30, 1999 2
Consolidated Statements of Operations (Unaudited)
For the Quarters and Year-To-Date Periods Ended
September 30, 1999 and 1998 3
Consolidated Statements of Cash Flow (Unaudited)
For the Year-To-Date Periods Ended
September 30, 1999 and 1998 4
Selected Information - Substantially All Disclosures
Required by Generally Accepted Accounting Principles
are Not Included 5
ITEM 2 - Management's Discussion And Analysis Of
Financial Condition And Results Of Operations 6
1
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DIGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1999
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 11,381
Accounts receivable - trade 226,544
Loan receivable - officer 25,000
Loan receivable - other 1,000
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Total Current Assets 263,925
PROPERTY AND EQUIPMENT,
net of accumulated depreciation 111,005
PROGRAM DEVELOPMENT COSTS,
net of accumulated amortization 82,469
LONG-TERM ASSETS
Deferred tax assets --
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Total Assets $ 457,399
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expense $ 40,110
Deferred rent credit 16,665
Sub-lease deposits 1,500
Short-term loan 60,000
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Total Current Liabilities 118,275
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; 20,000,000
shares authorized, 0 shares issued and outstanding --
Common stock, par value $.001 per share; 50,000,000
shares authorized, 6,648,631 shares issued and
outstanding 6,649
Additional paid-in capital 2,965,840
Retained (deficit) (2,377,632)
Income (loss) (255,733)
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Total Stockholders' Equity 339,124
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Total Liabilities and Stockholders' Equity $ 457,399
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See Accompanying Notes to Unaudited Consolidated Financial Statements
2
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DIGS, INC. AND SUBSIDIARIES
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTER AND YEAR-TO-DATE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
For the Quarter Ended For the Year-To-Date
September 30, Periods Ended September 30,
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1999 1998 1999 1998
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REVENUE
Investor Relations CD-ROM (IRCD) $ 75,825 $ 4,878 $ 378,583 $ 89,510
Web Design 100,375 -- 103,075 23,000
Others 68,965 6,558 77,661 58,056
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Total Revenue 245,165 11,436 559,319 170,566
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COST OF SALES 28,813 18,536 114,664 55,664
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Gross Profit (Loss) 216,352 (7,100) 444,655 114,902
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OPERATING EXPENSES
Marketing 19,295 4,350 82,683 6,437
Outside services 30,098 8,019 89,238 8,115
Payroll expenses 100,808 74,486 256,210 165,086
Rent expense 18,872 12,848 57,201 25,658
Others 100,709 45,524 226,706 142,743
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Total Operating Expenses 269,782 145,227 712,038 348,039
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(Loss) Before Other Income (Expense) (53,430) (152,327) (267,383) (233,137)
OTHER INCOME (EXPENSE)
Rental income 3,000 7,600 20,300 14,800
Interest expense -- -- -- (1,588)
Realized (loss) on sale of securities -- -- (7,850) --
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Income (Loss) Before Taxes (50,430) (144,727) (254,933) (219,925)
(PROVISION) FOR INCOME TAX -- -- (800) (800)
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Net Income (Loss) (50,430) (144,727) (255,733) (220,725)
OTHER COMPREHENSIVE INCOME, net of tax:
Add reclassification adjustment for (loss)
included in net income -- -- 7,850 0
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Comprehensive Income (Loss) $ (50,430) $ (144,727) $ (247,883) $ (220,725)
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(Loss) per common share and common share equivalent
$ (.01) $ (.04) $ (.05) $ (.06)
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Weighted average common shares outstanding 5,272,280 3,602,612 5,272,280 3,602,612
------------- ------------- -------------- -------------
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
3
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DIGS, INC. AND SUBSIDIARIES
PART 1: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR-TO-DATE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<S> <C> <C>
1999 1998
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CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss $ (247,883) $ (220,705)
Adjustments to reconcile net (loss) to net cash provided (used)
by operating activities:
Amortization and depreciation 27,216 23,706
(Increase) in accounts receivable (223,361) (9,208)
(Decrease) Increase in current liabilities and accrued expenses 3,224 (8,167)
(Increase) in loan receivable - officer (25,000) --
Increase in loan receivable - other (1,000) --
(Decrease) in sublease deposit (1,500) 1,500
(Decrease) in deferred rent credit (15,002) 36,667
Realized loss on sale of securities (7,850) --
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Net Cash Flows (Used) by Operating Activities (491,156) (176,207)
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CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Acquisition of property and equipment (35,383) (77,730)
(Increase) in program development cost (47,000) --
(Increase) Decrease in marketable equity securities 9,000 (9,000)
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Net Cash Flows (Used ) by Investing Activities (73,383) (86,730)
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CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Issuance of common stock -- 11,734
(Decrease) in note payable to stockholders -- (47,321)
Proceed from short-term note payable 60,000 358,266
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Net Cash Flows Provided by Financing Activities 60,000 322,679
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NET INCREASE (DECREASE) IN CASH (504,539) 59,742
CASH AT THE BEGINNING OF THE YEAR 515,920 28,707
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CASH AT THE END OF THE YEAR $ 11,381 $ 88,449
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ADDITIONAL DISCLOSURES:
Interest paid $ -- $ 1,588
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Income taxes paid $ 800 $ 800
================ =================
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
4
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DIGS, INC. AND SUBSIDIARIES
SELECTED INFORMATION
Substantially All Disclosures Required By Generally Accepted Accounting
Principals Are Not Included
September 30, 1999
(UNAUDITED)
NOTE 1 - MANAGEMENT'S STATEMENT
In the opinion of the management the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring in
nature) necessary to present fairly the financial position of DIGS, Inc. and
subsidiaries (the Company) at September 30, 1999, and the results of operations
and the cash flows for the quarter periods ended September 30, 1999 and 1998.
The notes to the Consolidated Financial Statements which are incorporated by
reference into the 1998 Form 10-SK should be read in conjunction with these
Consolidated Financial Statements.
NOTE 2 - BASIS OF CONSOLIDATION
The consolidated financial statement include the accounts of DIGS, Inc. and
its wholly owned subsidiaries, Digital Corporate Profiles, Inc. (DCP), a
California corporation, and Advanced Laser Products, Inc., a Nevada corporation
(inactive), and DXF Design, Inc. (DXF), a California corporation (see Note 4).
All significant intercompany accounts and transactions have been eliminated in
consolidation.
NOTE 3 - AGREEMENT OF REORGANIZATION
Effective November 9, 1998, in connection with the agreement of
reorganization, the Company issued 5,l94,968 shares of its common stock at $.001
par value per share, in exchange for all of the outstanding common stock of
Digital Corporate Profiles, Inc. (DCP), in which DCP became a wholly owned
subsidiary of the Company based on a conversion ratio of 3 shares of the
Company's common stock for each share of DCP's stock. The merger qualified for a
tax-free reorganization and has been accounted for as a recapitalization of
Digital Corporate Profiles, Inc. at book value.
For periods preceding the merger, there were no intercompany transactions
that required elimination from the combined consolidated results of operations
and there were no adjustments necessary to conform the accounting practices of
the two companies.
NOTE 4 - SUBSEQUENT EVENT
In August 1999, the company formed a newly owned subsidiary, DXF Design,
Inc. DXF Design, Inc. is a fully functional graphic design service that creates
design for packaging, print and the World Wide Web.
DXF Design, Inc. has a client list that includes Walt Disney Studios, Buena
Vista Home Entertainment, Universal Studios, Paramount Television and Turner
Broadcasting, as well as many others.
See Accompanying Notes to Unaudited Consolidated Financial Statements
5
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DIGS, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION
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The company's financial condition remains solid at the end of the third
quarter of 1999, as of September 30, 1999. The debt to equity ratio was 34.92%.
This compares to a debt to equity ratio of (240.0%) at the end of the third
quarter of 1998.
As of September 30, 1999, cash used for operating activities and capital
expenditures amounted to $491,156 and $73,383, respectively compared to $176,207
and $86,730 as of September 30, 1998. Cash proceeds from financing activities
were $60,000 and $322,679 as of September 30, 1999 and 1998, respectively.
RESULTS OF OPERATIONS
---------------------
The company recorded net loss of $50,430 for the third quarter ended
September 30, 1999, while $144,727 was reported for the third quarter ended
September 30, 1998. Net loss for the year-to-date periods ended September 30,
1999 and 1998 was $247,883 and $220,725, respectively.
REVENUES
- --------
Revenues increased $233,729 in the third quarter of 1999 compared with the
third quarter of 1998. Year-to-date revenue increased $388,753 compared with the
year-to-date revenue of 1998.
COST OF SALES AND OPERATING EXPENSES
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The company's operating profit margin increased in the third quarter 1999
to 88.2% versus (145.6%) for 1998. The year-to-date 1999 operating margin was
79.5% versus 67.4% for 1998. The improvement reflected the extensive marketing
effort, which began at the end of 1998.
Operating expenses were increased as a percentage of the revenue for the
year-to-date of 1999.
OUTLOOK
-------
The company continues to employ its strong marketing effort to increase its
revenue. The company has opened a web site to promote its new line of
environmental, health and safety CD-ROM's, at www.ehsreports.com. The company's
emphasis continues to be on effectively marketing and enhancing its current
products, developing new software to target new markets, and new product
development to proactively increase the financial strength of the company.
6
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K. None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DIGS, INC.
Dated: December 1, 1999 By /s/Peter B. Dunn
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Peter B. Dunn, President
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