-----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, Gk4+pAYQsb+V+sy0/+ZWQrHpvr4vFLjrHBLy2VksJyuNcbtoo025BfD/SsHbD94j wm62/+oavC4Jos7gBpV6mw== 0000912057-97-027730.txt : 19970815 0000912057-97-027730.hdr.sgml : 19970815 ACCESSION NUMBER: 0000912057-97-027730 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97660170 BUSINESS ADDRESS: STREET 1: 245 ELEVENTH 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 10QSB 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 June 30, 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 July 31, 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 June 30, 1997 . . . . . . . . . . . . . . . . . 1 Statements of Income for the Three-Month and the Six-Month Periods Ended June 30, 1997 and June 26, 1996 . . . . . . . . . . . . . . . . . . . . . . . 3 Statements of Cash Flows for the Six Months Ended June 30, 1997 and June 26, 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 . . . . . . . . . . . . . . . . . . . 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 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DECHTAR DIRECT INC. BALANCE SHEET (UNAUDITED) ASSETS JUNE 30, 1997 ----------- CURRENT ASSETS: Cash $ 190,875 Accounts receivable, net 453,591 Due from affiliates 653,715 Prepaid marketing expense 1,039,719 Prepaid expenses 18,265 ----------- Total current assets 2,356,165 PROPERTY AND EQUIPMENT, NET 934,659 OTHER ASSETS: Mailing list development costs, net 1,488,026 Purchased mailing lists, net 307,634 Deferred stock offering costs 1,002,362 Deposits 37,142 Other assets 2,181 ----------- Total other assets 2,837,345 ----------- Total assets $6,128,169 ----------- ----------- See accompanying notes to financial statements. 1 DECHTAR DIRECT INC. BALANCE SHEET (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY JUNE 30, 1997 ----------- CURRENT LIABILITIES: Notes payable $ 572,701 Note payable, stockholder 10,251 Capital leases 32,534 Accounts payable and accrued expenses 2,617,952 Deferred income taxes 417,052 ----------- Total current liabilities 3,650,490 NOTES PAYABLE 26,620 CAPITAL LEASES 38,879 DEFERRED REVENUE 672,997 DEFERRED INCOME TAXES 60,971 COMMON STOCK SUBJECT TO REDEMPTION, 1,680,000 SHARES AT JUNE 30, 1997 5,033 STOCKHOLDERS' EQUITY: Common stock, 25,000,000 shares authorized, 11,207,000 shares issued and outstanding at June 30, 1997 433,626 Preferred stock A, $10 par value, 10,000,000 shares authorized, 58,130 shares issued and outstanding at June 30, 1997 474,478 Preferred stock B, $3 par value, 300,000 shares authorized, 180,000 shares issued and outstanding at June 30, 1997 533,978 Retained earnings 231,097 ----------- Total stockholders' equity 1,678,212 ----------- Total liabilities and stockholders' equity $6,128,169 ----------- ----------- See accompanying notes to financial statements. 2 DECHTAR DIRECT INC. STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------ ------------------------- JUNE 30, JUNE 26, JUNE 30, JUNE 26, 1997 1996 1997 1996 ---------- ---------- ---------- ----------- Revenue $2,040,109 $2,817,175 $4,264,916 $5,119,909 Cost of revenue 1,404,509 2,002,468 2,760,605 3,563,866 ---------- ---------- ---------- ----------- Gross profit 635,600 814,707 1,504,311 1,556,043 Selling, general and administrative expense 836,484 753,273 1,712,161 1,483,290 ---------- ---------- ---------- ----------- Income (loss) from operations (200,884) 61,434 (207,850) 72,753 Interest expense, net 22,084 14,332 39,326 30,256 ---------- ---------- ---------- ----------- Net income (loss) before income taxes (222,968) 47,102 (247,176) 42,497 Provision (benefit) for income taxes (87,981) 23,538 (95,117) 21,236 ---------- ---------- ---------- ----------- Net income (loss) $ (134,987) $ 23,564 $ (152,059) $ 21,261 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Net income (loss) per share $(0.01) $0.00 $(0.01) $0.00 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Weighted average common shares outstanding 13,473,817 13,164,410 13,473,817 13,164,410 ---------- ---------- ---------- ----------- ---------- ---------- ---------- -----------
See accompanying notes to financial statements. 3 DECHTAR DIRECT INC. STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED -------------------------- JUNE 30, JUNE 26, 1997 1996 ------------ ---------- CASH FLOWS PROVIDED BY (USED FOR) OPERATING ACTIVITIES: Net income (loss) $ (152,059) $ 21,261 Adjustments to reconcile net cash provided by operating activities: Depreciation and amortization: Mailing list development costs 163,125 125,128 Purchased mailing lists 32,877 32,877 Property and equipment 117,848 98,245 Deferred income taxes (benefit) (95,118) 20,436 Common stock issued as compensation - 10,500 Preferred stock issued for services rendered - 30,000 Bad debts 2,500 2,500 (Increase) decrease in operating assets: Accounts receivable 55,639 (108,778) Due from affiliates 27,977 (494,940) Prepaid marketing expense 241,270 (580,735) Prepaid expenses (1,245) 31,032 Deposits (2,952) (4,585) Increase (decrease) in operating liabilities: Accounts payable and accrued expenses 830,187 1,088,744 Deferred revenue (109,563) 97,238 ------------ ---------- Net cash provided by operating activities 1,110,486 368,923 ------------ ---------- CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES: Costs for development of mailing lists (232,875) (276,878) Payments to acquire property and equipment (187,498) (161,011) Payments from (advances to) stockholder (22,337) 44,840 Costs for purchases of mailing lists - (5,495) Payments to acquire other assets - (2,087) ------------ ---------- Net cash used for investing activities (442,710) (400,631) ------------ ---------- ------------ ---------- See accompanying notes to financial statements. 4 DECHTAR DIRECT INC. STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED SIX MONTHS ENDED ----------------------- JUNE 30, JUNE 26, 1997 1996 --------- --------- CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES: Proceeds from notes payable $ 130,000 $ 100,000 Payments on notes payable (26,016) (265,887) Payments on capital leases (19,033) (6,291) Proceeds from issuance of preferred stock, net of $0 and $47,529, respectively, of stock offering costs 4,000 270,331 Common stock issuance costs (576,854) (118,150) --------- --------- Net cash used for financing activities (487,903) (19,997) --------- --------- Net increase (decrease) in cash 179,872 (51,705) Cash at beginning of period 11,003 194,329 --------- --------- Cash at end of period $ 190,875 $ 142,624 --------- --------- --------- --------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Interest paid $ 38,857 $ 29,788 --------- --------- --------- --------- Income taxes paid $ 800 $ 800 --------- --------- --------- --------- SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES Preferred stock issued for services rendered $ - $ 30,000 --------- --------- --------- --------- Common stock issued as compensation $ - $ 21,000 --------- --------- --------- --------- Converted preferred stock to common stock $ - $ 400,000 --------- --------- --------- --------- See accompanying notes to financial statements. 5 DECHTAR DIRECT INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 26, 1996 AND JUNE 30, 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 June 30, 1997, and the interim results of operations and cash flows for the six months then ended. Certain reclassifications have been made in the financial statements for the period ended June 26, 1996, to conform to the June 30, 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 six-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 six-month period ended June 30, 1997, includes the days December 26, 1996, through June 30, 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 six-month periods ending June 30, 1997, and June 26, 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 JUNE 30, 1997, COMPARED TO THREE MONTHS ENDED JUNE 26, 1996 For the three-month period ended June 30, 1997, total revenues decreased 28% to $2.0 million compared to $2.8 million for the three-month period ended June 26, 1996. Due to a decrease in the Company's catalog circulation, catalog request program revenues decreased 30%, from $1.1 million to $761,000, and catalog ad space revenues decreased 44%, from $313,000 to $176,000. Agency services revenues decreased 24% for the quarter, from $1.2 million to $927,000, primarily as a result of decreased print brokerage volume offset in part by increases in consulting and order processing fees. List rental revenue was approximately $138,000 in both quarters. Other revenues decreased 24%, from $49,000 to $38,000, due primarily to a decrease in audiotext advertising sales offset in part by an increase in Internet revenue from the Company's Web site. Cost of revenues decreased 30%, from approximately $2.0 million for the three- month period ended June 26, 1996, to $1.4 million for the three-month period ended June 30, 1997. Gross profit margins increased from 29% in the second quarter of 1996 to 31% in the second quarter of 1997, primarily because of an increase in consulting and order processing revenues, which typically have higher margins, and a decrease in print brokerage revenues. In the second quarter of 1997, selling, general and administrative expense increased 11% to $836,000 compared to $753,000 for the second quarter of 1996. This was attributable primarily to increases in payroll expense and travel costs. The Company incurred a net loss of $134,987 for the three-month period ended June 30, 1997, compared to net income of $23,564 for the three-month period ended June 26, 1996. SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO SIX MONTHS ENDED JUNE 26, 1996 Total revenues for the first six months of 1997 were approximately $4.3 million, a decrease of 17% from revenues of $5.1 million for the first six months of 1996. Catalog request program revenues decreased 17%, from $2.1 million to $1.8 million, due primarily to a decrease in the quantity of catalogs mailed by the Company. Catalog ad space revenues decreased 41%, from $447,000 to $262,000, primarily because of the same decrease in catalog circulation. Agency services revenues decreased 12%, from $2.2 million to $1.9 million, as a result of a decrease in print brokerage volume, partially offset by increases in consulting and order processing fees. List rental revenue decreased 16%, from $293,000 to $246,000, due primarily to a decrease in average order size in the first three months of 1997. Other revenues 7 decreased 11%, from $85,000 to $75,000, due primarily to decreases in audiotext advertising sales, offset in part by an increase in Internet revenues. Cost of revenues decreased 23%, from approximately $3.6 million for the first six months of 1996 to $2.8 million for the first six months of 1997, while gross profit margins increased from 30% in 1996 to 35% in 1997. Margins increased in the first six months of 1997 primarily because of an increase in consulting and order processing revenues, which typically have higher margins, and a decrease in print brokerage revenues. Selling, general and administrative expense increased 15% from $1.5 million for the first six months of 1996 to $1.7 million for the first six months of 1997. This was attributable primarily to increases in payroll expense and travel costs. The Company incurred a net loss of $152,059 for the first six months of 1997 compared to net income of $21,261 for the first six months of 1996. LIQUIDITY AND CAPITAL RESOURCES Total assets increased 8% from $5.6 million as of June 26, 1996, to $6.1 million as of June 30, 1997, while total liabilities increased 6% from $4.2 million as of June 26, 1996, to $4.4 million as of June 30, 1997. Current assets decreased $790,000, or 25%, from June 26, 1996, to June 30, 1997, while current liabilities increased $23,000, or 1%. Total working capital remained negative, declining by $813,000 from a negative $482,000 as of June 26, 1996, to a negative $1.3 million as of June 30, 1997. This was attributable to a decrease in prepaid marketing costs and an increase in the current portion of notes payable. Total stockholders' equity rose approximately 16% from $1.5 million as of June 26, 1996, to $1.7 million as of June 30, 1997, primarily as a result of the sale of Series B Convertible Preferred Stock. The Company's debt-to-equity ratio improved from 2.9 as of June 26, 1996, to 2.7 as of June 30, 1997. The Company has no material capital expenditure commitments as of June 30, 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 - 8 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 The Annual Meeting of the stockholders of DechTar Direct, Inc. was held on April 22, 1997. An election was held for the six members of the Board of Directors, as authorized by the corporation's bylaws. The following individuals were unanimously elected to the Board of Directors: Terri Nicole Hess Thomas Lackman Brian Wright Melissa Shane Andrew August John Gibson ITEM 5. OTHER INFORMATION - - Not Applicable - ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - None (b) Reports on Form 8-K - None. 9 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 August 11, 1997 - --------------------- Terri N. Hess /S/ Thomas L. Lackman President, Chief Financial Officer August 11, 1997 - --------------------- Thomas L. Lackman 10 -----END PRIVACY-ENHANCED MESSAGE-----