10QSB 1 form10-qsb.htm DDYI FORM 10-QSB 09-30-2005 DDYI Form 10-QSB 09-30-2005
 
U.S. Securities and Exchange Commission
Washington, D.C. 20549
 
 
FORM 10-QSB
 


[X]
Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Quarterly Period Ended September 30, 2005

[  ]
Transition Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 for the Transition Period from _______ to _______

Commission File Number: 1-10559
 

DARK DYNAMITE, INC.
(Exact name of small business issuer as specified in its charter)
 

Nevada
65-1021346
(State or other jurisdiction of
(IRS Employer Identification No.)
incorporation or organization)
 
 
E Pang Gong Site, 44 Hong Guang Road, Xi An, P.R.China 710068
(Address of principal executive offices)

( 8629 ) 8436-8561
(Issuer's telephone number)
 
 
 
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 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 [ ]
 
Number of shares of common stock outstanding as of November 14, 2005: 621,948
(after giving effect to a 1:4 reverse stock split effective on November 3, 2005)
Number of shares of preferred stock outstanding as of November 14, 2005: 5,000,000.
 
 
 
 
 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
 
 
 
3
   
10
 
 
15
 
 
PART II. OTHER INFORMATION
 
 
 
17
 
 
18
 
 
18
 
 
20
 
 
11
 
 
22
 
 
 
ITEM 1. FINANCIAL STATEMENTS

As used herein, the term “DDI”, or the “Company” refers to Dark Dynamite, Inc., a Nevada corporation, its subsidiary corporations and predecessors unless otherwise indicated. Consolidated, unaudited financial statements including a balance sheet for DDI for the period ended September 30, 2005, and statement of operations and statement of cash flows for the interim period up to date of such balance sheet and the comparable periods of the preceding year are attached hereto as Pages F-1 through F-8 and are incorporated herein by this reference.
 

INDEX TO INTERIM FINANCIAL STATEMENTS
 
 
 
 
Page
 
 
Consolidated Unaudited Condensed Balance Sheet September 30, 2005
4-5
 
 
Consolidated Unaudited Condensed Consolidated Statements of Operations - For the Three Months and Nine Months Ended September 30, 2005 and 2004
6
 
 
Consolidated Unaudited Condensed Statements of Cash Flows - For the Nine Months Ended September 30, 2005 and 2004
7
 
 
Notes to Consolidated Unaudited Condensed Financial Statements
8-9
 
 
 
 
(FKA NCI HOLDINGS, INC)
  
Consolidated Balance Sheets
  
As of September 30, 2005
  
       
       
       
   
September 30,
  
   
2005
  
   
(Unaudited)
  
       
CURRENT ASSETS
        
Accounts receivable
  
$
267
  
Inventory
    
29,150
 
Pre paid expenses
    
3,632
 
TOTAL CURRENT ASSETS
    
33,049
 
         
FIXED ASSETS
        
Furniture and fixtures
    
170,754
 
TOTAL FIXED ASSETS
    
170,754
 
Accumulated depreciation
    
(26,181
)
NET FIXED ASSETS
    
144,573
 
         
DEPOSITS
        
Deposits
    
1,798
 
TOTAL DEPOSITS
    
1,798
 
         
INTANGIBLE ASSETS
        
Trademarks
    
1,380
 
TOTAL INTANGIBLE ASSETS
    
1,380
 
         
TOTAL ASSETS
  
$
180,800
  
         
The financial statements should be read in conjunction with the accompanying notes.
 
 
 
 
(FKA NCI HOLDINGS, INC)
  
Consolidated Balance Sheets
  
As of September 30, 2005
  
       
   
September 30,
  
   
2005
  
   
(Unaudited)
  
       
CURRENT LIABILITIES
        
Bank overdraft
  
$
1,959
  
Accounts payable
    
301,761
 
Notes payable short-term
    
29,611
 
TOTAL CURRENT LIABILITIES
    
333,331
 
         
STOCKHOLDERS' DEFICIT
        
Preferred Series A stock ($0.01 par value, 5,000,000 shares authorized; 5,000,000 shares issued and outstanding
    
50,000
 
Common stock $0.0001 par value, 1,000,000,000 shares authorized; 621,948 and 52,339 shares outstanding at September 30, 2005 and December 31, 2004, respectively (after giving effect to reverse stock splits).
    
62
 
Additional paid in capital
    
13,684,531
 
Stock subscriptions receivable
    
(55,163
)
Retained deficit
    
(13,831,962
)
TOTAL STOCKHOLDERS' DEFICIT
    
(152,531
)
         
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  
$
180,800
  
         
The financial statements should be read in conjunction with the accompanying notes.
 
 
 
 
(FKA NCI HOLDINGS, INC)
  
Consolidated Statements of Operations and
  
Other Comprehensive Income (Loss)
  
   
   
Three Months Ended
  
Nine Months Ended
  
   
September 30
  
September 30
  
September 30
  
September 30
  
   
2005
  
2004
  
2005
  
2004
  
   
(Unaudited)
  
(Unaudited)
  
(Unaudited)
  
(Unaudited)
  
REVENUE
                          
Sales
  
$
44,748
  
$
-
  
$
129,605
  
$
-
  
TOTAL REVENUE
    
44,748
   
-
   
129,605
   
-
 
                           
COST OF REVENUE
                          
Cost of sales
    
15,080
   
-
   
56,620
   
-
 
Coupons
    
26
   
-
   
1,846
   
-
 
Discounts
    
515
   
-
   
783
   
-
 
TOTAL COST OF REVENUE
    
15,620
   
-
   
59,248
   
-
 
                           
GROSS PROFIT
    
29,129
   
-
   
70,358
   
-
 
                           
EXPENSES
                  
Selling, general and administrative
    
205,859
   
358,531
   
751,691
   
597,778
 
TOTAL EXPENSES
    
205,859
   
358,531
   
751,691
   
597,778
 
                           
OPERATING LOSS
    
(176,731
)
  
(358,531
)
  
(681,334
)
  
(597,778
)
                           
OTHER INCOME (EXPENSE)
                          
Interest expense
    
(22
)
  
-
   
(26
)
  
-
 
Interest income
    
-
   
-
   
7
   
103
 
Miscellaneous income
    
64,058
   
-
   
81,911
   
-
 
Gain on early forgiveness of
accounts payable to governmental authority
    
-
   
-
   
-
   
106,500
 
Loss from impairment of goodwill
    
-
   
-
   
-
   
(3,490,000
)
TOTAL OTHER INCOME (EXPENSE)
    
64,036
   
-
   
81,893
   
(3,383,397
)
                           
NET LOSS
  
$
(112,694
)
$
(358,531
)
$
(599,441
)
$
(3,981,175
)
                           
Net loss per weighted average
common shares outstanding
  
$
(0.058
)
$
(4.310
)
$
(0.390
)
$
(80.000
)
Weighted average shares outstanding - basic and diluted
    
1,930,885
    
83,233
    
1,538,668
    
49,777
  
                           
The financial statements should be read in conjunction with the accompanying notes.
 
 

 
(FKA NCI HOLDINGS, INC)
  
STATEMENTS OF CASH FLOWS
  
   
   
Nine
  
Nine
  
   
Months Ended
  
Months Ended
  
   
September 30,
  
September 30,
  
   
2005
  
2004
  
   
(Unaudited)
  
(Unaudited)
  
           
CASH FLOWS FROM OPERATING ACTIVITIES:
          
Net loss
 
$
(599,441
)
$
(3,981,175
)
Adjustments to reconcile net loss to net cash (used in) operating activities:
              
Depreciation
    
19,870
   
1,904
 
Loss from impairment of goodwill
    
-
    
3,490,000
 
Common stock issued for services
    
61,900
   
361,314
  
Intrinsic value of options issued to employees
    
240,276
   
135,059
 
Common stock issued to apply on vendor accounts payable
    
30,758
   
-
 
               
(Increase) decrease in operating assets:
              
Accounts receivable
    
(267
)
  
(202
)
Inventory
    
(7,604
)
  
(1,535
)
Prepaid expenses
    
(1,427
)
  
(2,287
)
Deposit
    
(1,798
)
  
-
 
Increase (decrease) in operating liabilities:
              
Accounts payable and accrued expenses
    
6,970
   
(111,081
)
Payroll taxes payable
    
-
    
1,928
  
NET CASH (USED IN) OPERATING ACTIVITIES
    
(250,763
)
  
(106,075
)
               
               
CASH FLOWS FROM INVESTING ACTIVITIES:
            
Purchase fixed assets
    
(16,665
)
  
(42,579
)
Purchase publicly traded securities
    
-
   
(35,000
)
Purchase trademark
    
-
   
(1,045
)
NET CASH (USED IN) FINANCING ACTIVITIES
    
(16,665
)
  
(78,624
)
               
               
CASH FLOWS FROM FINANCING ACTIVITIES:
            
Issued notes payable for cash
    
29,611
   
-
 
Issued common stock for cash
    
4,002
   
122,418
 
Receipt of stock subscriptions receivable
    
47,314
   
-
 
Common stock issued for stock options exercised
    
112,643
   
-
 
NET CASH PROVIDED BY FINANCING ACTIVITIES
    
193,570
   
122,418
 
               
NET DECREASE IN CASH AND CASH EQUIVALENTS
    
(73,858
)
  
(62,281
)
CASH AND CASH EQUIVALENTS,
             
BEGINNING OF THE PERIOD
    
71,899
   
86,085
 
               
END OF THE PERIOD
  
$
(1,959
)
$
23,804
  
               
SUPPLEMENTARY CASH FLOW INFORMATION OF NON-CASH FINANCING:
              
Common stock issued for services
  
$
61,900
  
$
281,872
  
 
              
               
The financial statements should be read in conjunction with the accompanying notes.
 
 

DARK DYNAMITE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
 
NOTE 1 - MANAGEMENT’S USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles accepted in the United States of America required management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

NOTE 2 - REVENUE RECOGNITION

Revenue for the operations is recognized when services are performed. Revenue for services is recognized when the services are rendered. Revenue for products is recognized when the retail products are sold.

NOTE 3 - LOSS PER SHARE

Loss per share is reported in accordance with Statement of Financial Accounting Standard (SFAS) No. 128. This statement required dual presentation of basic and diluted earnings (loss) with a reconciliation of the numerator and denominator of the loss per share computations. Basic earnings per share amounts are based on the weighted average shares of common stock outstanding. If applicable, diluted earnings per share would assume the conversion, exercise or issuance of all potential common stock instruments such as options, warrants and convertible securities, unless the effect is to reduce a loss or increase earnings per share. There were no adjustments required to net loss for the period presented in the computation of diluted loss per share.

NOTE 4 - COMMON STOCK

During the nine months ended September 30, 2005, the Company has issued 2,435,452 shares of its post reverse split common stock pursuant to the Company’s S-8 Registration Statement.

NOTE 5 - GOING CONCERN AND UNCERTAINTY

The Company has experienced losses every quarter from its inception. In addition, the Company has negative net working capital, negative book value and negative cash flow. These factors raise substantial doubt about the ability of the Company to continue as a going concern.
 
Management’s plans with regard to these matters include the following:

·  
Obtain funding from new investors to alleviate the Company’s working capital deficiency.
·  
Management is reducing payroll and other incidental expenses.

The outcome of management’s plans cannot be ascertained with any degree of certainty. The accompanying financial statements do not include any adjustments that might result from the outcome of these risks and uncertainties.
 
 
DARK DYNAMITE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2005
 
NOTE 6 - REVERSE STOCK SPLITS

A common stock reverse split of 1 for 1,000 was effective March 28, 2005. All common stock amounts in the accompanying financial statements issued on or before the date of the reverse stock split have been restated retroactively to reflect this capitalization change.

A common stock reverse split of 1 for 4 was effective November 3, 2005. All common stock amounts in the accompanying financial statements, issued on or before September 30, 2005, have been restated retroactively to reflect this capitalization change.

NOTE 7 - STOCKHOLDERS’ EQUITY

On August 1, 2005, the Company filed an information statement with the Securities and Exchange Commission reporting that 99% of the authorized votes of the common and preferred stock of the Company had approved an amendment to the Articles of Incorporation of Dark Dynamite, Inc. to increase the number of authorized common shares, par value $0.0001, from five million (5,000,000) to one billion (1,000,000,000). On August 30, 2005, a Certificate of Amendment to carry the authorized increase in the number of common shares was filed with the Nevada Secretary of State.

NOTE 8 - CONTROL OF THE CORPORATION

On August 29, 2005, the Company and its majority shareholder, Richard Surber, signed a Plan of Exchange agreement (“Agreement”) with Shanxi Kai Da LV You Xian Gong SI (“Kai Da”), a corporation formed according to the laws of the Peoples Republic of China. The agreement set forth the terms and conditions under which control of the Company would be acquired by the shareholders of Kai Da through the purchase of 4,990,000 shares of the convertible preferred stock of the Company from Surber or companies under his control.

The Agreement called for the exchange to be completed on or about September 28, 2005. The shares of convertible preferred stock were to be deposited into escrow in exchange for a total cash payment of $495,000 and making Kai Da a wholly owned subsidiary of Dark Dynamite, Inc. At the conclusion of the exchange, the shareholders of Kai Da would hold approximately 98% of the voting control of the Company.

NOTE 9 - SUBSEQUENT EVENTS

On October 3, 2005 a Certificate of DDYI’s Majority Shareholder was signed by Richard Surber to execute and deliver to escrow the DDYI stock certificate in his name, endorsed in blank, in exchange for $495,000 deposited in escrow by Kai Da.

An Information Statement on Schedule 14F-1, dated October 19, 2005 and filed with the Securities and Exchange Commission on October 20, 2005, regarding the exchange of control of Dark Dynamite, Inc., was mailed to all stockholders of record as of September 30, 2005.
 
A Preliminary Information Statement on Schedule 14C, dated October 31, 2005, was filed with the Securities and Exchange Commission on November 2, 2005, regarding the change of name of DDYI to “China International Tourism Holdings, Ltd.” The Company is waiting for comments on such information statement from the Commission.
 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
As used in this Quarterly Report, the terms "we", "us", "our" and the "Company" mean Dark Dynamite Inc., (“DDI”) a Nevada corporation.
 
General
 
Dark Dynamite is a lifestyle company that produces clothing, candles, skateboards, and active wear. The mission of our business is to offer products designed with deliberateness and wild inspiration that indulge an individual’s innate drive to be unique. The overarching concept is to provide the consumer with an affordable alternative to “mass-market” offerings by extending a product that conveys a sense of eccentricity that stands apart in quality, style and price, from most of the homogenous fare being offered consumers by the mainstream apparel market.
 
The Jared Gold brand name contributes to financially sustaining the Black Chandelier collection, which in turn will allow for the diversification of further products associated with the Jared Gold name. Future collections to be released include The Genevieve (new name pending) which will feature, housewares, confections, and candles, Life-of-the-Knife (Black Chandelier Skate),skate and snowboard apparel), Black Chandelier 365 (T-Shirt-of-the-day available only by e-procurement), and Black Chandelier Tweens (teenplus sizes for girls). All of these products will strengthen and underscore the Company’s brand identity.
 
In addition to strengthening the brand name and capitalizing on the reputation of Jared Gold, the Company has established a global public relations network that focuses on establishing goodwill towards the Company within the apparel market. There is will be a corporate communications staff at the Company’s headquarters that will communicate with PR companies abroad as well as using contracts PR companies to and also receive market feedback so as to effectively implement appropriate marketing and distribution strategies. The ultimate objective is expanding our consumer base by targeting boutiques and higher-end department stores.
 
The Company currently operates retail stores in Salt Lake City, Utah and Seattle, Washington.

RESULTS OF OPERATIONS

Revenues
 
Gross revenues for the three-month and nine-month periods ended September 30, 2005, were $44,748 and $129,605, respectively, as compared to $0 for the same periods ended September 30, 2004. The changes in 2005 revenues were due to the operations of the two retail outlets of the Company, both of which were operating since first quarter of 2005.

Losses
 
DDI recorded operating losses of $176,731 and $681,334 for the three-month and nine-month periods ended September 30, 2005, respectively, compared to operating losses of $358,531 and $597,778 for the comparable periods ended September 30, 2004. The increase in operating losses in the nine months of 2005 resulted from the higher level of operations for the Company as compared to the same period in 2004. The operating losses of $681,334 for the nine months ended September 30, 2005 were due primarily to the accounting and audit fees of $25,907, consulting expenses of $35,033, legal fees of $75,198 and salaries and wages of $435,293.

10
 
DDI recorded net losses of $112,694, or $.058 per common share outstanding, and $599,441, or $.390 per common share outstanding, for the three months and nine months ended September 30, 2005, respectively, as compared to net losses of $358,531 and $3,981,175 for the same periods ended September 30, 2004. The decrease in losses was attributable primarily to the loss from impairment of goodwill recorded in the first quarter of 2004 in the amount of $3,490,000 which was not repeated in 2005.
 
DDI does not expect to operate at a profit through fiscal 2005. Since DDI’s activities are dependent upon its ability to sell its products in the fashion and life style areas, future profitability or DDI’s ability to generate revenue and revenue growth tends to follow changes in the fashion market place. There can be no guarantee that profitability or revenue growth can be realized in the future.
 
Expenses
 
Selling, general and administrative expenses for the three months and nine months ended September 30, 2005, were $205,859 and $751,691, respectively, compared to $358,531 and $597,778 for the same periods in 2004. The increase of $153,913 in expenses in the nine months of 2005 was due primarily to the start up expenses of creating and marketing the product lines of the Company and the increase in salaries and wages.
 
Capital Resources and Liquidity
 
On September 30, 2005, DDI had current assets of $33,049 and $180,800 in total assets. DDI had a net working capital deficit of $300,282 at September 30, 2005, as compared to a net working capital deficit of $17,344 at the same period ended September 30, 2004, an increase in the deficit of $282,938. The working capital deficit was due primarily to outstanding accounts payable that were considered as current liabilities and the increase in those amounts during the nine months of 2005 lead to the increase over the same period of 2004.
 
Net cash used in operating activities was $250,763 for the nine months ended September 30, 2005, compared to net cash used in operating activities of $106,075 for the nine months ended September 30, 2004. The increase in cash used in operations in the nine months of 2005 reflected the increased operational level of the Company during the nine months of 2005 as compared to the same period of 2004.
 
Net cash used in investing activities was $16,665 for the nine months ended September 30, 2005, compared to net cash used in investing activities was $78,624 for the same period ended September 30, 2004. Cash flow used in investing activities in the nine months of 2005 was due primarily to the purchase of fixed assets, and the cash flow used in investing activities in the same period of 2004 included the purchase of fixed assets, the purchase of publicly traded securities and the purchase of trademark.
 
Cash from financing activities was $193,570 for the nine months ended September 30, 2005, compared to cash flow from financing activities of $122,418 for the nine months ended September 30, 2004. The bulk of these funds represent the receipt of stock subscriptions from the exercise of stock options by employees and consultants of the Company.

11
 
DDI is currently experiencing significant cash flow shortages. Current efforts to meet the cash flow needs of the operations of the Company are not sufficient at this time to meet the needs of the Company’s operations. To cover these ongoing shortages we may need to sell securities from time to time at a loss. We are looking at several options to improve this situation, including the private placement of DDI common stock or other avenues to obtain additional investments.
 
Stock and Options To Employees and Contractors

During the nine months ended September 30, 2005, the Company has issued 2,435,452 shares of its post reverse split common stock pursuant to the Company’s S-8 Registration Statement, of which 150,000 shares of common stock issued for services on September 20, 2005; 562,500 shares of common stock issued for exercised options on September 20, 2005; 64,160 shares of the common stock issued for the settlement of all liabilities to Hudson Consulting.
 
In September of 2005, 150,000 shares were cancelled and returned to the Treasury.

Off Balance Sheet Arrangements

We do not have any off-balance sheet financing arrangements

ABILITY TO CONTINUE AS A GOING CONCERN
 
As shown in the consolidated financial statements for the nine months ended September 30, 2005, the Company had incurred recurring losses from operations, had a deficit book value, was the subject of numerous law suits, had all of its assets fully pledged, had a negative cash flow from operations that created substantial doubt as to whether the Company can continue as a going concern. The ability of the Company to continue as a going concern is dependent on resolving the business and liquidity problems, principally through developing operations, increasing revenues, and obtaining new capital through either debt or equity.
 
Forward Looking Statements
 
The information herein contains certain forward looking statements within the meaning of §27A of the Securities Act of 1933, as amended and § 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward looking statements involve risks and uncertainty, including without limitation, the ability of the Company to continue its current expansion strategy, changes in the fashion and clothing markets, labor and employee benefits, as well as general market conditions, competition and pricing. Although the Company believes that the assumptions underlying the forward looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward look statements included in this Form 10-QSB will prove to be accurate. In view of the significant uncertainties inherent in the forward looking statements included herein, the inclusion of such information should not be regarded as a representation by the company or any other person that the objectives and plans of the Company will be achieved.

12
 
Risk Factors
 
The success of our business depends in large part on our ability to identify fashion trends as well as to react to changing customer demand in a timely manner. Consequently, we depend in part upon the continuing favorable market response to the creative efforts of our purchasing, design and marketing teams’ ability to anticipate trends and fashions that will appeal to our consumer base.

Failure on our part to anticipate, identify, and respond effectively to changing consumer demands and fashion trends will adversely affect our sales. If we are unable to obtain raw materials or find manufacturing facilities, our financial condition may be harmed. Outside of a small sample room, we do not own any manufacturing facilities, and therefore depend on a limited number of third parties to manufacture our products. We place all of our orders for production of merchandise and raw materials by purchase order and do not have any long-term contracts with any manufacturer or supplier. If we fail to obtain sufficient quantities of raw materials, it could have a harmful effect on the results of our operations. Furthermore, we may receive shipments of products from manufacturers that fail to conform to our quality control standards. In such events, unless we are able to obtain replacement products in a timely manner, we may lose sales. If we fail to maintain favorable relationships with these production facilities or fail to obtain an adequate supply of quality raw materials on commercially reasonable terms, it could harm our business and results of operations.
 
We will be dependent on third party manufacturers for production, and our sales may be negatively affected if the manufacturers do not perform acceptably, or if design changes are communicated after the production has begun. We will develop a significant portion of our merchandise in conjunction with third-party apparel manufacturers. In some cases, we select merchandise directly from these manufacturers’ lines. We do not have long-term contracts with any third party manufacturers and will purchase all of the merchandise from such manufacturers by purchase order. Furthermore, we may receive in the future, shipments of products from third-party apparel manufacturers that fail to conform to our quality control standards. In such events, unless we are able to obtain replacement products in a timely manner, we may lose sales. We cannot assure you that third party manufacturers (1) will not supply similar products to our competitors, (2) will not stop supplying products to us completely or, 3) will supply products that satisfy our quality control standards. In addition, certain of our third party manufacturers will store our raw materials. In the event our inventory was damaged or destroyed and we were unable to obtain replacement raw materials, our ability to generate earnings may be negatively impacted. In addition, if we decide to change a key element of the design after the manufacturing process has begun we may negatively impact the manufacturer's ability to deliver the products on a timely basis, which could impact our ability to generate earnings.
 
Our success depends on our ability to attract and retain key employees in order to support our existing business and future expansion. We are actively recruiting qualified candidates to fill key executive positions within the Company. There is substantial competition for experienced personnel, which we expect to continue. We will compete for experienced personnel with companies who have substantially greater financial resources than we do. If we fail to attract, motivate and retain qualified personnel, it could harm our business and limit our ability to expand. In addition, we depend upon the expertise and execution of our key employees, particularly Jared Gold, the founder, Chairman of the Board, and Chief Executive Officer of Dark Dynamite, Inc. We do not maintain insurance policies on any of our employees. If we lose the services of Mr. Gold, or any key officers or employees, it could harm our business and results of operations.

13
 
We face significant competition in the retail and apparel industry, which could harm our sales and profitability. The retail and apparel industries are highly competitive and are characterized by low barriers to entry. We expect competition in our markets to increase. The primary competitive factors in our markets are: brand name recognition, sourcing strategies, product styling, quality, presentation and pricing, timeliness of product development and delivery, customer service, and convenience. We compete with specialty store retailers, business to consumer websites, off-price retailers and direct marketers for, among other things, raw materials, market share, finished goods, sourcing and personnel. Because many of these competitors are larger and have substantially greater financial, distribution and marketing resources than we do, we may lack the resources to adequately compete with them. If we fail to compete in any way, it could harm our business, financial condition, and future results of operations.
 
Purchases of the merchandise we sell are generally discretionary and are therefore particularly susceptible to economic slowdowns. If current economic conditions do not improve, our business, financial condition, and results of operations could be adversely affected. Consumers are generally more willing to make discretionary purchases, including purchases of fashion products and high-end home products, during periods in which favorable economic conditions prevail.
 
If we are not able to successfully protect our intellectual property, our ability to capitalize on the value of our brand name may be impaired. Even though we intend to take actions to establish, register and protect our trademarks and other proprietary rights, we cannot assure you that we will be successful, or that others will not imitate our products or infringe upon our intellectual property rights. In addition, we cannot assure you that others will not resist or seek to block the sale of our products as infringements of their trademark and proprietary rights. We are seeking to register our trademarks in targeted markets. In some of these markets, obstacles exist that may prevent us from obtaining a trademark for the Black Chandelier or Dark Dynamite names or related names. Furthermore, in some jurisdictions, despite successful registration of our trademarks, third parties may allege infringement and bring actions against us.

If an independent manufacturer violates labor or other laws, or is accused of violating any such laws, or if their labor practices diverge from those generally accepted as ethical, it could harm our business and brand image. While all manufacturers are contractually required to comply with such labor practices, we cannot control the actions or public perception of such manufacturers, nor can we assure that these manufacturers will conduct their businesses using ethical or legal labor practices. Apparel companies can be held jointly liable for the wrongdoings of the manufacturers of their products. While we do not control their employee's employment conditions or the manufacturer's business practices, and the manufacturers act in their own interest, they may act in a manner that results in a negative public perception of us and/or employee allegations or court determinations that we are jointly liable for such improper practices.
 
The issuance of additional shares under S-8 may impair the value of the Company’s stock because of significant dilution. The most significant risk relating to our business is the dilution of the Company’s common stock, as the Company at this time is relying heavily on the issuance of S-8 shares of its common stock to pay its advisors and employees.

14

ITEM 3. CONTROLS AND PROCEDURES.
 
Quarterly Evaluation of Controls
 
As of the end of the period covered by this quarterly report on Form 10-QSB, we evaluated the effectiveness of the design and operation of (i) our disclosure controls and procedures ("Disclosure Controls"), and (ii) our internal control over financial reporting ("Internal Controls"). This evaluation ("Evaluation") was performed by our President and Chief Executive Officer, Ming Lei ("CEO") and Xiaojun Wang, our Chief Financial Officer ("CFO"). In this section, we present the conclusions of our CEO and CFO based on and as of the date of the Evaluation, (i) with respect to the effectiveness of our Disclosure Controls, and (ii) with respect to any change in our Internal Controls that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect our Internal Controls.
 

Attached to this annual report, as Exhibits 31.1 and 31.2, are certain certifications of the CEO and CFO, which are required in accordance with the Exchange Act and the Commission's rules implementing such section (the "Rule 13a-14(a)/15d-14(a) Certifications"). This section of the annual report contains the information concerning the Evaluation referred to in the Rule 13a-14(a)/15d-14(a) Certifications. This information should be read in conjunction with the Rule 13a-14(a)/15d-14(a) Certifications for a more complete understanding of the topic presented.

Disclosure Controls and Internal Controls

Disclosure Controls are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed with the Commission under the Exchange Act, such as this annual report, is recorded, processed, summarized and reported within the time period specified in the Commission's rules and forms. Disclosure Controls are also designed with the objective of ensuring that material information relating to the Company is made known to the CEO and the CFO by others, particularly during the period in which the applicable report is being prepared. Internal Controls, on the other hand, are procedures which are designed with the objective of providing reasonable assurance that (i) our transactions are properly authorized, (ii) the Company's assets are safeguarded against unauthorized or improper use, and (iii) our transactions are properly recorded and reported, all to permit the preparation of complete and accurate financial statements in conformity with accounting principals generally accepted in the United States.

Limitations on the Effectiveness of Controls

Our management does not expect that our Disclosure Controls or our Internal Controls will prevent all error and all fraud. A control system, no matter how well developed and operated, can provide only reasonable, but not absolute assurance that the objectives of the control system are met. Further, the design of the control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances so of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision -making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of a system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
 

Scope of the Evaluation

The CEO and CFO's evaluation of our Disclosure Controls and Internal Controls included a review of the controls' (i) objectives, (ii) design, (iii) implementation, and (iv) the effect of the controls on the information generated for use in this annual report. In the course of the Evaluation, the CEO and CFO sought to identify data errors, control problems, acts of fraud, and they sought to confirm that appropriate corrective action, including process improvements, was being undertaken. This type of evaluation is done on a quarterly basis so that the conclusions concerning the effectiveness of our controls can be reported in our quarterly reports on Form 10-QSB and annual reports on Form 10-KSB. The overall goals of these various evaluation activities are to monitor our Disclosure Controls and our Internal Controls, and to make modifications if and as necessary. Our external auditors also review Internal Controls in connection with their audit and review activities. Our intent in this regard is that the Disclosure Controls and the Internal Controls will be maintained as dynamic systems that change (including improvements and corrections) as conditions warrant.

Among other matters, we sought in our Evaluation to determine whether there were any significant deficiencies or material weaknesses in our Internal Controls, which are reasonably likely to adversely affect our ability to record, process, summarize and report financial information, or whether we had identified any acts of fraud, whether or not material, involving management or other employees who have a significant role in our Internal Controls. This information was important for both the Evaluation, generally, and because the Rule 13a-14(a)/15d-14(a) Certifications, Item 5, require that the CEO and CFO disclose that information to our Board (audit committee), and to our independent auditors, and to report on related matters in this section of the annual report. In the professional auditing literature, "significant deficiencies" are referred to as "reportable conditions". These are control issues that could have significant adverse affect on the ability to record, process, summarize and report financial data in the financial statements. A "material weakness" is defined in the auditing literature as a particularly serious reportable condition where the internal control does not reduce, to a relatively low level, the risk that misstatement cause by error or fraud may occur in amounts that would be material in relation to the financial statements and not be detected within a timely period by employee in the normal course of performing their assigned functions. We also sought to deal with other controls matters in the Evaluation, and in each case, if a problem was identified; we considered what revisions, improvements and/or corrections to make in accordance with our ongoing procedures.

Conclusions

Based upon the Evaluation, our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives. Our CEO and CFO have concluded that our disclosure controls and procedures are effective at that reasonable assurance level to ensure that material information relating to we are made known to management, including the CEO and CFO, particularly during the period when our periodic reports are being prepared, and that our Internal Controls are effective at that assurance level to provide reasonable assurance that our financial statements are fairly presented inconformity with accounting principals generally accepted in the United States. Additionally, there has been no change in our Internal Controls that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to affect, our Internal Controls.
 
 
PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Securities and Exchange Commission v. David M. Wolfson, et al. On October 16, 2004 a civil complaint was filed by the Securities and Exchange Commission in which Dark Dynamite, Inc. was named as a respondent. The Company’s former president Gino Carlucci was also named as a respondent. The suit was filed in the United States District Court for the District of Utah and bears the docket number 2:03CV00914DAK and the style of the case is: “Securities and Exchange Commission v. David M. Wolfson; NuWay Holdings, Inc., a Nevada corporation; Momentous Group, LLC, a Utah limited liability company; Leeward Consulting Group, LLC, a Utah limited liability company; Sukumo Limited, a company incorporated in the British Virgin Islands (a.k.a. Sukumo Group, Ltd., Fujiwara Group, First Chartered Capital Corporation, First Colonial Trust, First China Capital and International Investment Holding); Michael Sydney Newman (A.K.A. Marcus Wiseman); Stem Genetics, Inc., a Utah corporation; Howard H. Robertson; Gino Carlucci; G & G Capital, LLC an Arizona and Utah limited liability company; F10 Oil and Gas Properties, Inc.; Jon H. Marple; Mary E. Blake; Jon R. Marple; Grateful Internet Associates, LLC, a Colorado limited liability company; Diversified Financial Resources Corporation, a Delaware corporation; John Chapman; Valesc Holdings, Inc., a New Jersey corporation; Jeremy D. Kraus; Samuel Cohen; Dark Dynamite, Inc., a Nevada corporation. The complaint alleges that the Company failed to accurately and fully disclose the nature of its relationship to The Sukumo Group, Inc., including the failure of Sukumo to complete the purchase of the shares and alleges that Sukumo acted as a selling agent for NCIH. The complaint also faults The Sukumo Group Inc.’s actions with regard to the sale of common stock to off shore purchasers for failing to disclose the interest that Sukumo had in each sale, reporting that it was taking a 1-2% commission on the sale rather than keeping 70% or more of the proceeds of each transaction. The Company has agreed to terms of settlement with the SEC, subject to final approval by the full Commission, providing for a cash payment in the sum of $30,000 to the SEC and the entry of consent decree prohibiting any future violations of the securities laws and regulations. Additional financial information in support of the settlement has been requested by the SEC and is expected to be supplied shortly after the filing of this quarterly report.
 
Allen E. Weintraub vs. Dark Dynamite, Inc. f/k/a Vector Holdings Corporation, a Nevada Corporation, Jared D. Gold, Richard D. Surber and Greentree Financial Group, Inc., a Florida Corporation d/b/a Bongiovanni & Associates. This case was filed in the United States District Court, Southern District of Florida, and bears the Case No: 05-20384. Allen E. Weintraub sold control of the Corporation to Diversified Holdings, Inc., and thereafter, falsely claimed he had a secured interest in the unissued stock of the Company, arising out of contractual obligations pursuant to the Stock Exchange Agreement whereby he transferred control. This Complaint is based upon fraudulent documents that Mr. Weintraub alleges create additional debts and obligations which have been made the subject of both this case and the following litigation pending in the state of Utah. This case also raises the same issues filed in a prior state suit in Florida that was dismissed by Mr. Weintraub immediately prior to a hearing on the Company’s motion to dismiss the claims. Plaintiffs have filed a Motion to Dismiss this suit. A hearing date on the Motion is pending.
 
Dark Dynamite, Inc., a Nevada corporation, and Diversified Holdings, Inc.(“DHI”), a Utah corporation vs. Allen E. Weintraub, an individual, and Miami Venture Capital, Inc., a Florida corporation. This case was filed in the Third District Court of Salt Lake County, Utah, and bears the Case Number: 050905249 The Company has filed suit against Mr. Weintraub for breach of contract with respect to matters incidental to the sale of Dark Dynamite, including fraud for failure to disclose numerous liabilities of the Company prior to its sale to DHI, and his tortuous interference in the Company’s business operations. The Company also is seeking an injunction against Weintraub and all related entities in an effort to put a stop to this tortuous interference and claims based upon his fraudulent actions.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
 
On September 20, 2005, 75,000 shares of common stock were issued to J. Gold, the former president, for past services;

On September 20, 2005, 75,000 shares of common stock were issued to R. Surber, the previous beneficial owner of the Company, for past services;

On September 20, 2005, the total of 562,500 shares of common stock was issued for exercised options.

On September 20, 2005, 64,160 shares of common stock were issued for the settlement of all liabilities to Hudson Consulting.

In September of 2005, 150,000 shares were cancelled and returned to the Treasury.


ITEM 5. OTHER INFORMATION

On August 1, 2005, the Company filed an information schedule with the Securities and Exchange Commission reporting that 99% of the authorized votes of the common and preferred stock of the Company had approved an amendment to the Articles of Incorporation of Dark Dynamite, Inc. to increase the number of authorized common shares, par value $0.0001, from five million (5,000,000) to one billion (1,000,000,000). The Certificate of Amendment to carry the authorized increase in the number of common shares has been filed with the Nevada Secretary of State on August 29, 2005

On August 15, 2005, the Company and its majority shareholder, Richard Surber, entered into a binding Letter of Intent (“LOI”) with Shanxi Kai Da Lv You Gu Wen You Xian Gong Si (“Kai Da”) a corporation formed according to the laws of the Peoples Republic of China. The LOI sets for the terms and conditions upon which control of the Company will be acquired by the shareholders of Kai Da through the purchase of 4,990,000 shares of the convertible preferred stock of the Company from Surber or companies under his control.

The LOI sets forth the parties intention to complete a Plan of Exchange on or about August 29, 2005, at which time the shares of convertible preferred stock will be deposited into escrow in exchange for a total cash payment of $495,000 and making Kai Da a wholly owned subsidiary of the Registrant. Final closing of the exchange was planned for on or about the 28th of September, 2005. In fact, the plan of exchange closed as of October 3, 2005, with the exchange of all closing documentation occurring on that date. At the conclusion of the planned exchange the shareholders of Kai Da held approximately 98% of the voting control of the Company.

 
As described above, on August 29, 2005, the Company executed a Plan of Exchange (the “Agreement”), among the Company, Shanxi Kai Da Lv You Gu Wen You Xian Gong Si, a corporation organized and existing under the laws of the Peoples’ Republic of China (“Kai Da”), Diversified Holdings X, Inc., a Nevada corporation (“Diversified Holdings”), and Richard Surber, a citizen and resident of the State of Utah (the “Majority Shareholder”). The Agreement closed as of October 3, 2005.
 
Pursuant to and at the closing of the Agreement, which occurred as of October 3, 2005, the Company authorized the Standard Register & Transfer Company, Inc., its transfer agent, to issue to the shareholders of Kai Da (the “Kai Da Shareholders”), 40,000,000 shares of common stock of the Company, upon conversion of 1,600,000 of the 4,990,000 shares of its convertible preferred stock purchased by the Kai Da Shareholders at closing for $495,000, and 100,000 shares of common stock of the Company issued to the Kai Da Shareholders in exchange for all of the issued and outstanding registered capital of Kai Da. Further, the Kai Da Shareholders have agreed pursuant to a trust arrangement established under Chinese law to transfer all of the 40,100,000 shares of common stock which will be issued to them as a result of the closing, on a pro rata basis, to approximately 3,600 shareholders of E Pang Gong, the Chinese company that owns the leasehold interest and improvements of the E Pang Gong theme park. The theme park and hotel located on the premises are the subject of a management contract with Kai Da from which Kai Da derives most of its revenues. As a result of the transactions consummated at the closing, shares representing 93.3% of the Company’s post-issuance outstanding shares of common stock were issued to the Kai Da shareholders, and all of the registered capital of Kai Da was acquired by the Company.

The E Pang Gong theme park is an historic location in Xi An, Peoples’ Republic of China, since it is located on the ruins of the original palace of the Emperor Qin Shi Huang, who was China’s first emperor who ruled for approximately ten years around the year 220 B.C. Our Chinese counsel advised that foreign ownership laws in China would restrict the ability of the Company to directly have an ownership interest in the theme park, which is based on the life and accomplishments of Qin Shi Huang. Accordingly, a transaction structure was chosen that incorporated a Plan of Exchange, or so-called “reverse merger”, with the management company of the theme park, which has day to day operational responsibility for running the theme park, and is entitled to a portion of the revenues therefrom, but does not own any of the theme park assets.

Effective November 3, 2005, the Company consummated a 1:4 reverse stock split, which resulted in 2,487,791 outstanding pre-split shares being converted into 621,948 outstanding post-split shares. In connection with the reverse stock split, the Board of Directors of the Company authorized a decrease in the authorized number of shares of common stock from 1,000,000,000 shares to 250,000,000 shares, pursuant to NRS Section 78.207. In accordance with such provision, our reverse stock split did not require the affirmative vote of a majority of shareholders of the Company, and Board of Directors action was sufficient.

 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(1)  
Exhibits: Exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits Beginning on page 8 of this Form 10-QSB, which is incorporated herein by reference.
 
       Reports on Form 8-K filed subsequent to the end of the quarter
 
(1)  
On July 29, 2005 the Company filed an 8-K report under Item 3.02, Unregistered Sales of Equity Securities reporting that the company had issued 200,000 restricted shares of the Company’s common stock to Diversified Holdings I, Inc. in exchange for a cash investment in the sum of $4,002. The restricted shares were issued in a private transaction pursuant to Section 4(2) of the Securities Act of 1933.
 
(2)  
On August 17, 2005, the Company filed an 8-K report under Item 1.01, Entry into a Material Definitive Agreement reporting that the Company and its majority shareholder had entered into a binding Letter of Intent to transfer 4,990,000 shares of the Company’s preferred stock.
 
(3)  
On August 23, 2005, the Company filed an 8-K report under Item 4.01, Changes in Registrant’s Certifying Accountant reporting the resignation of the Company’s certifying accountant.
 
(4)  
On August 30, 2005, the Company filed an 8-K report under Item 1.01, Entry into a Material Definitive Agreement reporting that the Company and its majority shareholder had entered into a Plan of Exchange to transfer 4,990,000 shares of the Company’s preferred stock.
 
(5)  
On September 8, 2005, the Company filed an amendment of current report on Form 8-K/A under Item 4.01, Changes in Registrant’s Certifying Accountant reporting the resignation of the Company’s certifying accountant.
 
(6)  
On September 30, 2005, the Company filed an 8-K report under Item 1.01, Amendment of a Material Definitive Agreement reporting that the Company and its majority shareholder had entered into an amendment of the Plan of Exchange obligating the Company to operate the Black Chandelier, Inc. subsidiary in the ordinary course of business after the closing for a period of at least 90 days.
 
(7)  
On October 12, 2005, the Company filed an 8-K report under Item 2.01, Completion of Acquisition or Disposition of Assets reporting the closing of Plan of Exchange, date August 29, 2005 and changes in control of the Company.
 
(8)  
On October 20, 2005, the Company filed an 8-K report under Item 5.02, Departure Of Directors Or Principal Officers; Election Of Directors; Appointment Of Principal Officers reporting the appointment of the Company’s President, Chief Executive Officer and Director, and the resignation of the Company’s former President.
 
 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
 
     
  DARK DYNAMITE, INC.
 
 		  
 		  
 
Date: November 14, 2005       By:   /s/ Ming Lei
 
Ming Lei
President and CEO

 
 
 
 
 
 
 
 
 
 
 
Date: November 14, 2005
By:  
/s/ Xiaojun Wang
 
Xiaojun Wang
Chief Financial Officer
 
 
 
INDEX TO EXHIBITS
 
Exhibit 
Page
  
 
No.
 
 
 
Description
 
3(i)
 
 
*
 
 
Articles of Incorporation of the Company as amended and bylaws are herein incorporated by reference from the Company’s Form S-3 filed December 22, 1995.
 
3(i)
 
 
*
 
 
Articles of Incorporation of the Company as amended and incorporated by reference from the Company’s Form 8-K filed May 7, 2004.
 
3(i)
 
 
*
 
 
Articles of Incorporation of the Company as amended and incorporated by reference from the Company’s Schedule 14C filed May 27, 2004.
 
Material Contracts
 
10 (x)
*
Commercial Lease
 
10(xi) 
 
* 
 
Sales Agreement between Black Chandelier and Belle Sales dated March 11, 2005, for the Los Angeles showroom market, participation fee is $300 per month. Incorporated by reference from the 10-KSB of DDI for the period ended December 31, 2004.
10(xii)  
*
Letter of Agreement between Dark Dynamite and MAO Public Relations dated April 1, 2005. Monthly compensation fee is $1,200. Incorporated by reference from the 10-KSB of DDI for the period ended December 31, 2004.
 
10(xiii) 
*
Letter of Intent, Dated August 15, 2005 between Dark Dynamite, Inc. Richard Surber, Shanxi Kai Da Lv You Gu Wen You Xian Gong Si, Xian Yan Ke and Wei Ping Lei for the sale of 4,990,000 shares of the preferred stock of Dark Dynamite, Inc.
 
31.1
 
 
 
 
31.2
  
     
32.1
 
  
 
32.2
  
* Filed previously.


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