SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1999 Commission File Number 2-29967
DI-AN CONTROLS, INC
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2237138
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
530 WEST STREET, BRAINTREE, MASSACHUSETTS 02184
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including Area Code (781) 848-1299
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $.10 Par Value OTC
Securities registered pursuant to Section 12(g) of the Act: (NONE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (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 ninety (90) days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
There is no significant market for the stock in the year 1999, and no such
established market value of the voting stock held by non-affiliates of the
registrant.
PART I
Item 1. BUSINESS
DI-AN Controls, Inc. [DI-An] was incorporated as a Massachusetts corporation
in May 23, 1958. Since 1982, DI-AN designs, manufactures, markets and
services computer systems, Point-Of-Sale [POS] systems for the management of
food and beverage service in public assembly facilities (stadiums, arenas,
convention halls and other entertainment sites).
The DI-AN computer systems are also used for general admission ticketing at
fairs, waterparks, and entertainment centers.
These computer systems are marketed by DI-AN under the DI-AN trade mark of
"CONCESSION/MASTER" systems. They are to improve the service to patrons of
the facilities, control the cash and inventory of the products for sale, and
provide management with operating data.
DI-AN markets and sells the CONCESSION/MASTER systems directly to its
customers. DI-AN installs the CONCESSION/MASTER systems, trains the operating
personnel, and provides after the sale, support and maintenance. DI/AN sold,
installed and trained the operating personnel for 30 facilities with
CONCESSION/MASTER systems in 1999, 18 systems in 1998 and 20 in 1997.
INDUSTRY OVERVIEW:
DI-AN'S Point-Of-Sale-Terminals [POST] is a key part of the CONCESSION/MASTER
system, designed for the needs of the concession stands in public assembly
faciities. They are sufficently different from the needs of full service and
quick service restaurants, retail stores, and gas station marts, so that
there is little compotetion from products designed to serve those markets.
BACK LOG OF ORDERS
Orders for the DI-AN C/M System orders are usually filled quickly from
stock. Thus order back-logs are low and not an indicator of future, or
near term shipments and sales.
ITEM 2. PROPERTIES
The Company does not own any real estate. The company operates from leased
premises of 9,000 sq. feet.
ITEM 3. LEGAL PROCEEDINGS
NONE
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded over the counter. Trading activity
reported by the transfer agent for the year 1999 was 3 transfers consisting
of 800 shares. Trading on the "books" of Cede & Co. is not visible to the
transfer agent. Cede & Company is a nominee holder of 319,626 shares. The
approximate number of holders of the Company's stock at December 31, 1998 was
800.
At this time, the Company has no plans to institute dividend payments on its
common stock.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31
1999 1998 1997 1996 1995
(In thousands of dollars, except per share amounts)
Net sales and other
operating revenues $ 836 $ 593 $ 556 $ 522 $ 347
Net income (loss) $ 288 $(184) $( 70) $(393) $(558)
Total assets $ 826 $ 510 $ 291 $ 163 $ 250
Per common share:
Net income (loss) $ 0.35 $(.22) $(.08) $(.48) $(.68)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The gross profit margin increased to 65% from 54% in 1998. This is primarily
due to better utilization of available resources. The Company has
historically maintained a workforce in excess of its immediate needs to allow
it to continue its manufacturing operations and enable it to fulfill order
promptly. Due to the increase in sales during 1999, the labor force, which
was similar to 1998's, incurred less unproductive time and increased
efficiencies in the manufacturing process. On a year to year basis, cost of
goods sold and operating expenses increased from 1998 to 1999 by 8% and 6%,
respectively. A 41% increase in sales as compared to 1998 allowed the
Company to achieve break even operations for the first time in a number of
years.
The Company continues to accrue significant expenses to its sole officer and
director, and other related parties, that for income tax purposes are not
deductible until paid. Consequently, the Company had taxable income in 1999
of approximately $300,000, although the Company incurred a small net loss for
financial statement purposes. The Company has sustained operating losses
over the past decade and had accumulated federal net operating losses of
approximately $2,700,000. Utilization of a portion of these net-operating
losses occurred in 1999 due to the Company realizing taxable income. The
realization of these net operating loss benefits generated a tax savings and
a deferred tax asset of $288,000.
During 1998 the Company placed cash in excess of immediate needs into a US
Treasury money market mutual fund. This fund generated interest and
dividends of approximately $8,300; however, the liquidation of the asset
resulted in capital loss of approximately $13,000 in 1999.
LIQUIDITY AND SOURCES OF CAPITAL
The Company continues to realize insufficient cash flows to meet all of its
operating needs. Consequently, the Company's President again deferred
receipt of compensation and interest obligations due him for loans made in
prior years. The 1999 working capital deficit of approximately $4,952,000
represents a decrease from 1998 of approximately $15,500. Included in
current liabilities are notes and other payable aggregating approximately
$5,338,000 at December 1999 and $5,353,000 at December 1998 due to the
President and related parties. Although the Company was able to make
principal payments against the officer's notes payable of $310,000, this
decrease was offset by approximately $210,000 of accrued interest charges and
$85,000 of accrued salary due the officer. The Company continues to remain
dependent upon the officer for all its financing needs, and it is not
anticipated that this will change in the coming year.
INFLATION
Inflation was not a significant factor during 1999, 1998, or 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is included in Item 14 of this Form 10-K.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name, Age, Position with Registrant, Began Term of
Other Business Experience Office
ROBERT D. KODIS, 78, President, Treasurer, 1958
Director, DI-AN Controls Corporation.
ITEM 11. EXECUTIVE COMPENSATION
CASH & CASH EQUIVALENT FORMS OF REMUNERATION IN 1999
Securities,
Salaries, Property,
Fees, Insurance
Directors' Benefits, and Aggregate of
Fees, Reimbursement Contingent
Commissions of Personal Forms of
Name Capacities and Bonuses Benefits Remuneration
Robert D. Kodis President, $4903.92 None None
Treasurer, &
Director
Robert D. Kodis was not paid his full salary during the year due to cash flow
constraints, the Company accrued salary amounting to $80,096.08 related to
his services for the year 1999. Mr. Kodis has a total accured salary for
1999 and prior years of $781,291.00.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Amount and Class
Name and Address of of Beneficial Percentage
Title of Class Beneficial Owner Ownership of Class
Common Stock, Robert D. Kodis 327,825 (1) 40%
$.10 Par Value 85 Wallis Road
Brookline, MA
Common Stock, Kodis Family Trust 100,500 12%
$.10 Par Value Reva J. Kodis, Trustee
(1) This amount representing 40% of the voting power of all shares of
outstanding capital stock of the Company includes 50,000 shares owned by
the wife and children of Mr. Kodis. It does not include 100,500 shares,
representing 12% of the voting power, owned by the Robert D. Kodis
Family Trust as to which Mr. Kodis disclaims beneficial interest and Mr.
Kodis has no vote or investment power with respect to such shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1999 the Company owed the principal shareholder, Robert D.
Kodis, $1,537,741 in notes payable at the interest rate of 12%. The loans
were made to fund the operating needs of the Company. Accrued interest in
the amount of $1,781,280 is also owed to the principal shareholder, Robert D.
Kodis. Accrued rent of $1,179,436.is owed to The Kodis Girls Trust, owners
of the facility leased by the Companyin prior years. The amount represents
unpaid rent for the years 1991 through October 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) The response to this portion of Item 14 is submitted as a
separate section of this report.
(3) Listing of Exhibits
(3) Articles of incorporation and bylaws. These exhibits are
included with a Registration Statement on Form S-1 which was
filed on August 26, 1968 and is incorporated herein by
reference.
(b) Reports on Form 8-K filed in the fourth quarter of 1998: NONE
(c) Exhibits - See Item 14(a)(3) above for list of exhibits incorporated
herein by reference.
(d) Financial Statement Schedules - The response to this portion of Item 14
is included as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DI-AN CONTROLS, INC.
(Registrant)
Robert D. Kodis, President (Date)
and Treasurer
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Robert D. Kodis, Director (Date)
Di/An CONTROLS, INC.
FINANCIAL STATEMENTS
Years Ended December 31, 1999 and 1998
CONTENTS
Page
Independent Auditors' Report 1
Financial Statements:
Balance Sheets 2
Statements of Operations and Accumulated Deficit 3
Statements of Cash Flows 4
Notes to Financial Statements 5-9
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Di/An Controls, Inc.
We have audited the accompanying balance sheets of Di/An
Controls, Inc. (a Massachusetts corporation) as of December 31,
1999 and 1998 and the related statements of operations and
accumulated deficit, and cash flows for the years then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Di/An Controls, Inc. as of December 31, 1999 and 1998, and the
results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting
principles.
The comparative amounts in the statements of operations and
accumulated deficit and cash flows relating to 1997 have not been
audited by us. The statement of operations and accumulated
deficit for the year ended December 31, 1997, and the related
statement of cash flows for the year then ended, have been
compiled from information supplied by the Company. We have not
audited or reviewed these statements and, accordingly, we do not
express an opinion or any other form of assurance on them.
March 3, 2000
BALANCE SHEETS
1999 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 165,100 $ 39,386
Investments 26,553 224,914
Accounts receivable, net of allowance
for bad debts: 1999- $3,000, 1998-$0 104,362 20,101
Inventory 187,037 184,038
Other current assets 5,057 7,038
TOTAL CURRENT ASSETS 488,109 475,477
EQUIPMENT
Equipment and tooling 22,477 22,477
Accumulated depreciation (22,477) (22,477)
NET EQUIPMENT AND IMPROVEMENTS - -
OTHER ASSETS
Cash surrender value, life insurance,
net of loans payable: 1999-$465,118,
1998-$457,251 35,358 31,947
Deposits 2,917 2,917
Deferred income tax asset 300,000 -
TOTAL OTHER ASSETS 338,275 34,864
TOTAL ASSETS $ 826,384 $ 510,341
1999 1998
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 51,672 $ "4,963"
Other current liabilities "49,707" "53,325"
"Note payable, officer" " 1,537,741" "1,847,741"
Related party liabilities " 3,800,618" "3,505,590"
TOTAL CURRENT LIABILITIES " 5,439,738" " 5,411,619"
COMMITMENTS AND CONTINGENCIES (Note K) - -
STOCKHOLDERS' DEFICIT
Common stock "82,641" "82,641"
Additional paid-in capital "1,124,451" " 1,124,451"
Accumulated deficit "(5,820,446)""(6,108,370)"
TOTAL STOCKHOLDERS' DEFICIT "(4,613,354)""(4,901,278)"
TOTAL LIABILITIES AND
STOCKHOLDERS' DEFICIT $"826,384" $"510,341"
STATEMENTS OF OPERATIONS AND
ACCUMULATED DEFICIT
1999 1998 1997
Audited Audited Unaudited
SALES $ 836,390 $ 592,817 $ 555,544
COST OF GOODS SOLD 291,233 269,955 99,501
GROSS PROFIT ON SALES 545,157 322,862 456,043
OPERATING EXPENSES 331,670 310,597 324,637
INCOME FROM OPERATIONS 213,487 12,265 131,406
OTHER INCOME (EXPENSE)
Interest expense (208,629) (195,894) (207,500)
Gain on sale of equipment - - 6,215
Interest and dividend income 8,277 - -
Loss on investment (13,211) (71) -
TOTAL OTHER INCOME
(EXPENSE) (213,563) (195,965) (201,285)
NET LOSS BEFORE INCOME TAXES (76) (183,700) (69,879)
NET BENEFIT FROM INCOME TAXES 288,000 - -
NET INCOME (LOSS) 287,924 (183,700) (69,879)
Accumulated deficit,
beginning of year (6,108,370) (5,924,670)(5,854,791)
ACCUMULATED DEFICIT,
END OF YEAR (5,820,446) (6,108,370)(5,924,670)
NET INCOME (LOSS) PER SHARE $ 0.35 $ (0.22) $ (0.08)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED IN CALCULATION
OF INCOME (LOSS) PER SHARE 826,405 826,405 826,405
STATEMENTS OF CASH FLOWS
1999 1998 1997
Audited Audited Unaudited
OPERATING ACTIVITIES:
Net income (loss) $ 287,924 $ (183,700) $(69,879)
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Depreciation and amortization - - 6,263
Gain on sale of equipment - - (6,215)
Loss on sale of investments 13,211 - -
Change in allowance for bad
debts 3,000 (13,715) -
Cash value life insurance (3,411) 370 (2,971)
Deferred income taxes (300,000) - -
Increase (decrease) in cash from:
Accounts receivable (87,261) 14,825 19,153
Inventory (2,999) 41,033 (180,973)
Other current assets 1,981 (6,582) 1,094
Other assets - - 14,544
Accounts payable and accrued
expenses 46,709 (24,438) (26,006)
Other current liabilities (3,618) (18,188) 40,869
Related party liabilities 295,028 279,260 309,008
Total adjustments (37,360) 272,565 174,766
NET CASH OPERATING ACTIVITIES 250,564 88,865 104,887
INVESTING ACTIVITIES:
Sales of investments 193,405 - -
Purchases of investments (8,255) (225,000) -
Proceeds from disposal of
equipment - - 7,238
NET CASH INVESTING ACTIVITIES 185,150 (225,000) 7,238
FINANCING ACTIVITIES:
Net borrowings (repayments),
officer's loan (310,000) 166,226 (131,000)
NET CASH FINANCING ACTIVITIES (310,000) 166,226 (131,000)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 125,714 30,091 (18,875)
Cash and cash equivalents,
beginning of year 39,386 9,295 28,170
CASH AND CASH EQUIVALENTS,
END OF YEAR $165,100 $39,386 $9,295
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
No cash was disbursed for interest or income taxes in 1999, 1998,
or 1997.
A. DESCRIPTION OF BUSINESS
Di/An Controls, Inc., located in Braintree, Massachusetts,
manufactures and installs point-of-sale terminals and management
software to entertainment and sports facilities throughout the
United States. The Company was incorporated in 1958. Credit is
extended under terms customary in the industry.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Use of estimates - The process of preparing financial
statements in conformity with generally accepted accounting
principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and
expenses. Such estimates relate primarily to unsettled
transactions and events as of the date of the financial
statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
2. Cash and cash equivalents - For purposes of financial
statement presentation, the Company considers all highly liquid
instruments with a maturity of three months or less to be cash.
3. Inventory - Inventory is stated at the lower of cost or
market using the first-in, first-out method.
4. Equipment and depreciation - Equipment and tooling are
stated at cost. Depreciation is provided over the estimated
useful lives of the assets by straight line methods for financial
reporting and accelerated methods for income tax purposes.
Equipment and tooling are depreciated using lives ranging from
three to ten years.
5. Investments - The Company classifies its marketable
debt securities as "held to maturity" if it has the positive
intent and ability to hold the securities to maturity. All other
marketable securities are classified as "available for sale".
Securities classified as "available for sale" are carried in the
financial statements at fair market value. Realized gains and
losses, determined using specific identification of the
securities, are included in earnings; unrealized holding gains
and losses are reported as a separate component of stockholders'
equity, where considered to be material. Securities classified
as held to maturity are carried at amortized cost.
6. Revenue recognition - Revenue from service contracts is
earned ratably over the life of the contract.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
7. Income taxes - Deferred income taxes are the result of
the expected future tax consequences of temporary differences
between the financial statement and tax bases of assets and
liabilities. Generally, deferred income taxes are classified as
current or non-current in accordance with the classification of
the related asset or liability. Those not related to an asset or
liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to
reverse. A valuation allowance is provided against deferred
income tax assets in circumstances where management believes
recoverability of a portion of the assets is not reasonably
assured.
C. CONTINUED OPERATIONS
The Company incurred significant operating losses from 1988
to 1994 and accumulated indebtedness to the principal
stockholders which exceeds the cash that can reasonably be
expected to be generated from operations. In recent years, the
Company's sales have grown, and there has been a profit from
operations. In most years, the interest expense from this debt
has exceeded the profit from operations. At December 31, 1999,
the Company has a deficiency in working capital of approximately
$5,000,000, an increase of approximately $15,000 from the prior
year. The Company continues to be dependent upon sales of its
one product, the Concession/Master system of hardware and
software.
These conditions substantially limit the Company's ability
to obtain capital or expand operations. The Company's ability to
continue depends upon future events, which include its ability to
obtain sufficient operating capital, the forbearance of its
creditors, and the development of new and enhanced products. The
financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
D. INVESTMENTS
Investments at December 31, 1999 consist of $26,553 in a
money market fund. This investment may be redeemed at any time
and has been classified as available for sale by the Company. In
1999, a loss of $13,211 was realized on the sale of a treasury
fund investment. On the two investments, dividend income
re-invested amounted to $8,277 in 1999. The investments' carrying
value is the fair value of the publicly traded securities.
E. INVENTORY
Inventory at December 31, consists of the following:
1999 1998
Raw materials $ 72,174 $ 73,335
Work in process 14,863 110,703
Total $ 187,037 $ 184,038
F. NOTE PAYABLE, OFFICER
The note payable, officer is due on demand and bears
interest at 12%. No interest is charged on the accrued interest
on this note. The note is secured by substantially all of the
assets of the Company. Interest on this note accrued for the
years ending 1999, 1998 and 1997 was $208,629, $195,894, and
$207,500, respectively.
G. CAPITAL STRUCTURE
The Company has 2,500,000 shares of $.10 par value stock
authorized of which 826,405 are issued and outstanding.
Common shares are voting and dividends are paid at the
discretion of the Board of Directors.
H. RELATED PARTY ACTIVITY
Through January, 1998, the Company rented property from a
Trust, which is a member of the group that owns the majority of
the Company's stock. Unpaid liabilities incurred in connection
with this lease agreement are included in related party
liabilities, which are as follows at December 31,
1999 1998
Rent $ 1,179,436 $ 1,179,436
Interest on note payable,
officer 1,781,280 1,572,651
Accrued compensation,
officer 839,902 753,503
$ 3,800,618 $ 3,505,590
I. CONCENTRATIONS
1. In 1999, 1998, and 1997 a single customer accounted for
approximately 28%, 38% and 20%, respectively, of total sales.
2. In 1999, purchases from three vendors amounted to
approximately 69% of total purchases. In 1998 and 1997,
purchases from six vendors accounted for approximately 82% and
35% of total purchases, respectively.
3. From time to time, the Company's cash balances in one
financial institution exceed the amount insured by the federal
government.
J. INCOME TAXES
The provision for income taxes for 1999 consists of the
following:
Deferred federal $( 300,000)
Current state 12,000
$( 288,000)
Included in current year income is approximately $300,000 of
expenses due to related parties. In accordance with the Internal
Revenue Code, these expenses are not deductible until actually
paid. A reconciliation of the income tax provision at the
federal statutory rate to the income tax provision at the
effective tax rate is as follows:
Income taxes computed at the federal
statutory rate: $ 100,000
Tax benefit from utilization of net
operating loss ( 100,000)
State taxes 12,000
Reduction in valuation
allowance ( 300,000)
$( 288,000)
The following is a summary of the significant components of
the Company's deferred tax assets as of December 31:
1999 1998
Net operating losses $ 800,000 $ 940,000
Accrued expenses,
related parties 1,500,000 1,400,000
2,300,000 2,340,000
Valuation allowance (2,000,000) (2,340,000)
Net asset $ 300,000 $ -
J. INCOME TAXES (continued)
The Company has approximately $2,400,000 of federal net
operating losses available that expire between 2003 and 2009. In
accordance with Section 382 of the Internal Revenue Code,
utilization of net operating losses can be limited if a
significant change in ownership occurs.
K. COMMITMENTS
In January, 1997, the Company entered into a five-year lease
for its current operating facilities. Minimum annual amounts due
under this lease are as follows:
2000 $ 35,000
2001 35,000
2002 2,917
Total $ 72,917
Rent expense for the years ending December 31, 1999, 1998
and 1997 amounted to $35,000, $35,000 and $32,083, respectively.
L. RESEARCH AND DEVELOPMENT
The Company incurred research and development costs
amounting to $38,029, $41,995, and $52,379 during the three years
ended December 31, 1999, 1998 and 1997, respectively.