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 DECEMBER 31,
1999
[ ] 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, #294San 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.
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[ 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
2
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BREAKTHROUGH ELECTRONICS
Form 10-QSB for the Quarter ended December 31, 1999
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 SECURITY...........................................8
ITEM 3 - DEFAULTS ON 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
SIGNATURE.............................................................10
EXHIBIT....................................................................11
3
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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
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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 December 31, 1999, 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 December 31, 1999, Compared to Three Months Ended December
31, 1998
Revenue. During the quarter ended December 31, 1999, the Company had
revenues of $116,500, which constituted a decrease in revenue of $19,750 from
$136,250 for the quarter ended December 31, 1998.
Cost of Sales. The Company incurred no cost of sales for the quarter
ended December 31, 1999, compared to cost of sales for the quarter ended
December 31, 1998, of $18,755. This decrease is primarily due to the fact that
the Company did not sell any new products during the quarter ended December 31,
1999.
Gross Profit. Gross profit as a percentage of revenue increased to 100%
for the three months ended December 31, 1999, from 86% of net sales for the
corresponding period ended December 31, 1998. The gross profit percentage
increase is attributed to the fact that the Company had no cost of sales for the
revenues incurred in the three months ended December 31, 1999.
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Operating Expenses. Operating expenses increased by $541,090 or 370%
from $146,239 in the three months ended December 31, 1998, to $687,329 in the
three months ended December 31, 1999. The increase was attributable to increases
in both research and development expenses and selling, general and
administrative expenses. Research and development expenses increased by $22,852
or 20% from $115,215 for the three months ended December 31, 1998, to $138,067
for the three months ended December 31, 1999. The increase was primarily
attributable to modifications of the Company's hardware and software to
accommodate changes in its business plan. Selling, general and administrative
expenses increased by $518,238 or 1770%, from $31,024 for the three months ended
December 31, 1998, to $549,262 for the three months ended December 31, 1999.
This increase was primarily attributable to $330,000 in commission and legal
fees paid by the Company as part of the Reorganization.
Other Income (Expense). Other income (expense) decreased by $12,504 or
approximately 260% from ($20,304) in the three months ended December 31, 1998,
to ($7,800) in the three months ended December 31, 1999. While interest expense
increased by $9,666, or 47% from $20,493 in the three months ended December 31,
1998, to $30,159 in the three months ended December 31, 1999,due to increased
convertible promissory notes during the period, the Company experienced a gain
on the sale of assets of $18,843 in the three months ended December 31, 1999,
compared to no gain on the sale of assets in the three months ended December 31,
1998.
Six Months Ended December 31, 1999, Compared To Six Months Ended December 31,
1998
Revenues. Revenues increased by $46,171 or approximately 124% from
$190,000 for the six months ended December 31, 1998, to $236,171 in the six
months ended December 31, 1999. The increase is primarily due to the addition of
the DT Contract.
Cost of Sales. The cost of sales for the six months ended December 31,
1999, decreased to zero from $27,505 for the six months ended December 31, 1998.
The decrease is primarily due to the fact that the costs associated with the DT
Contract sale were not incurred during this six month period and the Company
made no other sales during the period.
Gross Profit. Gross profit as a percentage of revenues increased to
100% for the six months ended December 31 1999, from 86% of revenues for the
corresponding period in 1998, increasing by $73,676 for a gross profit of
$236,171 in the six months ended December 31, 1999, compared to gross profit of
$162,495 for the same period ended December 31, 1998. 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 $543,841 or 143%
from $380,179 in the six months ended December 31, 1998 to $924,020, in the six
months ended December 31, 1999. The increase was attributable to a decrease in
research and development expenses, which was more than offset by an increase in
selling, general and administrative expenses. Research and development expenses
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decreased by $14,988 or 7% from $230,275 in the three months ended December 31,
1998, to $215,287 in the three months ended December 31, 1999. Selling, general
and administrative expenses increased by $558,829 or 373% from $149,904 in the
three months ended December 31, 1998, to $708,733 in the three months ended
December 31, 1999. The increase was primarily attributable to costs associated
with the Reorganization.
Other Income (Expense). Interest income increased by $7,150 or 3,357%
from $213 in the six months ended December 31, 1998, to $7,363 in the six months
ended December 31, 1999, due primarily to higher cash deposits on hand resulting
from the Company's recent financing. Interest expense increased by $73,724 or
176% from $41,885 in the six months ended December 31, 1998, to $115,609 in the
six months ended December 31, 1999, primarily due to interest accruing on the
Company's debt financing. Other income increased by $18,709 or 100% from $134 in
the six months ended December 31, 1998, to $18,843 in the six months ended
December 31, 1999, due to the gain on the sale of fixed assets.
Liquidity and Capital Resources
Cash and cash equivalents and net working capital (deficit) totaled
$284,164 and ($503,367), respectively, as of December 31, 1999. The primary
source of cash has been net proceeds generated from debt financings. The Company
has relied upon loan proceeds from convertible promissory notes 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 six months
ended December 31, 1999, 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 intends to begin 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.
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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 calendar year ended December 31, 1999, 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.
ITEM 2 - CHANGES IN SECURITY
On November 22, 1999, pursuant to the terms of the Agreement and Plan
of Merger entered into among the Company, Digital D.J., Inc., and Digital D.J.
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Subsidiary, Inc., the Company issued a total of 12,466,992 shares. All of the
shares that were issued by the Company were common stock. The common stock was
issued to each of the shareholders of Digital D.J., Inc., in exchange for their
shares in Digital D.J., Inc. As consideration for the shares, Digital D.J.,
Inc., merged with a wholly owned subsidiary of the Company resulting in Digital
D.J. becoming a wholly owned subsidiary of the Company. No cash consideration
was issued. The Company relied upon exemptions from registration available under
Sections 4(1) and 4(2) of the Act. The shares of common stock were issued on a
one for one basis, one share of the Company's common stock for one share of
Digital D.J., Inc. The terms of the issuance are described in more detail within
the Form 8-K as amended, filed with the Commission as of November 22, 1999.
ITEM 3 - DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As described in the Company's Form 8-K filed as of November 22, 1999,
the Company conducted a special meeting of its shareholders on November 22,
1999. The meeting involved the election of directors in which each of the then
existing members of the Board of Directors tendered their resignation and the
following persons were elected to serve as members of the Company's Board of
Directors until the next annual meeting of the Company.
Tsutomu Takahisa
Yoshiki Ohmori
Koyo Hasagawa
In addition to the election of new directors, the shareholders voted to
ratify the Agreement and Plan of Merger between the Company and Digital D.J. and
the issuance of shares of the Company pursuant thereto. At the time of the
Company's shareholder meeting, the Company had approximately 710,250 shares of
record outstanding of which a total of 386,250 shares or approximately 54% voted
in favor of the election of the directors and the approval of the merger.
A copy of the Proxy Statement circulated to the shareholders prior to
the special meeting of the shareholders was filed as an exhibit to the Company's
Amended 8-K, dated as of November 22, 1999.
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.
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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.
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.
February __, 2000 DIGITAL DJ HOLDINGS, INC.
By: Thomas Takahisa, President
------------------------------
Thomas Takahisa, President
DIGITAL DJ HOLDINGS, INC.
By: Thomas Takahisa
-------------------
Thomas Takahisa, Secretary/Treasurer
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EXHIBIT
Financial Statements
DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 (UNAUDITED) AND
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1999 AND 1998 (UNAUDITED)
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DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONTENTS
December 31, 1999 (unaudited)
Page
FINANCIAL STATEMENTS
Consolidated Balance Sheet 1
1 - 2
Consolidated Statements of Operations 2 - 3
3
Consolidated Statements of Cash Flows 4
4
Notes to Consolidated Financial Statements 5 - 7
5 - 6
12
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DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999 (unaudited)
ASSETS
December 31,
1999
Current assets
Cash and cash equivalents $ 284,164
Accounts receivable 668
Prepaid expenses 1,519
-----
Total current assets 286,351
Property and equipment, net 44,624
Other assets 29,420
------
Total assets $ 360,395
=========
The accompanying notes are an integral part of these financial statements.
1
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DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1999 (unaudited)
LIABILITIES AND SHAREHOLDERS' DEFICIT
December 31,
1999
Current liabilities
Accounts payable $ 88,189
Deferred revenue 465,000
Accrued liabilities 236,529
-------
Total current liabilities 789,718
Deferred revenue 860,000
Notes payable 100,000
Other liabilities 18,894
------
Total liabilities 1,768,612
---------
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 (14,682,680)
-----------
Total shareholders' deficit (1,409,359)
----------
Total liabilities and shareholders' deficit $ 360,395
==========
The accompanying notes are an integral part of these financial statements.
2
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DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended December 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 232,500 $ 1,059,234 $ 236,171 $ 1,176,143
Cost of sales -- 18,755 5 27,505
----------- ----------- ----------- -----------
Gross profit 232,500 1,040,479 236,166 1,148,638
----------- ----------- ----------- -----------
Operating expenses
Research and development 138,067 115,215 215,287 230,275
Selling, general, and administrative 475,105 31,024 708,728 149,904
----------- ----------- ----------- -----------
Total operating expenses 613,172 146,239 924,015 380,179
----------- ----------- ----------- -----------
Income (loss) from operations (380,672) 894,240 (687,849) 768,459
----------- ----------- ----------- -----------
Other income (expense)
Interest expense (30,159) (20,493) (115,609) (41,885)
Interest income 3,516 189 7,363 213
Other income -- -- 74,157 134
----------- ----------- ----------- -----------
Total other income (26,643) (20,754) (34,089) (41,538)
----------- ----------- ----------- -----------
Income (loss) before provision for
income taxes (407,315) 873,675 (721,938) 726,921
Provision for income taxes -- -- 30,800 1,180
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Net income (loss) $ (407,315) $ 873,675 $ (752,738) $ 725,741
================== =========== ================ ==========
Basic earnings (loss) per share $ (0.06) $ 1.75 $ (0.19) $ 1.45
================== =========== ================ ==========
Diluted earnings (loss) per share $ (0.06) $ 1.75 $ (0.19) $ 1.45
================== =========== ================ ==========
Weighted-average common shares
outstanding 7,137,867 500,000 3,924,201 500,000
================== =========== ================ ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 1999 and 1998 (unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(752,738) $ 725,741
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation 18,573 23,703
(Increase) decrease in
Accounts receivable 236 250,603
Prepaid expenses 2,088 26,551
Increase (decrease) in
Accounts payable (83,747) 67,580
Accrued liabilities 108,273 (248,514)
Deferred revenue (232,500) --
Other liabilities (1,000) 95,490
-------- -------
Net cash provided by (used in) operating activities (940,815) 941,154
-------- -------
Cash flows from investing activities
Purchases of property and equipment (11,990) (13,058)
Other assets (500) 13,809
-------- -------
Net cash provided by (used in) investing activities (12,490) 751
-------- -------
Cash flows from financing activities
Proceeds from notes payable 208,090 13,960
-------- -------
Net cash provided by financing activities 208,090 13,960
-------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Net increase (decrease) in cash and cash
equivalents (745,215) 955,865
Cash and cash equivalents, beginning of year 1,029,379 4,859
----------- -----------
Cash and cash equivalents, end of year $ 284,164 $ 960,724
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
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 15,161,909 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, 800,000
unissued shares of common stock held in escrow for a consultant
agreement with MacKenzie Shea, Inc., 1,279,917 shares issued for all
the outstanding stock options of DDJ, 615,000 shares issued for all the
outstanding warrants of DDJ 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. The
aforementioned preferred stock, common stock held in escrow, stock
options, warrants and convertible promissory notes and related accrued
interest were converted into shares of DDJ common stock 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 the 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.
7
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DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
DRAFT - 2/18/00
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 six months ended December 31,
1999 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.
Earnings per Share
------------------
The Company calculates earnings (loss) per common share in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." Basic earnings (loss) per share is computed by
dividing the income (loss) available to common shareholders by the
weighted-average number of common shares outstanding. Diluted earnings
(loss) per share is computed similar to basic earnings (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.
8
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DIGITAL DJ HOLDINGS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
DRAFT - 2/18/00
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 consisted of the following:
Computers and software $ 182,355
Furniture and fixtures 1,571
---------
183,926
Less accumulated depreciation 139,302
Total $ 44,624
=========
NOTE 4 - EXTRAORDINAY ITEM
During the three months ended Deceber 31, 1999, the Company and certain
creditors arrived at settlements, whereby $55,314 of the Company's accounts
payable were forgiven.
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