SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Act of 1934
For the quarterly period ended December 31, 1997 or
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Act of 1934
For the transition period from to
Commission file number 0-17330
DAINE INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 11-2881685
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
240 Clarkson Avenue Brooklyn, New York 11226
(Address of Principal Executive Office) (Zip Code)
(718)469-3132
(Registrant's Telephone Number, Including Area Code)
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 and Exchange Act of 1934 during the preceding twelve
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 days.
Yes / X / No / /
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes / / No / /
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date. 248,461,935
10Q-1
DAINE INDUSTRIES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1997
I N D E X
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1
CONSOLIDATED BALANCE SHEETS - ASSETS 2
CONSOLIDATED BALANCE SHEETS
- LIABILITIES AND SHAREHOLDERS' EQUITY 3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5-6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8-12
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Shareholders
DAINE INDUSTRIES, INC.
Brooklyn, New York 11226
We have reviewed the accompanying consolidated balance sheets of DAINE
INDUSTRIES, INC. as of December 31, 1997 and the related consolidated
statements of operations, shareholders' equity and cash flows for the
six month periods ended December 31, 1997 and 1996, in accordance with
standards established by the American Institute of Certified Public
Accountants. All information included in these financial statements is
the representation of management of DAINE INDUSTRIES, INC.
A review of interim financial information consists principally of
obtaining an understanding of the system for the preparation of interim
financial information, applying analytical review procedures to
financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope
than an examination in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of June 30, 1997,
and the related consolidated statements of operations, shareholders'
equity and cash flows for the year then ended (not presented herein);
and in our report dated July 31, 1997, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as
of June 30, 1997 is fairly stated in all material respects in relation
to the consolidated balance sheet from which it has been derived.
GREENBERG & COMPANY LLC
Springfield, New Jersey
January 22, 1998
Page 1 of 12
DAINE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
Dec. 31, 1997
(Unaudited) June 30, 1997
CURRENT ASSETS
Cash and Cash Equivalents $ 795,778 $ 468,991
Accounts Receivable 71,860 502,259
Inventory 615,866 607,127
Prepaid Expenses 29,026 10,851
Total Current Assets 1,512,530 1,589,228
FIXED ASSETS, At Cost
Machinery and Equipment 394,145 393,786
Leasehold Improvements 9,787 9,787
Less: Accumulated Depreciation
and Amortization (238,376) (216,485)
165,556 187,088
OTHER ASSETS
Deposits 6,100 6,100
TOTAL ASSETS $1,684,186 $1,782,416
See Accountant's Review Report.
Page 2 of 12
DAINE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
Dec. 31, 1997
(Unaudited) June 30, 1997
CURRENT LIABILITIES
Accounts Payable & Accrued Expenses $ 71,398 $ 145,827
Income tax payable 2,799 1,573
Total Current Liabilities 74,197 147,400
OTHER LIABILITIES
Deferred Income Tax Liability
15,038 15,038
TOTAL LIABILITIES 89,235 162,438
COMMITMENTS AND CONTINGENCIES
(Note 3)
SHAREHOLDERS' EQUITY
Common Stock (Par Value
$.00001) 350,000,000 shares
authorized, 248,461,935
shares issued and outstanding 2,485 2,485
Paid-In Capital 1,441,597 1,441,597
Retained Earnings 150,869 175,896
TOTAL SHAREHOLDERS' EQUITY 1,594,951 1,619,978
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,684,186 $1,782,416
See Accountant's Review Report.
Page 3 of 12
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Period July 1, 1996 to December 31, 1997
Total
Number $.00001 Share-
of Par Paid-In Retained holders'
Shares Value Capital Earnings Equity
BALANCES AT
JULY 1, 1996 248,461,935 $2,485 $1,441,594 $184,805 $1,628,887
Net Income(Loss)
for the Year
Ended,
June 30, 1997 (8,909) (8,909)
BALANCES AT
JUNE 30, 1997
(Audited) 248,461,935 2,485 1,441,594 175,896 1,619,978
Net Income(Loss)
for the Six
Months Ended,
Dec. 31, 1997 (25,027) (25,027)
BALANCES AT
DECEMBER 31, 1997
(UNAUDITED) 248,461,935 $2,485 $1,441,594 $150,869 $1,594,951
See Accountant's Review Report.
Page 4 of 12
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months Ended
December 31,
1997 1996
REVENUES
Sales - Net of Returns
and Allowances $ 107,181 $ 161,906
COST OF GOODS SOLD
Beginning Inventory 551,127 947,185
Purchase and Freight 88,912 19,523
Direct Labor 44,545 42,799
684,584 1,009,507
Less: Inventory - End of Period (615,866) (931,912)
Cost of Goods Sold 68,718 77,595
GROSS MARGIN 38,463 84,311
INTEREST INCOME 7,365 2,354
GENERAL AND ADMINISTRATIVE
EXPENSES (108,971) (117,628)
DEPRECIATION AND AMORTIZATION
EXPENSE (10,742) (11,915)
INCOME (LOSS) BEFORE INCOME TAXES (73,885) (42,878)
Income Tax Expense (Benefit) (17,181) (2,724)
NET INCOME (LOSS) $ (56,704) $ (40,154)
Earnings Per Share NIL NIL
Weighted Average Number of Shares of
Common Stock Outstanding 248,461,935 248,461,935
See Accountant's Review Report.
Page 5 of 12
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Six Months Ended
December 31,
1997 1996
REVENUES
Sales - Net of Returns
and Allowances $ 728,418 $ 898,176
COST OF GOODS SOLD
Beginning Inventory 607,127 903,353
Purchase and Freight 374,811 523,787
Direct Labor 139,953 143,479
1,121,891 1,570,619
Less: Inventory - End of Period (615,866) (931,912)
Cost of Goods Sold 506,025 638,707
GROSS MARGIN 222,393 259,469
INTEREST INCOME 9,778 4,772
GENERAL AND ADMINISTRATIVE
EXPENSES (234,250) (263,934)
DEPRECIATION AND AMORTIZATION
EXPENSE (21,891) (23,831)
INCOME (LOSS) BEFORE INCOME TAXES (23,970) (23,524)
Income Tax Expense (Benefit) 1,057 221
NET INCOME (LOSS) $ (25,027) $ (23,745)
Earnings Per Share NIL NIL
Weighted Average Number of Shares of
Common Stock Outstanding 248,461,935 248,461,935
See Accountant's Review Report.
Page 6 of 12
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Six Months Ended
December 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income(Loss) $(25,027) $(23,745)
Adjustment to Reconcile Net Income to
Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization Expense 21,891 23,831
Change in Assets and Liabilities:
Decrease (Increase) in Accounts
Receivable 430,399 266,605
Decrease (Increase) in Inventory (8,739) (28,559)
Decrease (Increase) in Prepaid Expenses (18,175) 11,917
Increase (Decrease) in Accounts Payable
& Accrued Expenses (74,429) (169,839)
Increase (Decrease) in Income Tax Payable 1,226 -0-
Net Cash Provided By (Used In) Operating
Activities 327,146 80,210
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (359) (1,001)
Net Cash (Used In) Investing Activities (359) (1,001)
Net Increase (Decrease) in Cash and
Cash Equivalents 326,787 79,209
Cash and Cash Equivalents at
Beginning of Period 468,991 287,482
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $795,778 $366,691
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest $ -0- $ -0-
Taxes 2,673 221
See Accountant's Review Report.
Page 7 of 12
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS
Daine Industries, Inc. (Daine) is a Delaware corporation.
Daine owns 100% of the stock of Lite King Corp. (LKC) a New
York corporation. Daine's principal purpose is to hold the
stock of LKC. LKC's principal business is the manufacture and
assembly of electrical wiring devices, cord sets and sockets.
LKC's customers consists of manufacturers of lamps,
chandeliers, Christmas and Halloween illuminated decorations,
novelties, point of purchase displays, signs, and other
electrical specialties. The customers are located throughout
North America.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accounts of the Company and its consolidated 100% owned
subsidiary, Lite King Corporation, are included in the
consolidated financial statements. All intercompany balances
and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of highly liquid, short-term
investments with maturities of 90 days or less.
ACCOUNTS RECEIVABLE
Accounts receivable are judged as to collectibility by
management and an allowance for bad debts is established as
necessary. As of each balance sheet date, no reserve was
considered necessary.
RECLASSIFICATIONS
Certain prior period financial statement accounts have been
reclassified to conform to current presentation.
Page 8 of 12
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
(Continued)
INVENTORY
Inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out method.
Inventories consist of:
12/31/97 6/30/97
Raw Materials $268,582 $288,582
Work-in-Process 210,221 213,182
Finished Goods 137,063 105,363
$615,866 $607,127
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company
to concentration of credit risk are accounts receivable.
During the periods ended December 31, 1997 and 1996, three
customers accounted for approximately 45%, 20%, 12%, and 54%,
23%, 16%, respectively, of total revenues. The Company
performs ongoing credit evaluations of its customers but
generally does not require collateral to support customer
receivables. The loss of any one of these customers could
have a material adverse effect on the financial condition of
the company.
PROPERTY AND EQUIPMENT
Renewals and betterments are capitalized; maintenance and
repairs are expensed as incurred.
Depreciation is calculated using the straight line method
over the asset's estimated useful life, which generally
approximates 10 years.
REVENUE RECOGNITION POLICY
The company recognizes sales, for both financial statement
purposes and for tax purposes, when the products are shipped
to customers.
Page 9 of 12
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(UNAUDITED)
(Continued)
ESTIMATES IN FINANCIAL STATEMENTS
Preparation of the Company's financial statements in
conformity with generally accepted accounting principles
requires management to make estimates 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 period. Accordingly, actual
results could differ from those estimates.
INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." SFAS 109 has as its basic
objective the recognition of current and deferred income tax
assets and liabilities based upon all events that have been
recognized in the financial statements as measured by the
provisions of the enacted tax laws. Valuation allowances are
established when necessary to reduce deferred tax assets to
the estimated amount to be realized. Income tax expense
represents the tax payable for the current period and the
change during the period in the deferred tax assets and
liabilities.
NOTE 3: COMMITMENTS AND CONTINGENCIES
The company is currently in a lease for office and factory
space requiring minimum annual base rental payments for the
fiscal periods shown as follows:
1998 $ 58,000
1999 58,333
2000 60,333
2001 62,000
2002 36,166
Total $274,832
Page 10 of 12
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(unaudited)
(Continued)
In addition to annual base rental payments, the company must
pay an annual escalation for real estate taxes.
Certain officers and directors of the company have been
included as defendants in a class action entitled "Barker et
al v. Power Securities Corp., et al" in the Western District
of New York, which action alleges violations of the
securities laws, in trading certain securities including
those of the company and its formerly affiliated company,
Davin Enterprises Inc., by all of the defendants. Certain
officers and directors of the company deny the allegations
and believe the suit to be without merit. The alleged
violations refer to Section 10b and Rule 10b-5 of the
Securities and Exchange Act of 1934.
The company has undertaken to advance any expenses necessary
and incurred by the officers and directors in the litigation
subject to an undertaking by such officer and director to
repay the advances if it be ultimately determined that the
officer or director is not entitled to be indemnified. At
this date, expenses are not material.
In the event that the plaintiffs were to prevail against the
officers and directors and a judgment was issued against
them, this may have a material adverse effect on the
company's future financial condition. Management feels that
an estimate of the possible range of loss cannot be made at
this time.
NOTE 4: INCOME TAXES
Income taxes are accrued at the statutory U.S. and state
income tax rates.
Income tax expense is principally due to state and local
income taxes based upon capital. Deferred tax liabilities
relate to depreciation timing differences.
Page 11 of 12
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
(unaudited)
(Continued)
December 31,
1997 1996
Current tax expense:
Income tax at statutory rates $1,057 $221
Total Tax Expense $1,057 $221
The tax effect of significant temporary differences, which
comprise the deferred tax liabilities are as follows:
12/31/97 6/30/97
Depreciation $15,038 $15,038
NOTE 5: POSTRETIREMENT EMPLOYEE BENEFITS
The company does not have a policy to cover employees for any
health care or other welfare benefits that are incurred after
employment (postretirement). Therefore, no provision is
required under SFAS's 106 or 112.
NOTE 6: INTERIM FINANCIAL REPORTING
The unaudited financial statements of the company for the
period July 1, 1997 to December 31, 1997 have been prepared
by management from the books and records of the company, and
reflect, in the opinion of management, all adjustments
necessary for a fair presentation of the financial position
and operations of the company as of the period indicated
herein, and are of a normal recurring nature.
Page 12 of 12
Part 1. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Daine Industries, Inc. ("The Registrant") was incorporated on
September 24, 1987 and is currently engaged in the manufacture and
assembly of wiring devices. During the quarter ended March 31, 1988,
the Registrant completed its proposed public offering. On February 26,
1990, Daine Industries, Inc. purchased the assets of Lite King Corp.
The purchase price was $738,079, which was paid $663,079 in cash and
$75,000 in a note.
Lite King's facilities consist of approximately 16,000 square feet
of office and factory space with annual lease payments of $58,000.
Lite King's work force fluctuates during the year, from about 14-35
employees, all except three which were engaged in manufacturing and
assembly activities.
As a result of the acquisition of the assets of Lite King
Corporation by the Registrant's wholly owned subsidiary, during the six
months ended December 31, 1997, the Registrant generated revenues of
$728,418. During the six months ended December 31, 1996 the Registrant
generated revenues of $898,176 During the six months ended December
31, 1997, the Registrant had a net loss of $25,027 as compared with net
loss of $23,745 for the six months ended December 31, 1996.
Management expects a general downturn in revenues to continue into
the next quarter (quarter ended March 31, 1998). Management also
anticipates activities for the quarter ended March 31, 1998 may result
in a loss. The Registrant is experiencing added competition from firms
with production facilities in China, Mexico and third world nations
which resulted in lower gross margins. The Registrant is at a
disadvantage in that firms based in the above listed nations have labor
rates considerably lower than the Registrant's.
As of December 31, 1997, the Registrant had total assets of
$1,684,186, current assets of $1,512,530, fixed assets of $165,556,
other assets of $6,100, current liabilities of $74,197, and total
shareholders' equity of $1,594,951. At June 30, 1997, total assets
amounted to $1,782,416, current assets of $1,589,228, fixed assets of
$187,088, other assets of $6,100, current liabilities of $147,400,
other liabilities of $15,038 and shareholders' equity of $1,619,978.
Lite King is seeking to represent non-U.S. electrical and
electronic parts manufacturers in the USA and Canada. No assurances
can be given that Lite King will be successful in adding new agency
business.
Lite King's main customer base are manufacturers of Christmas,
Easter and Halloween products. Management considers its principal
business to be seasonal in nature with sales usually at its lowest
point during the quarter ended March 31st, with sales rising steadily
during the June, September quarters and declining in the December
quarter. The Registrant is experiencing lower gross profit margins
because of the introduction of some new components used on some
products, mandated by Underwriters Laboratories Inc., and added
competition from firms with manufacturing facilities in China. For the
three months ended December 31, 1997, Lite King's three largest
customers accounted for about 77% of its total sales. The loss of any
of these customers could have a material adverse effect on the
Registrant's operations.
The cash and cash equivalents balances of the Company as of
December 31, 1997 and June 30, 1997 were $795,778 and $468,991,
respectively. The increase in cash and cash equivalents was
principally the result of lower accounts receivable for the quarter
ended December 31, 1997. The Company expects that its current balances
of cash and cash equivalents will be sufficient to meet its minimum
planned capital and liquidity needs for the next year.
The Company does not believe that the impact of inflation on its
activities is significant. The Company is directing its marketing
effort to reach out to new potential customers in non-related fields.
No assurance can be given that such marketing activities will result
in the Company adding new customers.
Management sees added operating problems in fiscal year 1998 (year
ended June 30, 1998) as a result of new regulations being proposed by
Underwriter Laboratories Inc. (UL) for Christmas and other seasonal
products. These new UL regulations will add additional costs to the
Company's products and unless the Company is able to pass along these
additional costs, profit margins for the Company's products in fiscal
year 1998 will be lower. The Company also needs to meet these new
requirements. Failure to meet these requirements could have an adverse
material effect on the Company's future operations.
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings.
See 9/30/89 Form 10-Q Re: "Barker et. al v. Power Securities
Corp., at al".
Item 2. Changes in Securities. None.
Item 3. Defaults upon Senior Securities. None.
Item 4. Submission of Matters To A Vote of Security Holders. None.
Item 5. Other Materially Important Events. None.
Item 6. Exhibits and Reports on Form 8-K. None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
By: Arthur Seidenfeld
President
Dated: February 12, 1998