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, 1996 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)
461 Beach 124 Street, Belle Harbor, NY 11694
(Former Name, Former Address and Former Fiscal Year,
If Changed Since Last Report)
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, 1996
I N D E X
Page
INDEPENDENT ACCOUNTANTS' REVIEW REPORT 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 8-11
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders
DAINE INDUSTRIES, INC.
Brooklyn, New York
We have reviewed the accompanying consolidated balance sheets of
DAINE INDUSTRIES, INC. as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity and
cash flows for the six month periods ended December 31, 1996 and
1995, 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,
1996, 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 August 7, 1996, 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, 1996 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 14, 1997
Page 1 of 11
DAINE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
Dec. 31, 1996
(Unaudited) June 30, 1996
CURRENT ASSETS
Cash and Cash Equivalents $ 366,691 $ 287,482
Accounts Receivable 253,330 519,935
Inventory 931,912 903,353
Prepaid Expenses 26,320 38,237
Total Current Assets 1,578,253 1,749,007
FIXED ASSETS, At Cost
Machinery and Equipment 385,874 384,873
Leasehold Improvements 9,787 9,787
Less: Accumulated Depreciation
and Amortization (192,373) (168,542)
203,288 226,118
OTHER ASSETS
Deposits 6,100 6,100
TOTAL ASSETS $1,787,641 $1,981,225
The accompanying notes are an integral part of these financial
statements.
Page 2 of 11
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, 1996
(Unaudited) June 30, 1996
CURRENT LIABILITIES
Accounts Payable $ 135,523 $ 335,486
Accured Expenses 30,124 -0-
Total Current Liabilities 165,647 335,486
OTHER LIABILITIES
Deferred Income Tax Liability
(Note 5) 16,852 16,852
TOTAL LIABILITIES 182,499 352,338
COMMITMENTS AND CONTINGENCIES
(Note 4)
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 161,060 184,805
TOTAL SHAREHOLDERS' EQUITY 1,605,142 1,628,887
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,787,641 $1,981,225
The accompanying notes are an integral part of these financial
statements.
Page 3 of 11
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Period July 1, 1994 to December 31, 1996
Common Stock Total
Number $.00001 Share-
of Par Paid-In Retained holders'
Shares Value Capital Earnings Equity
BALANCES AT
JULY 31, 1994 248,461,935 $2,485 $1,441,594 $101,141 $1,545,223
Net Income for
the Year Ended
June 30, 1995 114,996 114,996
BALANCES AT
JUNE 30, 1995 248,461,935 2,485 1,441,594 216,137 1,660,219
Net Income (Loss)
for the Year Ended
June 30, 1996 (31,332) (31,332)
BALANCES AT
JUNE 30, 1996
(Audited) 248,461,935 2,485 1,441,594 184,805 1,628,887
Net Income (Loss)
for the Six
Months Ended
December 31, 1996 (23,745) (23,745)
BALANCES AT
DECEMBER 31, 1996
(UNAUDITED) 248,461,935 $2,485 $1,441,594 $161,060 $1,605,142
The accompanying notes are an integral part of these financial statements.
Page 4 of 11
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months Ended
December 31,
1996 1995
REVENUES
Sales - Net of Returns
and Allowances $ 161,906 $ 161,483
COST OF GOODS SOLD
Beginning Inventory 947,185 1,089,603
Purchase and Freight 19,523 82,327
Direct Labor 42,799 47,371
1,009,507 1,219,301
Less: Inventory - End of Period (931,912) (1,120,603)
Cost of Goods Sold 77,595 98,698
GROSS MARGIN 84,311 62,785
INTEREST INCOME 2,354 3,195
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (117,628) (79,666)
DEPRECIATION AND AMORTIZATION
EXPENSE (11,915) (9,937)
INCOME (LOSS) BEFORE INCOME TAXES (42,878) (23,623)
Income Tax Expense (Benefit)(Note 5) (2,724) (1,793)
NET INCOME (LOSS) $ (40,154) $ (21,830)
Earnings Per Share NIL NIL
Weighted Average Number of Shares of
Common Stock Outstanding 248,461,935 248,461,935
Subject to the comments contained in the Accountants' Review Report.
Page 5 of 11
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Six Months Ended
December 31,
1996 1995
REVENUES
Sales - Net of Returns
and Allowances $ 898,176 $ 718,310
COST OF GOODS SOLD
Beginning Inventory 903,353 807,279
Purchase and Freight 523,787 715,774
Direct Labor 143,479 108,300
1,570,619 1,631,353
Less: Inventory - End of Period (931,912) (1,120,603)
Cost of Goods Sold 638,707 510,750
GROSS MARGIN 259,469 207,560
INTEREST INCOME 4,772 6,429
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (263,934) (195,477)
DEPRECIATION AND AMORTIZATION
EXPENSE (23,831) (19,872)
INCOME (LOSS) BEFORE INCOME TAXES (23,524) (1,360)
Income Tax Expense (Benefit)(Note 5) 221 4,195
NET INCOME (LOSS) $ (23,745) $ (5,555)
Earnings Per Share NIL NIL
Weighted Average Number of Shares of
Common Stock Outstanding 248,461,935 248,461,935
Subject to the comments contained in the Accountants' Review Report.
Page 6 of 11
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Six Months Ended
December 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(23,745) $ (5,555)
Adjustment to Reconcile Net Income to
Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization Expense 23,831 19,872
Change in Assets and Liabilities:
Decrease (Increase) in Accounts
Receivable 266,605 566,856
Decrease (Increase) in Inventory (28,559) (313,324)
Decrease (Increase) in Prepaid Expenses 11,917 (9,397)
Increase (Decrease) in Accounts Payable (199,963) (170,103)
Increase (Decrease) in Accrued Expenses 30,124 (82,991)
Net Cash Provided By (Used In) Operating
Activities 80,210 5,358
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (1,001) (15,337)
Net Cash (Used In) Investing Activities (1,001) (15,337)
Net Increase (Decrease) in Cash and
Cash Equivalents 79,209 (9,979)
Cash and Cash Equivalents at
Beginning of Period 287,482 450,718
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $366,691 $440,739
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest $ -0- $ -0-
Taxes $ 221 $ 52,519
Subject to the comments contained in the Accountants' Review Report.
Page 7 of 11
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(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.
INVENTORY
Inventories are stated at the lower of cost or market.
Cost is determined by the first-in, first-out method.
Inventories consist of:
12/31/96 6/30/96
Raw Materials $653,138 $766,527
Work-in-Process 149,799 27,412
Finished Goods 128,975 109,414
$931,912 $903,353
MAJOR CUSTOMERS
During the periods ended December 31, 1996 and 1995,
three customers accounted for approximately 54%, 23%,
16%, and 41%, 30%, 11%, respectively, of total revenues.
The loss of any one of these customers could have a
material adverse effect on the financial condition of the
company.
Page 8 of 11
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
(Continued)
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.
PREPARATION OF FINANCIAL STATEMENTS
Preparation of the Company's financial statements in
conformity with generally accepted accounting principles
requires the use of management's estimates, primarily
related to collectibility of receivables and depreciable
lives of furniture and equipment. Accordingly, actual
results could differ from those estimates.
NOTE 3: ACQUISITION
On February 26, 1990 Daine Industries, Inc. purchased the
assets of Lite King Corporation. The purchase price was
$738,079, which was paid $663,079 in cash and $75,000 in
a note.
The acquisition was accounted for by the purchase method
of accounting and, accordingly, the purchase price has
been allocated to assets acquired based on their fair
market value at the date of acquisition.
NOTE 4: 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:
1997 $ 54,667
1998 58,000
1999 58,333
2000 60,333
2001 48,500
Total $279,833
In addition to annual base rental payments, the company
must pay an annual escalation for real estate taxes.
Page 9 of 11
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
(Continued)
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 affiliated
company, Davin Enterprises Inc., by all of the
defendants. Certain officers and directors of the
company, who are also officers and directors of Davin
Enterprises Inc., 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 5: INCOME TAXES
Income taxes are accrued at the statutory U.S. and state
income tax rates. Beginning with the year ended June 30,
1993, the company adopted FAS 109 for reporting income
taxes. This did not have a material effect on the
financial statements.
Income tax expense is principally due to state and local
income taxes based upon capital. Deferred tax
liabilities relate to depreciation timing differences.
December 31,
1996 1995
Current tax expense:
Income tax at statutory rates $221 $4,195
Total Tax Expense $221 $4,195
Page 10 of 11
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(UNAUDITED)
(Continued)
NOTE 6: 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 7: INTERIM FINANCIAL REPORTING
The unaudited financial statements of the company for the
period July 1, 1996 to December 31, 1996 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 11 of 11
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. 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
$54,000. Lite King's work force fluctuates during the year, from
about 10-35 employees, all except three which were engaged in
manufacturing and assembly activities.
Lite King Corporation, The Registrant's wholly owned
subsidiary, during the six months ended December 31, 1996,
generated revenues of $898,176. During the six months ended
December 31, 1995 the Registrant generated revenues of $718,310.
During the six months ended December 31, 1996, the Registrant had
a net loss of $23,745 as compared with a net loss of $5,555 for the
six months ended December 31, 1995.
Management expects a general downturn in revenues to continue
in the next quarter (quarter March 31, 1997). Management also
anticipates activities for the quarter ended March 31, 1997 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, 1996, the Registrant had total assets of
$1,787,641, current assets of $1,578,253, fixed assets of $203,288,
other assets of $6,100, current liabilities of $165,647, and total
shareholders' equity of $1,605,142. At June 30, 1996, total assets
amounted to $1,981,225, current assets of $1,749,007, fixed assets
of $226,118, other assets of $6,100, current liabilities of
$335,486, other liabilities of $16,852 and shareholders' equity of
$1,628,887.
Lite King has embarked upon an expansion program which
resulted in the addition of new equipment. The Registrant has also
begun to manufacture some of the components used in some of its
finished products. As part of this program, Lite King has upgraded
some existing tooling which should result in having available some
improved products. Management believes it has adequate financing
to fund Lite King's expansion program.
The Registrant has begun the introduction of several new
products for sale directly to the end user as compared with current
sales to original equipment manufacturers. These products will be
sold as replacement items for Christmas, Halloween and Easter
decorative plastic items. Management does not anticipate sales of
these new products to have a material effect on fiscal year 1997
revenues or Company profitability.
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, 1996, Lite King's
three largest customers accounted for about 93% 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, 1996 and June 30, 1996 were $366,691 and $287,482
respectively. The increase in cash and cash equivalents was
principally the result of higher sales for the six months ended
December 31, 1996. 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 1997 (year
ended June 30, 1997) 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 1997 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. At the date of this report, the Company has received
approvals from U.L. for its sockets (#518 and #418) but is still
waiting for an approval for the fused plug purchased from
suppliers. As of February 7, 1997, management is not aware of any
fused plugs available on the market, which have been approved to
date by U.L. Management cannot yet determine what will occur at
7/1/97 if U.L. does not approve any fused plug.
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 9, 1997
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