SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal quarter ended: September 30, 2002
Commission File No. 000-49721
DAIRENE INTERNATIONAL
(Exact Name of registrant as specified in its charter)
NEVADA 65-0181535
- ---------------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8260 NW 27th Street - Suite 408
Miami, FL 33122
(Address of principal executive offices)
(786) 331-4005
(Registrant's telephone number)
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 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 [ ] No [X]
APPLICABLE TO CORPORATE ISSUERS
State the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 4,078,336 shares as of January
2, 2004.
DAIRENE INTERNATIONAL
FORM 10-QSB
QUARTERLY PERIOD ENDED September 30, 2002
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations . . . . . . . . . . . . . . . . . 4
Statements of Stockholders' Equity (Deficit) . . . . . . . . 5
Statements of Cash Flows . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . 7-10
Item 2 - Management's Discussion and Analysis and Plan of
Operation....................................... 11
Item 3 - Control and Procedures............................. 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings.................................. 12
Item 2 - Changes in Securities and Use of Proceeds.......... 12
Item 3 - Default Upon Senior Securities..................... 12
Item 4 - Submission of Matters to a Vote of Security Holders... 12
Item 5 - Other Information.................................. 12
Item 6 - Exhibits and Reports on Form 8-K................... 12
Signatures.................................................. 12
2
Dairene International
(A Development Stage Company)
Balance Sheets
September 30, December 31,
2002 2001
------------------ -----------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $3,347 $ -
Prepaid Expenses 0 2,900
------------------ -----------------
Total current assets 3,347 2,900
------------------ -----------------
Total Assets $3,347 $2,900
------------------ -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Bank overdraft $ - $3,736
Accounts payable and accruals 11,745 17,256
Due related parties-shareholder 91,797 7,519
------------------ -----------------
Total current liabilities 103,542 28,511
------------------ -----------------
Total Liabilities 103,542 28,511
------------------ -----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock $.005 par value 5 million authorized 0 0
shares, 0 issued
Common stock, $0.005 par value, 15,000,000 shares
authorized; 4,078,336, and 3,879,467 issued and 20,391 19,397
outstanding Sept. 30, 2002, and December 31, 2001
Additional Paid in Capital 845,634 837,628
Accumulated (Deficit) (965,220) (881,636)
Treasury Stock -200,000 shares at cost (1,000) (1,000)
------------------ -----------------
Total Stockholders' Equity (Deficit) (100,195) (25,611)
------------------ -----------------
Total Liabilities and Stockholders' Equity (Deficit) $3,347 $2,900
------------------ -----------------
The accompanying notes are an integral part of the financial statements
3
Dairene International
(A Development Stage Company)
Statements of Operations
Cumulative For the For the For the For the
From Nine Nine Three Three
Oct.19, 1982 Months Months Months Months
(inception) Ended Ended Ended Ended
Through Sept 30, Sept. 30, Sept. 30, Sept. 30
Sept. 30, 2002 2002 2001 2002 2001
----------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
(Unaudited) (Unaudited)
Revenues $107,749 $0 $0 $0 $0
Cost of goods sold 86,516 0 0 0 0
----------------------------------------------------------------------------------
Gross Profit 21,233 0 0 0 0
Operating expenses 986,453 83,584 28,022 15,659 8,449
----------------------------------------------------------------------------------
Net income (loss) before provision (965,220) (83,584) (28,022) (15,659) (8,449)
for income taxes
Provision for income taxes 0 0 0 0 0
----------------------------------------------------------------------------------
Net income (loss) $(965,220) $(83,584) $(28,022) $(15,659) $(8,449)
----------------------------------------------------------------------------------
Net income (loss) per weighted $ (.02) $ (.00) $ (.00) $ (.00)
average share, basic
----------------------------------------------------------------
Weighted average number of shares 4,078,336 4,078,336 4,078,336 4,078,336
----------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
4
Dairene International
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
Common Common Treasury Treasury Total
Stock Stock Additional Stock Stock Accumulated Stockholders
Number of Par Preferred Paid-in Number Cost Deficit Equity
Shares Value Stock Capital of (Deficit)
Shares
---------------------------------------------------------------------------------------------------
BAL. Dec. 31, 1999 3,879,467 $19,397 $0 $706,319 (200,000) $(1,000) $(783,171) $(58,455)
Additional Paid In 85,831 0 85,831
Capital
Net (Loss) Year Ended 0 0 0 0 (37,386) (37,386)
December 31, 2000
---------------------------------------------------------------------------------------------------
BAL. Dec 31, 2000 3,879,467 19,397 0 792,150 (200,000) (1,000) (820,557) (10,010)
Contributed Capital for 25,000 0 25,000
Imputed Rent Expense
Additional Paid in 20,478 0 20,478
Capital
Net (Loss) Year Ended (61,079) (61,079)
December 31,2001
---------------------------------------------------------------------------------------------------
BALANCE, December 31, 3,879,467 $19,397 $0 $837,628 (200,000) $(1,000) $(881,636) $(25,611)
2001
Adjustment of 1for 5 198,869 994 (994) 0
reverse stock split
Contributed Capital for 9,000 9,000
Imputed Expenses
Net Loss for the (83,584) (83,584)
Nine Months Ended Sept.
30, 2002
---------------------------------------------------------------------------------------------------
BALANCE, Sept. 30, 2002 4,078,336 $20,391 $0 $845,634 (200,000) $(1,000) $(965,220) $(100,195)
---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements
5
Dairene International
(A Development Stage Company)
Statements of Cash Flows
Cumulative For the For the
From Nine Nine
Oct.19, 1982 Months Months
(inception) Ended Ended
Through Sept. 30 Sept. 30
Sept. 30, 2002 2002 2001
(unaudited) (unaudited)
---------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (965,220) $(83,584) $(28,022)
Adjustments to reconcile net income (loss) to net cash
used for operations:
Depreciation 1,502 0 0
Contributed capital for imputed expense 119,831 9,000 18,750
Change in operating assets and liabilities:
(Increase) Decrease in prepaid exp. 0 2,900 0
Increase (Decrease) in accounts 11,745 (5,511) 11,103
payable & accruals
---------------- --- -- ---------------- -- ----------------
Net cash used by operating activities (832,142) (77,195) 1,831
---------------- --- ---------------- ----------------
CASH FLOW FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (2,669) 0 0
---------------- --- -- ---------------- -- ----------------
Net cash used by investing activities (2,669) 0 0
---------------- --- ---------------- ----------------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in bank overdraft 0 (3,736) 0
Increase in shareholder and related party loans-net 84,278 84,278 0
Sale of fixed assets 1,167 0 0
Purchase of Treasury Stock (1,000) 0 0
Forgiveness of debt 34,539 0 0
Proceeds of common stock and 719,174 0 0
contributed capital
---------------- --- ---------------- ----------------
Net cash provided by financing activities 838,158 80,542 0
---------------- --- ---------------- ----------------
Net Increase (Decrease) in cash 3,347 3,347 1,831
CASH, beginning of period 0 0 1,990
---------------- --- ---------------- ----------------
CASH, end of period $3,347 $3,347 $3,821
---------------- --- ---------------- ----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for Interest Expenses $0 $0 $0
Cash paid for Income Taxes $0 $0 $0
The accompanying notes are an integral part of the financial statements
6
Dairene International
(A Development Stage Company)
Notes to Financial Statements
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Dairene International (the "Company") was incorporated under the laws of the
state of Nevada on October 19, 1982. On March 10, 1988, the Company entered into
an agreement with a related party to sell, distribute and market a
cholesterol-free milk substitute dairy product called Pureblend, under the
Dairene(TM) brand name (see note 3). The Company was dormant from 1983 through
1985, and from 1991 to 1992.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
For purposes of the statement of cash flows, the Company treats all short-term
investments with maturities of nine months or less at acquisition to be cash
equivalents.
Revenue Recognition
The Company's revenue is recognized upon shipping product to customers.
Development Stage Company
The Company has been in the development stage since inception (October 12,
1982). Revenues to date have been minimal.
Concentration of Risk
There were no balances at December 31, 2001 and September 30, 2002 that provided
a concentration of credit risk.
Income Taxes
The Company accounts for income taxes under the accrual method established by
Statement of Financial Accounting Standards (SFAS) No. 109, which requires
recognition of deferred tax assets and liabilities for the expected future tax
consequences and events that have been included in the financial statements or
tax returns. Under this method, deferred tax assets and liabilities are
determined based on assets and liabilities using enacted rates for the year in
which the differences are expected to reverse.
7
Dairene International
(A Development Stage Company)
Notes to Financial Statements
Fair value of financial instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments: cash, accounts receivable and accounts
payable. The carrying amounts approximated fair value because of the demand
nature of these instruments.
Net Income (Loss) per Share
Basic net income (loss) per share for each year is computed by dividing net
income (loss) by the weighted average number of shares outstanding. Diluted
income (loss) per share includes the effects of common stock equivalents to the
extent they are dilutive.
Interim Financial Information
The financial statements for the ninemonths ended September 30, 2002 and 2001
are unaudited and include all adjustments which in the opinion of management are
necessary for fair presentation, and such adjustments are of a normal and
recurring nature. The results for the nine months are not indicative of a full
year's results.
NOTE 2 CAPITAL STOCK TRANSACTIONS
The articles of incorporation of the Company provide for the authorization of
15,000,000 shares of common stock at $0.005 par value and 5,000,000 shares of
preferred stock at $0.005 par value. In 1996 the Company effected a 1-for-5
reverse common stock split.
On March 28, 1989, by resolution of board of directors, the Company approved
the issuance of 40,000 shares of common stock per year as compensation to the
CEO. According to management, no shares have been earned due to the Company's
various years of dormancy; therefore the shares have not been issued as of
September 30, 2002. On December 31, 2000, a majority shareholder forgave a
balance of $34,539 due to him by the Company. It was treated as a capital
contribution.
NOTE 3 LEASES
During 2001, the Company moved its offices into premises of a related party.
There is currently no office lease in force. Rental expense for the years ended
December 31, 2001 and 2000 was approximately $25,800 and $27,000, respectively.
NOTE 4 LEGAL MATTERS
The Company is involved in a lawsuit with its former landlord in a dispute over
rent owed and repairs to be made to the property. As of December 31, 2001 and
September 30, 2002, the ultimate outcome of this litigation was unknown. In the
opinion of management, the outcome has no adverse effect on the financial
statements.
8
Dairene International
(A Development Stage Company)
Notes to Financial Statements
NOTE 5 RELATED PARTY TRANSACTIONS
On March 10, 1988, the Company entered into an agreement with a shareholder
giving the Company marketing and selling rights to distribute a milk substitute
product, in exchange for 800,000 shares of its common stock valued at $4,000.
The Company had been dormant for several years and had no sales. During the
years ended December 31, 2002 and 2001, two companies owned and operated by the
majority shareholder advanced the Company loans - non-interest bearing and
payable on demand. At December 31, 2001 the net related party payable balance
was $ 7,519 and at September 30, 2002, the balance was $ 91,797.
During the year 2001 the Company was provided with office space on a rent-free
basis from a related party. The Company recorded additional paid-in capital of
$25,000 as a capital contribution. During 2001, an affiliated party provided
$25,000 of services. The Company recorded additional paid in capital of $25,000.
During the nine months ended September 30, 2002, an affiliated party provided
$9,000 of services, which was recorded as additional paid in capital.
NOTE 6 INCOME TAXES
The Company has no current or deferred income tax due to its operating losses.
The Company, has a federal net operating loss carry-forward at December 31, 2001
and 2000, of approximately $885,000 and $821,000, respectively, subject to
annual limitations prescribed by the Internal Revenue Code, which is available
to offset future taxable income through 2021. A 100% valuation allowance has
been recorded to offset the net deferred taxes due from the Company's future
taxes.
Deferred tax assets consist of the following: 2001 2000
Current taxes $ 0 $ 0
Deferred taxes 170,000 158,000
Valuation allowance (170,000) (158,000)
================================
$ 0 $ 0
9
Dairene International
(A Development Stage Company)
Notes to Financial Statements
NOTE 7 GOING CONCERN UNCERTAINTY
These financial statements are presented assuming the Company will continue as a
going concern. For the year ended December 31, 2001 and for the nine months
ended September 30, 2002, the Company showed operating losses of $ 61,079, and $
83,584, respectively, and accumulated losses of $ 965,220. The accompanying
financial statements indicate that current liabilities exceed current assets by
$25,611 at December 31, 2001.and $100,195 at September 30, 2002. The Company has
no established source of revenue. The Company has been involved in the research
and development of its products, the development of an organizational
infrastructure, and the performance of preliminary and promotional activities.
The Company's ability to attain profitable operations is dependent upon
establishing a steady source of revenue from the sale of its products. This
raises substantial doubt about its ability to continue as a going concern. The
Company's working capital deficiency, recurring losses from operations, and no
established source of revenue, raises substantial doubt about its ability to
continue as a going concern. Management's plan in regard to these matters
includes raising working capital to assure the Company's viability (see Item 2
below).
NOTE 8 NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, ("SFAS 142") which is effective for fiscal years beginning after
December 15, 2001. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions upon
adoption for the reclassification of certain existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing of impairment of existing goodwill and other intangible. The Company
believes that the adoption of SFAS 142 will not have a material impact on the
Company's financial position and results of operations.
In August 2001, the FASB issued SFAS 143, "Accounting for Asset Retirement
Obligations". SFAS 143 relates to accounting and reporting for obligations
associated with the retirement of tangible long lived assets and the related
retirement costs. The Company believes that the adoption of SFAS 143 will not
have a material impact on the Company's financial position and results of
operations.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Company was originally organized as a Nevada corporation on October 19,
1982, and has been known by the name Dairene International since March 28, 1988.
Our Company has developed and markets a proprietary blend of ingredients for the
manufacture of (1) a cholesterol-free cow's milk product, and (2) a lactose-free
vegetable milk product.
PLAN OF OPERATIONS
The Company's activities in the next 12 months will be geared toward obtaining
additional licensees who will agree to purchase concentrate from us and
manufacture and market Dairene products in their exclusive territories. The
Company's two current licensees, which have been granted licenses for Florida
and the Bahamas, have not yet begun production of our products and we are unable
to give any assurance when such operations may begin. There can be no assurance
that we will be successful in obtaining any additional licensees for our
products.
When licensees begin manufacturing and marketing operations, our Company would
then concentrate on filling orders for concentrate through independent
manufacturers as well as assisting licensees in obtaining appropriate packaging
and marketing for the products.
Liquidity and Capital Resources
Our Company currently has no material commitments for capital expenditures and
does not expect to engage in any significant additional research and development
in the next 12 months. We also do not anticipate any significant change in the
number of employees. We believe that we will have sufficient capital required
for our anticipated operations in the next 12 months. This may come from sales
of products or sales of securities. Our capital needs are substantially
dependent on the level of product sales we achieve since most of our expenses
are related to this activity. In addition, our President has indicated a
willingness to make available working capital needed by the Company in the next
12 months in the form of interest-free loans. There is no binding commitment,
however, to provide such capital.
GOING CONCERN
The accompanying financial statements have been prepared assuming that our
Company will continue as a going concern. As our Company's auditors have
indicated, however, there are substantial doubts about our Company's ability to
continue as a going concern (see Note 7 to the financial statements above).
Our Company is taking steps to address this situation. Our Company continues
discussions with its two current licensees to assist them in commencing
production of our products, and we are seeking additional licensees. Our Company
remains in discussion with several dairies to begin manufacture of our products.
We are also seeking additional sources of capital other than loans from our
Company's president. No assurances can be provided, however, that such
alternative funding sources will be located or that additional licensees or
manufacturers of our products will be identified or begin production.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, under the supervision and with the participation of
our chief executive officer and principal financial and accounting officer,
conducted an evaluation of our "disclosure controls and procedures" (as defined
in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 13a-14(c))
within 90 days of the filing date of this Quarterly Report on Form 10-QSB (the
"Evaluation Date"). Based on their evaluation, our chief executive officer and
principal financial and accounting officer have concluded that as of the
Evaluation Date, our disclosure controls and procedures are effective to ensure
that all material information required to be filed in this Quarterly Report on
Form 10-QSB has been made known to them in a timely fashion.
Changes in Internal Controls
There have been no significant changes (including corrective actions
with regard to significant deficiencies or material weaknesses) in our internal
controls or in other factors that could significantly affect these controls
subsequent to the Evaluation Date set forth above.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As permitted by Commission Rule 12b-23, the response to this item is
incorporated by reference from the corresponding item in our Company's report of
Form 10-SB/A, filed with the Commission on December 22, 2003.
Item 2. Changes in Securities
During the three months ended September 30, 2002, the Company issued no
(0) shares of common stock.
Item 3. Defaults Upon Senior Securities
During the three months ended September 30, 2002, there have been no
defaults upon senior securities.
Item 4. Submission of Matters to a Vote of Security Holders.
During the three months ended September 30, 2002, no matters were
submitted to a vote of security holders.
Item 5. Other Information
As a material subsequent event, Barry Hough resigned as a director
effective January 23, 2004. His resignation did not involve any
disagreement with the policies and procedures of our Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits and Index of Exhibits
99.1 Certification pursuant to rule 13a-14(a) of the exchange act - CEO
99.2 Certification pursuant to rule 13a-14(a) of the exchange act - CFO
99.3 Sarbanes-Oxley CEO Certification
99.4 Sarbanes-Oxley CFO Certification
(b) Reports on Form 8-K
There were no reports on Form 8-K during the report period.
SIGNATURES
In accordance with the requirements of the Exchange Act, our Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
DAIRENE INTERNATIONAL
Dated: February 2, 2004 By: /s/ Edwin M. Golstein /s/
Edwin M. Golstein, President,
Chief Executive Officer and Director
Dated: February 2, 2004 By: /s/ Edwin M. Golstein /s/
Chief Financial Officer
12