UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SEPTEMBER 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No.: 000-27878
DIGITAL LIFESTYLES GROUP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 13-3779546 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
1001 S. Capital of Texas Hwy., Building I, Suite 200, Austin, Texas 78746
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: (512) 617-8282
801 Sentous Street, City of Industry, California 91748
(Former name and former address, if changed from last report)
Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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 ¨
Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares outstanding of each of the issuer’s classes of common stock, as of November 8, 2004, was 37,647,233 shares of Common Stock, $0.03 par value.
1
DIGITAL LIFESTYLES GROUP, INC.
(Formerly Northgate Innovations, Inc.)
INDEX TO FORM 10-Q
| Page | ||
| 3 | ||
| 4 | ||
| 5 | ||
| 6 | ||
| 7 | ||
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | |
| Item 3. Quantitative and Qualitative Disclosures About Market Risks |
41 | |
| 41 | ||
| 43 | ||
| 44 | ||
| 44 | ||
| 45 | ||
2
DIGITAL LIFESTYLES GROUP, INC.
(Formerly Northgate Innovations, Inc.)
(In thousands, except per share data)
| September 30, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 2,558 | $ | 254 | ||||
| Restricted cash |
210 | 210 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $334 and $911 in 2004 and 2003, respectively |
3,097 | 6,597 | ||||||
| Inventories, net |
3,970 | 3,480 | ||||||
| Prepaid expenses and other current assets |
650 | 573 | ||||||
| Total current assets |
10,485 | 11,114 | ||||||
| Equipment, net |
1,381 | 709 | ||||||
| Goodwill |
3,492 | 3,492 | ||||||
| Other assets |
98 | 82 | ||||||
| Total assets |
$ | 15,456 | $ | 15,397 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 4,922 | $ | 5,710 | ||||
| Accrued expenses |
1,498 | 328 | ||||||
| Short-term financing |
792 | — | ||||||
| Accrued royalties |
31 | 1,431 | ||||||
| Convertible notes payable |
100 | 100 | ||||||
| Dividends payable |
186 | 186 | ||||||
| Advances from ESOP |
210 | 210 | ||||||
| Advances from related party |
1,000 | 1,000 | ||||||
| Notes payable - current portion |
1 | 16 | ||||||
| Total current liabilities |
8,740 | 8,981 | ||||||
| Notes payable, net of current portion |
1,322 | 1,355 | ||||||
| Total liabilities |
10,062 | 10,336 | ||||||
| Commitments and contingencies |
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| Stockholders’ equity: |
||||||||
| Preferred stock, $0.01 par value; 5,000 shares authorized, 0 and 1,350 shares issued and outstanding respectively, liquidation preference of $0 and $1,350 respectively |
— | 14 | ||||||
| Common stock, $0.03 par value; 100,000 and 50,000 shares authorized, respectively; 37,648 and 18,943 shares issued and outstanding respectively |
1,130 | 568 | ||||||
| Additional paid-in capital |
18,663 | 14,572 | ||||||
| Accumulated deficit |
(7,836 | ) | (3,530 | ) | ||||
| 11,957 | 11,624 | |||||||
| Less: Unearned ESOP shares |
(6,563 | ) | (6,563 | ) | ||||
| Total stockholders’ equity |
5,394 | 5,061 | ||||||
| Total liabilities and stockholders’ equity |
$ | 15,456 | $ | 15,397 | ||||
See accompanying notes to condensed consolidated financial statements
3
DIGITAL LIFESTYLES GROUP, INC.
(Formerly Northgate Innovations, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
| For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Net sales |
$ | 10,458 | $ | 17,415 | $ | 38,946 | $ | 54,878 | ||||||||
| Cost of sales |
9,394 | 16,113 | 34,789 | 52,113 | ||||||||||||
| Gross profit |
1,064 | 1,302 | 4,157 | 2,765 | ||||||||||||
| Operating expenses |
4,402 | 1,696 | 9,256 | 5,450 | ||||||||||||
| Operating loss |
(3,338 | ) | (394 | ) | (5,099 | ) | (2,685 | ) | ||||||||
| Other (income) expense: |
||||||||||||||||
| Interest expense |
357 | 148 | 680 | 416 | ||||||||||||
| Other |
(1 | ) | (23 | ) | (1,473 | ) | (23 | ) | ||||||||
| Total other (income) expense |
356 | 125 | (793 | ) | 393 | |||||||||||
| Loss before benefit from income taxes |
(3,694 | ) | (519 | ) | (4,306 | ) | (3,078 | ) | ||||||||
| Benefit from Income taxes |
— | — | — | (79 | ) | |||||||||||
| Net loss |
$ | (3,694 | ) | $ | (519 | ) | $ | (4,306 | ) | $ | (2,999 | ) | ||||
| Basic and diluted loss per share |
$ | (0.16 | ) | $ | (0.04 | ) | $ | (0.21 | ) | $ | (0.20 | ) | ||||
| Weighted average shares of Common stock outstanding: |
||||||||||||||||
| Basic and diluted |
23,416 | 14,694 | 20,445 | 14,694 | ||||||||||||
See accompanying notes to condensed consolidated financial statements
4
DIGITAL LIFESTYLES GROUP, INC.
(Formerly Northgate Innovations, Inc.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands)
| Preferred Stock |
Common Stock |
Additional Paid-In Capital |
Unearned ESOP Shares |
Accumulated Deficit |
Total Stockholders’ Equity |
|||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
| Balance, January 1, 2004 |
1,350 | $ | 14 | 18,943 | $ | 568 | $ | 14,572 | $ | (6,563 | ) | $ | (3,530 | ) | $ | 5,061 | ||||||||||||
| Stock-based compensation |
— | — | — | — | 25 | — | — | 25 | ||||||||||||||||||||
| Conversion of preferred stock |
(1,350 | ) | (14 | ) | 4,254 | 128 | (114 | ) | — | — | — | |||||||||||||||||
| Sale of common stock |
— | — | 14,451 | 434 | 4,180 | — | — | 4,614 | ||||||||||||||||||||
| Net loss |
— | — | — | — | — | — | (4,306 | ) | (4,306 | ) | ||||||||||||||||||
| Balance, September 30, 2004 |
— | $ | — | 37,648 | $ | 1,130 | $ | 18,663 | $ | (6,563 | ) | $ | (7,836 | ) | $ | 5,394 | ||||||||||||
See accompanying notes to condensed consolidated financial statements
5
DIGITAL LIFESTYLES GROUP, INC.
(Formerly Northgate Innovations, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
| For the nine months ended September 30, |
||||||||
| 2004 |
2003 |
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| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (4,306 | ) | $ | (2,999 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation |
245 | 250 | ||||||
| Loss on disposal of fixed assets |
19 | — | ||||||
| Stock-based compensation |
25 | — | ||||||
| Provision for losses on accounts receivable |
22 | — | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
3,478 | (4,172 | ) | |||||
| Inventories |
(490 | ) | (1,071 | ) | ||||
| Prepaid expenses and other assets |
(93 | ) | (180 | ) | ||||
| Accounts payable |
(788 | ) | 4,406 | |||||
| Accrued expenses |
1,170 | (70 | ) | |||||
| ESOP interest payable |
— | 304 | ||||||
| Accrued royalties |
(1,400 | ) | (12 | ) | ||||
| Net cash used in operating activities |
(2,118 | ) | (3,544 | ) | ||||
| Cash flows from investing activities: |
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