-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IJaZMurVKXFj8LaxsUTp7lzQhD2tYoDCC21yimx4nO5J6RM/YAsDtN8wZIj6iJR9 obGa9ObJRCu0wrk5GWD6kQ== 0000912057-97-017236.txt : 19970514 0000912057-97-017236.hdr.sgml : 19970514 ACCESSION NUMBER: 0000912057-97-017236 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970513 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DECHTAR DIRECT INC CENTRAL INDEX KEY: 0001008850 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DIRECT MAIL ADVERTISING SERVICES [7331] IRS NUMBER: 943100168 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-28818 FILM NUMBER: 97602505 BUSINESS ADDRESS: STREET 1: 245 E SEVENTH ST CITY: SAN FRANCISCO STATE: CA ZIP: 94103 BUSINESS PHONE: 4158633005 MAIL ADDRESS: STREET 1: 245 ELEVENTH STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94103 10QSB 1 FORM 10-QSB 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 March 31, 1997 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-28818 DECHTAR DIRECT INC. (Exact name of small business issuer as specified in its charter) California 94-3100168 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 245 Eleventh Street, San Francisco, CA 94103 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (415) 863-3005 Former fiscal year ended on the fourth Wednesday in December (Former name, former address and former fiscal year, 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 Securities Exchange Act of 1934 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 \ \ As of April 30, 1997, there were issued and outstanding 12,887,000 shares of common stock of the issuer. DECHTAR DIRECT INC. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements Page No. Balance Sheet at March 31, 1997............................... 1 Statements of Income for the Three Months Ended March 31, 1997 and March 27, 1996................................................ 3 Statements of Cash Flows for the Three Months Ended March 31, 1997 and March 27, 1996............................................ 4 Notes to Financial Statements................................. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. 8 Item 2. Changes in Securities......................................... 8 Item 3. Defaults Upon Senior Securities............................... 8 Item 4. Submission of Matters to a Vote of Security Holders......................................... 8 Item 5. Other Information............................................. 8 Item 6. Exhibits and Reports on Form 8-K.............................. 8 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DECHTAR DIRECT INC. BALANCE SHEET (UNAUDITED) ASSETS MARCH 31, 1997 --------- CURRENT ASSETS: Cash $ 65,992 Accounts receivable, net 516,921 Due from affiliates 698,955 Prepaid marketing expense 1,204,955 Prepaid expenses 17,424 --------- Total current assets 2,504,247 PROPERTY AND EQUIPMENT, NET 901,505 OTHER ASSETS: Mailing list development costs, net 1,463,822 Purchased mailing lists, net 324,072 Deferred stock offering costs 672,595 Deposits 37,142 Other assets 2,181 --------- Total other assets 2,499,812 --------- Total assets $5,905,564 --------- --------- See accompanying notes to financial statements. 1 DECHTAR DIRECT INC. BALANCE SHEET (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY MARCH 31, 1997 ---------- CURRENT LIABILITIES: Notes payable $ 582,351 Note payable, stockholder 11,377 Capital leases 35,941 Accounts payable and accrued expenses 2,074,425 Deferred income taxes 483,373 ----------- Total current liabilities 3,187,467 NOTES PAYABLE 30,158 CAPITAL LEASES 45,172 DEFERRED INCOME TAXES 82,631 DEFERRED REVENUE 746,937 COMMON STOCK SUBJECT TO REDEMPTION, 1,680,000 SHARES AT MARCH 31, 1997 5,033 STOCKHOLDERS' EQUITY: Common stock, 25,000,000 shares authorized, 11,207,000 shares issued and outstanding at March 31, 1997 433,626 Preferred stock A, $10 par value, 10,000,000 shares authorized, 58,130 shares issued and outstanding at March 31, 1997 474,478 Preferred stock B, $3 par value, 300,000 shares authorized, 180,000 shares issued and outstanding at March 31, 1997 533,978 Retained earnings 366,084 ----------- Total stockholders' equity 1,808,166 ----------- Total liabilities and stockholders' equity $5,905,564 ----------- ----------- See accompanying notes to financial statements. 2 DECHTAR DIRECT INC. STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED ------------------------------ MARCH 31, MARCH 27, 1997 1996 ----------- ----------- Revenue $2,224,807 $2,302,734 Cost of revenue 1,356,096 1,561,398 ----------- ----------- Gross profit 868,711 741,336 Selling, general and administrative expense 875,677 730,017 ----------- ----------- Income (loss) from operations (6,966) 11,319 Interest expense, net 17,242 15,924 ----------- ----------- Net loss before income taxes (24,208) (4,605) Benefit for income taxes (7,136) (2,302) ----------- ----------- Net loss $ (17,072) $ (2,303) ----------- ----------- ----------- ----------- Net loss per share $(0.00) $(0.00) ---- ---- ---- ---- Weighted average common shares outstanding 13,473,723 13,082,043 ----------- ----------- ----------- ----------- See accompanying notes to financial statements. 3 DECHTAR DIRECT INC. STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED ---------------------------- MARCH 31, MARCH 27, 1997 1996 ----------- ------------ CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net loss $ (17,072) $ (2,303) Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization: Mailing list development costs 79,629 59,842 Purchased mailing lists 16,438 16,438 Property and equipment 52,457 47,361 Deferred income taxes (7,136) (2,302) Bad debts 2,000 1,250 (Increase) decrease in operating assets: Accounts receivable (7,191) (12,500) Due from affiliates (17,264) (449,694) Prepaid marketing expense 76,034 (234,244) Prepaid expenses (404) 37,340 Deposits (2,952) (4,562) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 286,660 630,204 Deferred revenue (35,623) 84,511 --------- ---------- Net cash provided by operating activities 425,576 171,341 --------- ---------- CASH FLOWS USED FOR INVESTING ACTIVITIES: Costs for development of mailing lists (125,175) (122,533) Payments to acquire property and equipment (88,952) (60,559) Advances to stockholder (21,211) (6,508) Costs for purchases of mailing lists - (5,494) Payments to acquire other assets - (936) --------- ---------- Net cash used for investing activities (235,338) (196,030) --------- ---------- --------- ---------- See accompanying notes to financial statements. 4 DECHTAR DIRECT INC. STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED THREE MONTHS ENDED --------------------------- MARCH 31, MARCH 27, 1997 1996 ----------- ------------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Proceeds from notes payable $ 130,000 $ - Payments on notes payable (12,828) (135,994) Payments on capital leases (9,333) (2,462) Proceeds from issuance of preferred stock, net of $0 and $55,906 respectively, of stock offering costs 4,000 115,354 Common stock issuance costs (247,088) (39,430) ----------- ------------- Net cash used for financing activities (135,249) (62,532) ----------- ------------- Net increase (decrease) in cash 54,989 (87,221) Cash at beginning of period 11,003 194,329 ----------- ------------- Cash at end of period $ 65,992 $ 107,108 ----------- ------------- ----------- ------------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 13,042 $ 8,909 ----------- ------------- ----------- ------------- Income taxes paid $ - $ - ----------- ------------- ----------- ------------- See accompanying notes to financial statements. 5 DECHTAR DIRECT INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) THREE MONTHS ENDED MARCH 27, 1996 AND MARCH 31, 1997 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared from the records of the Company without audit and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position at March 31, 1997, and the interim results of operations and cash flows for the three months then ended. Certain reclassifications have been made in the financial statements for the period ended March 27, 1996, to conform to the March 31, 1997, presentation. Accounting policies followed by the Company are described in Note 1 to the audited financial statements included in the Company's special financial report on Form 10-KSB for the year ended December 25, 1996. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted for purposes of the financial statements. These quarterly financial statements should be read in conjunction with the financial statements, including notes thereto, for the year ended December 25, 1996. The results of operations for the three-month periods herein presented are not necessarily indicative of the results to be expected for the full year. NOTE 2 - CHANGE IN FISCAL YEAR On March 17, 1997, the Board of Directors changed the Company's fiscal year to a calendar year. As a result, reporting for the quarter ending March 31, 1997, includes the days December 26, 1996, through March 31, 1997. The change in fiscal year has no material effect on the Company's balance sheet, statements of income and statements of cash flows for the periods ending March 31, 1997, and March 27, 1996, respectively. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In addition to historical information, this Quarterly Report on Form 10-QSB contains forward-looking statements. These statements refer to, among other things, liquidity and capital expenditures and are subject to risks and uncertainties. Factors that could cause the Company's actual results to differ materially from management's projections, estimates and expectations include, but are not limited to, success and timing of the Company's current public offering of securities, amount and timing of expenditures associated with such public offering, and the factors identified under "Risk Factors--Business Risks" in the Company's prospectus dated February 6, 1997. THREE MONTHS ENDED MARCH 31, 1997, COMPARED TO THREE MONTHS ENDED MARCH 27, 1996 Total revenues for the first three months of 1997 were approximately $2.2 million, a decrease of 3% from revenues of $2.3 million for the first three months of 1996. Catalog request program revenues decreased 3%, from $1.02 million to $994,000, due primarily to a decrease in the quantity of catalogs mailed by the Company. Catalog ad space revenues decreased 36%, from $134,000 to $86,000, primarily because of the same decrease in catalog circulation. Agency services revenues increased 4%, from $958,000 to $999,000, as a result of increased consulting and order processing revenue offset in part by a decrease in print brokerage volume. List rental revenue decreased $47,000, from $155,000 to $108,000, due primarily to a decrease in average client order size. Other revenues increased 6%, from $36,000 to $38,000, due primarily to increases in audiotext advertising sales. Cost of revenues decreased 13%, from approximately $1.56 million for the first three months of 1996 to $1.36 million for the first three months of 1997, while gross profit margins increased from 32% in 1996 to 38% in 1997. Margins increased in the first three months of 1997 primarily because of an increase in consulting and order processing revenues, and a decrease in printing brokerage revenues. Selling, general and administrative expense increased 20% from $730,000 for the first three months of 1996 to $876,000 for the first three months of 1997. This was attributable primarily to increases in payroll expense and professional fees. The Company incurred a net loss of $17,072 for the first three months of 1997 compared to net loss of $2,303 for the first three months of 1996. LIQUIDITY AND CAPITAL RESOURCES Total assets increased 20% from $4.9 million as of March 27, 1996, to $5.9 million as of March 31, 1997, while total liabilities increased 11% from $3.7 million as of March 27, 1996, to $4.1 million as of March 31, 1997. Current assets decreased $114,000, or 4%, from March 27, 1996, to March 31, 1997, while current liabilities increased $367,000, or 13%. Total working capital remained negative, declining by $480,000 from a negative $203,000 as of March 27, 1996, to a negative $683,000 as of March 31, 1997. This was attributable to an increase in the current portion of notes payable. Total stockholders' equity rose approximately 47% from $1.2 million as of March 27, 1996, to $1.8 million as of March 31, 1997, primarily as a result of the sale of Series B Convertible Preferred Stock. The Company's debt-to-equity ratio improved from 3.0 as of March 27, 1996, to 2.3 as of March 31, 1997. 7 The Company has no material capital expenditure commitments as of March 31, 1997. However, the Company expects that its capital expenditures will increase as the Company's employee base continues to grow. The Company expects to be able to fund its working capital requirements with a combination of cash flows from operations, normal trade credit, debt and equity financing arrangements and continued use of lease financing. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - - Not Applicable - ITEM 2. CHANGES IN SECURITIES - - Not Applicable - ITEM 3. DEFAULTS UPON SENIOR SECURITIES - - Not Applicable - ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - - Not Applicable - ITEM 5. OTHER INFORMATION - - Not Applicable - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None - (b) A current report on Form 8-K was filed on March 28, 1997, reflecting the change in fiscal year to a calendar year. 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. DECHTAR DIRECT INC. Name Title Date ---- ----- ---- /S/ Terri N. Hess Chief Executive Officer May 8, 1997 - ---------------------------- Terri N. Hess /S/ Thomas L. Lackman President, Chief Financial May 8, 1997 - ---------------------------- Officer Thomas L. Lackman 9 -----END PRIVACY-ENHANCED MESSAGE-----