U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB SEC File No:
33-14982-LA
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ___________
DIGITAL D.J. HOLDINGS, INC.
formerly known as
BREAKTHROUGH ELECTRONICS, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Nevada 33-14982-LA 77-0530472
------ ----------- ----------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1658 E. Capitol Expressway, #294, San Jose, California 95121
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (408) 946-8500
--------------------
Breakthrough Electronics, Inc.
2612 East Kentucky Avenue, Salt Lake City, Utah 84117
-----------------------------------------------------
(Former name or former address, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or 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.
[ X ] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date:
13,177,528 Shares as of the date of this report.
Transitional Small Business Disclosure Format (check one):[ ] Yes [ X ] No
1
<PAGE>
BREAKTHROUGH ELECTRONICS
Form 10-QSB for the Quarter ended March 31, 2000
Table of Contents
Page
PART 1 - ITEM 2...............................................................4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR DIGITAL D.J. HOLDINGS, INC.............4
CAUTION REGARDING FORWARD-LOOKING INFORMATION............................4
---------------------------------------------
OVERVIEW OF THE COMPANY..................................................4
-----------------------
PART II - OTHER INFORMATION...................................................8
ITEM 1 - LEGAL PROCEEDINGS...............................................8
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS.......................9
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES.................................9
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............9
ITEM 5 - OTHER INFORMATION...............................................9
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K................................9
SIGNATURES...............................................................9
2
<PAGE>
PART 1 - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR DIGITAL D.J. HOLDINGS, INC.
The following discussion of the financial conditions and results of
operations of the Company should be read in conjunction with the financial
statements, including notes thereto, for the Company.
CAUTION REGARDING FORWARD-LOOKING INFORMATION
- ---------------------------------------------
This quarterly report contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of the Company
or management as well as assumptions made by and information currently available
to the Company or management. When used in this document, the words
"anticipate," "believe," "estimate," "expect" and "intend" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward- looking statements. Such statements reflect the current view
of the Company regarding future events and are subject to certain risks,
uncertainties and assumptions, including the risks or uncertainties noted.
Should one or more of these risks or uncertainties materialize, or should
underlying assumption prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected or
intended. In each instance, forward-looking information should be considered in
light of the accompanying meaningful cautionary statements herein.
OVERVIEW OF THE COMPANY
- -----------------------
Digital D.J. Holdings, Inc. (the "Company") was incorporated as "Golden
Queens Mining Company" on July 31, 1986 under the laws of the State of Nevada,
primarily for the purpose of exploration, development and production of certain
mining properties located in Esmeralda County, Nevada. In July, 1987, the
Company changed its name to "Breakthrough Electronics, Inc.," terminated its
activities in the mining business, and began efforts to develop and market
electronic products, including a telephone device designed to screen telephone
calls, acquired from its then President. This business was terminated several
years ago. On November 22, 1999, the Company acquired Digital D.J., Inc.,
pursuant to a reverse triangular merger in a transaction in which approximately
12,466,992 shares of the Company's common stock were issued to the shareholders
of Digital D.J., Inc. (the "Reorganization"). The Reorganization resulted in
control of the Company transferring from the former shareholders to the former
shareholders of Digital D.J., Inc. The terms and conditions of the
Reorganization are set forth in the Company's Form 8-K filed with the Commission
for the period beginning on November 22, 1999.
Digital DJ Inc. was incorporated in December 1991. Its primary business
activity was the development and marketing of a digital data system that
provides a variety of information services to radio listeners using FM
subcarrier technology. On April 1, 1999, the Company established a wholly owned
subsidiary, FM Intelligent Transportation Systems, Inc. (FMITS), which provided
a
3
<PAGE>
traffic information service in the mobile market, with an initial investment of
$5,000 for 5,000,000 shares of common stock. On June 1, 1999, the Company
transferred 1,142,376 shares of the common stock of FMITS (approximately 23%
interest) to Nichimen America, Inc. (Nichimen) in consideration of the
cancellation of accounts payable to Nichimen in the amount of $951,980.
Results of Operations
As of March 31, 2000, the Company is in the development stage and is
primarily engaged in research and development activities. Accordingly, the
accompanying consolidated statements of operations should not be regarded as
typical for normal periods of operation. The Company's development stage status,
recurring net losses and capital deficit raise substantial doubt about its
ability to continue as a going concern. Additional financing or restructuring of
its liabilities will be required in order for the Company to complete its
development stage activities. Management believes that it will be able to obtain
such financing from new investors, and restructure its liabilities.
The Company had no operations or revenues, or significant assets or
liabilities over the past several years until completion of the Reorganization
on November 22, 1999. All representations of the Company prior to November 22,
1999, set forth in this Management's Discussion and Analysis are therefore
provided on a pro forma basis as if the Reorganization had occurred in such
period. In August, 1998, the Company entered into a License Agreement with
Deutsche Telekom AG to use the Company's Radio Information System - Europe
Version, for a term of 5 years for a total license fee of $1,625,000, paid
$1,250,000 in 1998, and $125,000, in March of the years 1999, 2000 and 2001 (the
"DT Contract"). The DT Contract constituted the Company's sole source of revenue
in 1998. In January 1999, the Company entered into a license agreement with its
only other customer, the Netherlands Broadcasting Transmission Company, for the
same technology for a five year contract, which constituted the Company's sole
new source of revenue in 1998. The Netherlands Broadcasting contract was for a
five year term for total license fees of $300,000, paid $200,000 in 1999 and
$25,000 per year in 2000, 2001, 2002 and 2003. Because the Company licensed its
technology over a five year term it was forced to recognize the revenue from the
licenses over a five year period, rather than on a cash basis.
Three Months Ended March 31, 2000, Compared to Three Months Ended March 31, 1999
Revenue. During the quarter ended March 31, 2000, the Company had
revenues of $130,799, which constituted a decrease in revenue of $164,201 from
$295,000 for the quarter ended March 31, 1999. Revenue during this quarter was
from payment received for sales made in prior periods. The decrease in revenue
is the result of the lack of new sales in the quarter ended March 31, 2000.
Cost of Sales. The Company incurred cost of sales for the quarter ended
March 31, 2000, of $245 compared to cost of sales for the quarter ended March
31, 1999, of $288,236. This decrease is primarily due to the fact that the
Company did not sell any new products during the quarter ended March 31, 2000.
Gross Profit. Gross profit as a percentage of revenue increased to 99%
for the three months ended March 31, 2000, from 2% of net sales for the
corresponding period ended March 31, 1999. The gross profit percentage decrease
is attributed to the fact that the Company had minimal cost of sales for the
revenues incurred in the three months ended March 31, 2000.
4
<PAGE>
Operating Expenses. Operating expenses increased by $131,255 or 79%
from $166,074 in the three months ended March 31, 1999, to $297,329 in the three
months ended March 31, 2000. The increase was attributable to increases in
selling, general and administrative expenses. Selling, general and
administrative expenses increased by $143,651 or 241%, from $45,652 for the
three months ended March 31, 1999, to $189,303 for the three months ended March
31, 2000. This increase was primarily attributable to an increase in salary,
legal expenses and the costs associated with the acquisition of Breathrough
Electronics, Inc. Research and development expenses decreased by $12,396 or 10%
from $120,422 for the three months ended March 31, 1999 to $108,026 for the
three months ended March 31, 2000. The decrease was primarily attributable to
fewer modifications of the Company's hardware and software to accommodate
changes in its business plan.
Other Income (Expense). Other income (expense) decreased by $17,358 or
approximately 1721% from ($17,662) in the three months ended March 31, 1999, to
($304) in the three months ended March 31, 2000. Interest expense decreased by
$22,629 from $22,629 in the three months ended March 31, 1999, to no interest
expense in the three months ended March 31, 2000, due to conversion of all
outstanding debt to equity in the previous quarter ending December 31, 1999. The
Company experienced interest income of $304 in the three months ended March 31,
2000, compared to income from interest of $4,967 in the three months ended March
31, 1999.
Nine Months Ended March 31, 2000, Compared To Nine Months Ended March 31, 1999
Revenues. Revenues decreased by $118,030 or approximately 24% from
$485,000 for the nine months ended March 31, 1999, to $366,970 in the nine
months ended March 31, 2000. The decrease is primarily due to the lack of any
new sales in that period and the large down payment on the DT Contract in the
nine months ended March 31, 1999.
Cost of Sales. The cost of sales for the nine months ended March 31,
2000, decreased to zero from $245 for the nine months ended March 31, 1999. The
decrease is primarily due to the fact that the costs associated with the DT
Contract sale were not incurred during this nine month period and the Company
made no other sales during the period.
Gross Profit. Gross profit as a percentage of revenues increased to
approximately 100% for the nine months ended March 31, 2000, from 35% of
revenues for the corresponding period in 1999, increasing by $197,200 for a
gross profit of $366,725 in the nine months ended March 31, 2000, compared to
gross profit of $169,529 for the same period ended March 31, 1999. The gross
profit percentage increase is attributed primarily to the fact that no cost of
sales were incurred during the current period.
Operating Expenses. Operating expenses increased by $675,096 or 124%
from $546,253 in the nine months ended March 31, 1999 to $1,221,349, in the nine
months ended March 31, 2000. The increase was attributable to an increase in
5
<PAGE>
selling, general and administrative expenses. Research and development expenses
decreased slightly by $27,384 or 8% from $350,697 in the nine months ended March
31, 1999, to $323,313 in the nine months ended March 31, 2000. Selling, general
and administrative expenses increased by $702,480 or 359% from $195,556 in the
nine months ended March 31, 1999, to $898,036 in the nine months ended March 31,
2000. The increase was primarily attributable to costs associated with the
Reorganization.
Other Income (Expense). Other expense increased by $29,629 from
($56,740) in the nine months ended March 31, 1999, to ($89,099) in the nine
months ended March 31, 2000, due to the following. Interest income increased by
$2,487 or 48% from $5,180 in the nine months ended March 31, 1999, to $7,667 in
the nine months ended March 31, 2000, due primarily to higher cash deposits on
hand resulting from the Company's recent financing. Interest expense increased
by $50,825 or 79% from $64,784 in the nine months ended March 31, 1999, to
$115,609 in the nine months ended March 31, 2000, primarily due to interest
accruing on the Company's debt financing. Gain on sale of assets increased by
$18,709 from $134 in the nine months ending March 31, 1999 to $18,843 in the
nine months ended March 31, 2000, primarily due to sale of certain assets.
Liquidity and Capital Resources
Cash and cash equivalents and net working capital (deficit) totaled
$64,933 and ($658,200), respectively, as of March 31, 2000. The primary source
of cash has been net proceeds generated from debt financings. The Company has
relied upon loan proceeds from convertible promissory notes and annual payments
under its two license agreements to fund its operations during the periods
discussed. The Company received $575,000 and $208,090 in debt financing for the
year ended June 30, 1999, and the nine months ended March 31, 2000,
respectively.
The Company anticipates that its primary use of working capital in
future periods will be for increases in product research and development,
expansion of its marketing plan and general and administrative expenses.
The Company believes that existing cash and cash equivalents, cash flow
from operations and cash raised through private placements will be sufficient to
meet the Company's presently anticipated working capital needs for the next 13
months. To the extent the Company uses its cash resources for its operations,
the Company will be required to obtain additional funds, if available, through
borrowings or equity financings. There can be no assurance that such capital
will be available on acceptable terms. If the Company is unable to obtain
sufficient financing, it may be unable to fully implement its growth strategy.
The Company also began operations of its subsidiary in Japan, Digital
D.J. Internet Solutions, Inc., a Japan corporation, to market the licensing of
the Company's technology in Japan. The Company anticipates that its subsidiary's
operational costs will be approximately $40,000 per month and that the Company
will need to raise additional funds of approximately $500,000 to $1,000,000 to
fund the operations of its Japanese subsidiary. The Company intends to attempt
to raise capital necessary to operate the subsidiary in Japan, but the Company
does not have any definitive capital raising plan or agreement with any sources
of such capital at this time.
6
<PAGE>
In addition to the uncertainties of sources of capital for the
Company's operations, the Company continues to experience uncertainties and
difficulties within the marketplace for its technology. The Company originally
sought to offer high speed data broadcasting systems using conventional FM
subcarrying, which would provide stock market and other data to subscribers on a
real time basis for a monthly fee. Shortly after the introduction of the
Company's product and services, several online brokerages and pager service
began offering free real time stock market quotations. The Company then modified
its business plan to license its technology to users in Europe and attempt to
joint venture with a major broadcasters in the United States to provide
subcarrier textual information in addition to the audio broadcasts. The Company
competes with numerous other types of carriers in this marketplace, including
Digital FM broadcasters, satellite FM broadcasters and competitors in
conventional FM subcarrier systems which claim to offer the ability to transmit
at higher speeds than that of the Company. The Company has no active sales force
within the U.S. and sales and marketing depends upon the Company's CEO, Thomas
Takahisa. There are no assurances that the Company will be able to compete
successfully within this marketplace.
Material Changes in Operations
As discussed above, in the nine months ended March 31, 2000, the
Company changed the focus of its marketing plan to shift from a retail and
wholesale provider of FM subcarrier content and hardware and software, to a
licensor of the Company's technology to individual users and resellers in Europe
and Asia. The Company also completed the Reorganization on November 22, 1999,
which resulted in the Company's combination with Digital D.J. The Company also
formed its Japan subsidiary for the marketing of licenses of its technology in
Japan.
Year 2000 Compliance
The Company experienced no Year 2000 complications with its products or
services and experienced no problems due to Year 2000 complications with any of
its key customers, licensees, licensors or vendors.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to or aware of any legal proceeding,
involving the Company and the Company is not aware of any proceedings involving
any of the Company's directors, officers, agents, representatives or persons
that beneficially own 5% or more of the Company's voting securities.
7
<PAGE>
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company did not experience any changes in its securities in the
three months ended March 31, 2000.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The Company's financial statements for the periods described herein are
attached.
The Form 8-K filed by the Company as of November 22, 1999, and
amendments thereto and exhibits and financial statements filed therewith,
including a copy of the Company's Agreement and Plan of Merger, the Company's
Proxy, and pro forma financial information are hereby incorporated herein by
reference.
8
<PAGE>
DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2000 (UNAUDITED) AND]
FOR THE NINE MONTHS ENDED
MARCH 31, 2000 AND 1999 (UNAUDITED)
<PAGE>
DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONTENTS
March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
Page
FINANCIAL STATEMENTS
Consolidated Balance Sheet 1
Consolidated Statements of Operations 2 - 3
Consolidated Statements of Cash Flows 4
Notes to Consolidated Financial Statements 5 - 7
<PAGE>
DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 64,933
Accounts receivable 131,467
Prepaid expenses 1,519
----------------
Total current assets 197,919
Property and equipment, net 42,986
Other assets 29,420
----------------
Total assets $ 270,325
================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable $ 151,201
Deferred revenue 465,000
Short term loans 13,389
Accrued liabilities 236,529
----------------
Total current liabilities 866,119
Deferred revenue 860,000
Notes payable 100,000
Other liabilities 18,894
----------------
Total liabilities 1,845,013
----------------
Minority interest 1,142
----------------
Shareholders' deficit
Common stock, $0.001 par value
50,000,000 shares authorized
13,177,528 shares issued and outstanding 13,178
Paid-in capital 13,260,143
Accumulated deficit (14,849,151)
----------------
Total shareholders' deficit (1,575,830)
----------------
Total liabilities and shareholders' deficit $ 270,325
================
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 2000 and 1999 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ $ 130,799 $ 295,000 $ 366,970 $ 485,000
Cost of sales 245 288,236 245 315,741
--------------- ---------------- --------------- ---------------
Gross profit 130,554 6,764 366,725 169,529
--------------- ---------------- --------------- ---------------
Operating expenses
Research and development 108,026 120,422 323,313 350,697
Selling, general, and administrative 189,303 45,652 898,036 195,556
--------------- ---------------- --------------- ---------------
Total operating expenses 297,329 166,074 1,221,349 546,253
--------------- ---------------- --------------- ---------------
Loss from operations (166,775) (159,310) (854,624) (376,724)
--------------- ---------------- --------------- ---------------
Other income (expense)
Interest expense - (22,629) (115,609) (64,784
Interest income 304 4,967 7,667 5,180
Gain on sale of asset - - 18,843 134
--------------- ---------------- --------------- ---------------
Total other income (expense) 304 (17,662) (89,099) (59,470)
--------------- ---------------- --------------- ---------------
Loss before provision for income
taxes (166,471) (176,972) (943,723) (436,194)
Provision for income taxes - - 30,800 1,180
--------------- ---------------- --------------- ---------------
Loss before extraordinary item (166,471) (176,972) (974,523) (437,374)
Extraordinary gain on early
extinguishment of debt, net of
income tax benefit of $0 - - 55,314 -
--------------- ---------------- --------------- ---------------
Net loss $ (166,471) $ (176,972) $ (919,209) $ (437,37)
=============== ================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended March 31, 2000 and 1999 (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------------------- ---------------------------------
2000 1999 2000 1999
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Basic loss per share
Loss before extraordinary item $ (0.01) $ (0.35) $ (0.15) $ (0.87)
Extraordinary item - - 0.01 -
--------------- ---------------- --------------- ----------------
Total basic loss per share $ (0.01) $ (0.35) $ (0.14) $ (0.87)
=============== ================ =============== ================
Weighted-average common shares
outstanding 13,177,528 500,000 6,604,023 500,000
=============== ================ =============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 2000 and 1999 (unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
--------------- ----------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (919,209) $ (437,374)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation 24,527 35,554
(Increase) decrease in
Accounts receivable 130,563 310,529
Prepaid expenses 2,088 26,551
Increase (decrease) in
Accounts payable (20,735) (659,778)
Accrued liabilities 108,273 (345,783)
Deferred revenue (232,500) 1,680,102
Other liabilities (1,000) 94,490
--------------- ----------------
Net cash provided by (used in) operating activities (1,169,119) 704,291
--------------- ----------------
Cash flows from investing activities
Purchases of property and equipment (16,306) (33,454)
Other assets 500) 18,201
--------------- ----------------
Net cash used in investing activities (16,806) (15,253)
--------------- ----------------
Cash flows from financing activities
Payments on notes payable - (14,731)
Proceeds from notes payable 221,479 -
--------------- ----------------
Net cash provided by (used in) financing activities 221,479 (14,731)
--------------- ----------------
Net increase (decrease) in cash and cash
equivalents (964,446) 674,307
Cash and cash equivalents, beginning of year 1,029,379 4,859
--------------- ----------------
Cash and cash equivalents, end of year $ 64,933 $ 679,166
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
Digital DJ Holdings, Inc. ("DDJ Holdings"), formerly known as
Breakthrough Electronics, Inc., a Nevada publicly-traded corporation,
and subsidiaries (collectively, the "Company") are in the design and
development stage of developing a digital data system that provides a
variety of information services to radio listeners using FM sub-carrier
technology.
Digital DJ, Inc. ("DDJ") was formed under the laws of California in
December 1991. On November 22, 1999, DDJ Holdings entered into an
Agreement and Plan of Merger, whereby it acquired all of the
outstanding common stock of DDJ in exchange for 12,466,992 shares of
newly issued common stock. The common stock of DDJ included 3,840,883
shares issued upon conversion of DDJ's preferred stock (after
anti-dilution), 6,031,700 issued shares of common stock, and 2,394,255
shares and 200,154 shares issued upon conversion of convertible
promissory notes and related accrued interest for $2,412,705 and
$215,473, respectively. In addition, 800,000 unissued shares of DDJ
common stock held in escrow for a consultant agreement with MacKenzie
Shea, Inc. were exchanged for an equal number of unissued shares of DDJ
Holdings common stock, and 1,279,917 stock options and 615,000 warrants
for the purchase of DDJ common stock were converted on a 1-to-1 basis
into stock options and warrants for the purchase of DDJ Holdings common
stock. The aforementioned preferred stock, common stock, convertible
promissory notes and related accrued interest, common stock held in
escrow, stock options, and warrants were converted as a result of and
concurrently with the Agreement and Plan of Merger with DDJ Holdings.
For accounting purposes, the transaction has been treated as a
recapitalization of DDJ, with DDJ as the accounting acquirer (reverse
acquisition), and has been accounted for in a manner similar to a
pooling of interests. The operations of DDJ Holdings have been included
with those of DDJ from the acquisition date.
DDJ Holdings was incorporated in Nevada on July 31, 1986. DDJ Holdings
had minimal assets and liabilities at the date of the acquisition and
did not have significant operations prior to the acquisition.
Therefore, no pro forma information is presented.
F-5
<PAGE>
DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 (unaudited)
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
normal, recurring adjustments considered necessary for a fair
presentation have been included. The financial statements should be
read in conjunction with the audited financial statements included in
the Company's annual report on Form 10-KSB for the year ended June 30,
1999. The results of operations for the nine months ended March 31,
2000 are not necessarily indicative of the results that may be expected
for the year ended June 30, 2000.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts
of Digital DJ Holdings, Inc. and its wholly-owned or majority owned
subsidiaries. All intercompany balances and transactions have been
eliminated.
Loss per Share
--------------
The Company calculates loss per common share in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per
Share." Basic loss per share is computed by dividing the loss available
to common shareholders by the weighted-average number of common shares
outstanding. Diluted loss per share is computed similar to basic loss
per share, except that the denominator is increased to include the
number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional
common shares were dilutive. Because the Company has incurred net
losses, basic and diluted loss per share are the same.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2000 consisted of the following:
Computers and software $ 186,670
Furniture and fixtures 1,571
----------------
188,241
Less accumulated depreciation 145,255
----------------
Total $ 42,986
================
F-6
<PAGE>
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.
May 15, 2000 DIGITAL DJ HOLDINGS, INC.
By:/s/ Thomas Takahisa
-------------------
Thomas Takahisa
President
DIGITAL DJ HOLDINGS, INC.
By:/s/ Thomas Takahisa
-------------------
Thomas Takahisa
Secretary/Treasurer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED INTERIM FINANCIAL STATEMENTS OF DIGITAL DJ HOLDINGS, INC. AS OF MARCH
31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS,
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 64933
<SECURITIES> 0
<RECEIVABLES> 131467
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 197719
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