SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1998 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 of 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 1998,
and no such established market value of the voting stock held by
non-affiliates of the registrant. A market maker reports an
amount of $.50 as an average between bid and asked. That amount
of $.50 would provide a total value of $413,203 for the 826,405
shares. A total of 14,330 shares were transferred in the year
1998, equal to 1.7% of the issued stock.
PART I
Item 1. BUSINESS
DI-AN Controls, Inc. business is in two market segments. Both
segments are applications of the DI-AN CONCESSION/MASTER system.
The C/M system is a management and point of sale computer system
with DI-AN designed and manufactured hardware and software.
Market 1 using the C/M System is food service in public assembly
facilities which are stadiums, arenas, and convention halls.
DI-AN pioneered this application in Bush Stadium in St. Louis in
1989.
Market 2 using the C/M System for ticketing of fairs and other
general admission events.
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 1998 was 10
transfers consisting of 14,330 shares. Trading on the "books" of
Cede & Co. is not visible to the fransfer agent. Cede & Company
is a nominee holder of 318,581 shares. The approximate number of
holders of the Company's stock at December 31, 1998 was 491.
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
1998 1997 1996 1995 1994
(In thousands of dollars, except per share amounts)
Net sales and
other operating
revenues $ 593 $ 556 $ 522 $ 347 $ 330
Net income
(loss) $ (184) $(70) $(393) $(557) $(695)
Total assets $ 510 $ 291 $ 444 $ 249 $ 183
Per common
share:
Net income
(loss) $(0.22) $(.08) $(.48) $(.30) $(.22)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The operating loss of $183,700 for the year 1998 is partially the
result of the expenditure of $392,714 for new product
development, and marketing of current products, none of which is
capitalized.
The operating loss of $183,700 in 1998 is greater then the 1997
loss of $69,879 due to the large increase of Cost of Goods Sold.
LIQUIDITY AND SOURCES OF CAPITAL
Working capital deficit was $4,936,142 at December 31, 1998, a
decrease of working capital of $183,416 from December 31, 1997.
During 1998, the Company received loans from a principal
shareholder to meet operating cash flow requirements.
INFLATION
Inflation was not a significant factor during 1998, 1997, or
1996.
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 1998
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 1998. Mr. Kodis
has a total accured salary for 1998 and prior years of
$701,195.00.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Amount of class
Name & Address of of Beneficial Percentage
Common Stock, Robert D. Kodis 327,825 (1) 40%
$.10 Par Value 85 Wallis Road
Brookline, MA
Common Stock, Kodis Family Trust
$.10 Par Value James B. Marcus, Trustee 100,500 (2) 12%
Reva J. Kodis, Trustee
15 Court Square
Boston, MA
(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.
(2) Mr. Marcus is a co-trustee of the Robert D. Kodis Family
Trust and, in conjunction with his co-trustee, has voting and
investment powers for those 100,500 shares but he has no
beneficial ownership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1998, the Company owed the principal
shareholder, Robert D. Kodis, $1,847,741 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
$1,572,651 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, 1998 and 1997
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 5-7
INDEPENDENT AUDITORS' REPORT
LEVINE, KATZ, NANNIS & SOLOMON, PC
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,
1998 and 1997 and the related statements of operations and
accumulated deficit, and cash flows for the year ended December
31, 1998. 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 audit.
We conducted our audit 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 mis-statement. 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
audit provides 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, 1998 and 1997, and the results of its
operations and its cash flows for the year ended December 31,
1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note C to the financial statements, the Company carries debt
disproportional to its current size and is dependent on a single
product. These conditions raise substantial doubt about its
ability to continue as a going concern. Managements' plans
regarding those matters are also described in Note C. The
financial statements do not include any adjustments that might
result from the outcome of this un-certainty.
The comparative amounts in the statements of operations and
accumulated deficit and cash flows have not been audited by us.
The statements of operations and accumulated deficit for the
years ended December 31, 1997 and 1996, and the related
statements of cash flows for the years 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.
July 7, 1999
Di/An CONTROLS, INC.
BALANCE SHEETS
December 31,
1998 1997
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 39,386 $ 9,295
Investments 224,914 -
Accounts receivable, net of allowance
for bad debts: 1998-$0; 1997-$13,715 20,101 21,210
Inventory 184,038 225,072
Other current assets 7,038 456
----------- -----------
TOTAL CURRENT ASSETS 475,477 256,033
----------- -----------
EQUIPMENT
Equipment and tooling 22,477 22,477
Accumulated depreciation (22,477) (22,477)
----------- -----------
NET EQUIPMENT - -
----------- -----------
OTHER ASSETS
Cash surrender value, life insurance,
net of loans payable: 1998-$457,251; 31,947 32,231
Deposits 2,917 2,917
----------- -----------
TOTAL OTHER ASSETS 34,864 35,148
----------- -----------
TOTAL ASSETS $ 510,341 $ 291,181
=========== ===========
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 4,963 $ 29,404
Related party liabilities 3,505,590 3,226,330
Note payable, officer 1,847,741 1,681,515
Other current liabilities 53,325 71,510
----------- -----------
TOTAL CURRENT LIABILITIES 5,411,619 5,008,759
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note K) - -
STOCKHOLDERS' EQUITY
Common stock 82,641 82,641
Additional paid-in capital 1,124,451 1,124,451
Accumulated deficit (6,108,370) (5,924,670)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (4,901,278) (4,717,578)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' $ 510,341 $ 291,181
=========== ===========
The accompanying notes are an integral part of these financial
statements.
2.
Di/An CONTROLS, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Years ended December 31,
1998 1997 1996
Audited Unaudited Unaudited
SALES $ 592,817 $ 555,544 $ 522,332
COST OF GOODS
SOLD 269,955 99,501 495,260
----------- ----------- -----------
GROSS PROFIT
ON SALES 322,862 456,043 27,072
OPERATING
EXPENSES 310,597 324,637 354,438
----------- ----------- -----------
INCOME (LOSS)
FROM OPERATIONS 12,265 131,406 (327,366)
----------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest
expense (195,894) (207,500) (216,877)
Gain on sale
of equipment - 6,215 150,828
Other (71) - -
----------- ----------- -----------
TOTAL OTHER
INCOME
(EXPENSES) (195,965) (201,285) (66,049)
----------- ----------- -----------
NET LOSS (183,700) (69,879) (393,415)
Accumulated
deficit,
beginning of
year (5,924,670) (5,854,791) (5,461,376)
----------- ----------- -----------
ACCUMULATED
DEFICIT, END
OF YEAR $(6,108,370 $(5,924,670 $(5,854,791
=========== =========== ===========
NET LOSS
PER SHARE $ (0.22) $ (0.08) $ (0.48)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES USED
IN CALCULATION OF LOSS
PER SHARE 826,405 826,405 826,405
=========== =========== ===========
The accompanying notes are an integral part of these financial
statements.
3.
Di/An CONTROLS, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31,
1998 1997 1996
Audited Unaudited Unaudited
OPERATING ACTIVITIES:
Net loss $(183,700) $ (69,879) $(393,415)
Adjustments
to reconcile
net loss to
net cash
provided by
operating activities:
Depreciation and
amortization - 6,263 3,489
Gain on sale of
equipment - (6,215) (150,828)
Decrease in allowance
for bad debts (13,715) - -
Changes in other
assets 370 (2,971) 5,079
Increase (decrease) in cash from:
Accounts receivable 14,825 19,153 (1,596)
Inventory 41,033 (180,973) 77,980
Other current assets (6,582) 1,094 (394)
Other assets - 14,544 34,344
Accounts payable and
accrued expenes (24,438) (26,006) (39,818)
Other current liabilities (18,188) 40,869 15,370
Related party liabilities 279,260 309,008 473,653
Total adjustments 272,565 174,766 417,279
NET CASH OPERATING
ACTIVITIES 88,865 104,887 23,864
INVESTING ACTIVITIES:
Acquisition of invest-
ments (225,000) - -
Proceeds from disposal
of equipment - 7,238 150,569
NET CASH INVESTING
ACTIVITIES (225,000) 7,238 150,569
FINANCING ACTIVITIES
Net borrowings,
officer's loan 166,226 (131,000) (146,400)
NET CASH FINANCING
ACTIVITIES 166,226 (131,000) (146,400)
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 30,091 (18,875) 28,033
Cash and cash
equivalents, beginning
of year 9,295 28,170 137
CASH AND CASH
EQUIVALENTS, END OF
YEAR $ 39,386 $ 9,295 $ 28,170
No cash was disbursed for interest or income taxes in 1998, 1997,
or 1996.
The accompanying notes are an integral part of these financial
statements.
4.
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 is stated at
cost. Depreciation is provided over the estimated useful lives
of the assets by straight line and accelerated methods for both
financial reporting and income tax purposes as the effect on net
income is considered immaterial. Equipment, furniture and
fixtures 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. GOING CONCERN
The financial statements of the Company have been presented
on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course
of business. The Company has incurred significant operating
losses since 1988 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
interest expense from this debt has exceeded the profit from
operations. At December 31, 1998, it has a deficiency in working
capital of $4,936,142, an increase of approximately $183,000 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 raise substantial doubt about the Company's
ability to continue as a going concern. The Company's ability to
continue depends upon future events, which include its ability to
obtain sufficient operating capital, the achievement of
profitable operations 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, 1998 consist of the following:
Contract Carrying
Amount Value
U.S. Treasury Index
Fund $ 200,000 $ 199,537
Money Market Fund 25,000 25,377
$ 225,000 $ 224,914
D. INVESTMENTS (continued)
These investments may be redeemed at any time and have been
classified as available for sale by the Company. The dividend
income re-invested amounted to $2,292, while the unrealized loss
amounted to $2,363, which have been included as part of the net
loss for the year in the statements of operations and accumulated
deficit for 1998. The investments' carrying value is the fair
value of the publicly traded securities.
E. INVENTORY
Inventory at December 31, consists of the following:
1998 1997
Raw materials $ 73,335 $ 47,542
Work in process 110,703 177,530
Total $ 184,038 $ 225,072
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 1998, 1997 and 1996 was $195,894, $207,500, and
$216,877, 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, 1997, 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.
I. CONCENTRATIONS
1. In 1998 and 1997, a single customer accounted for
approximately 38% and 20%, respectively, of total sales. In
1996, a different customer accounted for 11% of total sales.
2. In 1998, 1997 and 1996, purchases from 6 vendors
accounted for approximately 82%, 35% and 27% of total purchases,
respectively.
J. DEFERRED TAXES
The following is a summary of the significant components of
the Company's deferred tax assets as of December 31:
Net operating losses $ 940,000
Accrued expenses,
related parties 1,400,000
2,340,000
Valuation allowance (2,340,000)
Net asset $ -
The Company has $2,700,000 of Federal net operating losses
available that expire in years from 2003-2009. Massachusetts
state net operating losses of $200,000 expire after 1999.
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:
1999 $ 35,000
2000 35,000
2001 35,000
2002 2,917
$ 107,917
L. RESEARCH AND DEVELOPMENT
The Company incurred research and development costs
amounting to $41,995, $52,379 and $51,892 during the three years
ended December 31, 1998, 1997 and 1996, respectively.
