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 March 31, 1998 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
MARCH 31, 1998
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 8-12
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 March 31, 1998 and the related
consolidated statements of operations, shareholders' equity and
cash flows for the nine month periods ended March 31, 1998 and
1997, in accordance with Statements on Standards for Accounting and
Review Services issued 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
April 23, 1998
Page 1 of 12
DAINE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
March 31, 1998
(Unaudited) June 30, 1997
CURRENT ASSETS
Cash and Cash Equivalents $ 713,842 $ 468,991
Accounts Receivable 79,049 502,259
Inventory 621,866 607,127
Prepaid Expenses and Taxes 36,531 10,851
Total Current Assets 1,451,288 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 (249,320) (216,485)
154,612 187,088
OTHER ASSETS
Deposits 6,100 6,100
TOTAL ASSETS $1,612,000 $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
March 31, 1998
(Unaudited) June 30, 1997
CURRENT LIABILITIES
Accounts Payable & Accrued Expenses $ 54,087 $ 145,827
Income tax payable -0- 1,573
Total Current Liabilities 54,087 147,400
OTHER LIABILITIES
Deferred Income Tax Liability
15,038 15,038
TOTAL LIABILITIES 69,125 162,438
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 98,793 175,896
TOTAL SHAREHOLDERS' EQUITY 1,542,875 1,619,978
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $1,612,000 $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 March 31, 1998
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 $1,441,597 $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 1,441,597 175,896 1,619,978
Net Income(Loss)
for the Nine
Months Ended
March 31, 1998 (77,103) (77,103)
BALANCES AT
MARCH 31, 1998
(UNAUDITED) 248,461,935 $2,485 $1,441,597 $ 98,793 $1,542,875
See Accountant's Review Report.
Page 4 of 12
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months Ended
March 31,
1998 1997
REVENUES
Sales - Net of Returns
and Allowances $ 119,882 $ 231,512
COST OF GOODS SOLD
Beginning Inventory 615,866 931,912
Purchase and Freight 69,694 16,140
Direct Labor 15,846 25,189
701,406 973,241
Less: Inventory - End of Period (621,866) (805,393)
Cost of Goods Sold 79,540 167,848
GROSS MARGIN 40,342 63,664
INTEREST INCOME 5,185 2,155
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (92,270) (108,469)
DEPRECIATION AND AMORTIZATION
EXPENSE (10,944) (11,914)
INCOME (LOSS) BEFORE INCOME TAXES (57,687) (54,564)
Income Tax Expense (Benefit) (5,611) (1,799)
NET INCOME (LOSS) $ (52,076) $ (56,363)
Earnings Per Share NIL NIL
Weighted Average Number of Shares of
Common Stock Outstanding 248,461,935 248,461,935
See Accountants' Review Report.
Page 5 of 12
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Nine Months Ended
March 31,
1998 1997
REVENUES
Sales - Net of Returns
and Allowances $ 848,300 $1,129,688
COST OF GOODS SOLD
Beginning Inventory 607,127 903,354
Purchase and Freight 444,505 539,927
Direct Labor 155,799 168,668
1,207,431 1,611,949
Less: Inventory - End of Period (621,866) (805,393)
Cost of Goods Sold 585,565 806,556
GROSS MARGIN 262,735 323,132
INTEREST INCOME 14,963 6,927
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (326,520) (372,403)
DEPRECIATION AND AMORTIZATION
EXPENSE (32,835) (35,745)
INCOME (LOSS) BEFORE INCOME TAXES (81,657) (78,089)
Income Tax Expense (Benefit) (4,554) 2,020
NET INCOME (LOSS) $ (77,103) $ (80,109)
Earnings Per Share NIL NIL
Weighted Average Number of Shares of
Common Stock Outstanding 248,461,935 248,461,935
See Accountants' Review Report.
Page 6 of 12
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Nine Months Ended
March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $(77,103) $(80,109)
Adjustment to Reconcile Net Income to
Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization Expense 32,835 35,745
Change in Assets and Liabilities:
Decrease (Increase) in Accounts
Receivable 423,210 163,768
Decrease (Increase) in Inventory (14,739) 97,960
Decrease (Increase) in Prepaid Expenses (25,680) 16,221
Increase (Decrease) in Accounts Payable
and Accrued Expenses (93,313) (232,322)
Net Cash Provided By (Used In) Operating
Activities 245,210 1,263
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (359) (4,548)
Net Cash (Used In) Investing Activities (359) (4,548)
Net Increase (Decrease) in Cash and
Cash Equivalents 244,851 (3,285)
Cash and Cash Equivalents at
Beginning of Period 468,991 287,482
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $713,842 $284,197
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest $ -0- $ -0-
Taxes $ 9,913 $ 2,020
See Accountants' Review Report.
Page 7 of 12
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(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 NINE MONTHS ENDED MARCH 31, 1998
(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:
3/31/98 6/30/97
Raw Materials $274,582 $288,582
Work-in-Process 210,221 213,182
Finished Goods 137,063 105,363
$621,866 $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 March 31, 1998 and 1997, three customers
accounted for approximately 35%, 21%, 19%, and 48%, 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 NINE MONTHS ENDED MARCH 31, 1998
(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 22,166
Total $260,832
Page 10 of 12
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED MARCH 31, 1998
(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. A motion has been
submitted to the judge by the attorney for the class to
discontinue the action against the officers and directors of
the company. At this time no date has been set by the judge
to hear the motion by the plaintiff's attorney.
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 NINE MONTHS ENDED MARCH 31, 1998
(unaudited)
(Continued)
March 31,
1998 1997
Current tax expense:
State & City tax on capital $ 8,020 $13,733
Federal net operating loss (12,574) (11,713)
Total tax expense (benefit) $(4,554) $ 2,020
The tax effect of significant temporary differences, which
comprise the deferred tax liabilities are as follows:
3/31/98 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 March 31, 1998 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. 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 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 nine months ended March 31, 1998, generated
revenues of $848,300. During the nine months ended March 31, 1997
the Registrant generated revenues of $1,129,688. During the nine
months ended March 31, 1998, the Registrant had a net loss of
$77,103 as compared with a net loss of $80,109 for the nine months
ended March 31, 1997. The Registrant has experienced a 25%
downturn in sales ($281,388) for the nine months ended March 31,
1998, as compared with the nine months ended March 31, 1997 due to
a shifting of orders from the Registrant's largest three customers.
In the past these customers would place orders from January-
November of each year. Presently orders are received for shipment
between April-October of each year. To offset the decline in sales
during the nine months ended March 31, 1998, the Registrant has
reduced general and administrative expenses by $45,883. As a
result, the net loss for the nine months ended March 31, 1998 was
actually slightly lower than the loss experienced during the nine
months ended March 31, 1997. Gross profit as a percentage of sales
for the three and nine month periods ended March 31, 1998 was 33.7%
and 31%, respectively. Gross profit as a percentage of sales for
the three and nine month periods ended March 31, 1997 was 27.5% and
28.6%, respectively. The increase is due to various price
increases on the Registrant's products.
The Registrant is experiencing added competition from firms
with production facilities in China, Mexico and third world nations
which may result in lower gross margins in the future. 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 March 31, 1998, the Registrant had total assets of
$1,612,000, current assets of $1,451,288, fixed assets of $154,612,
other assets of $6,100, current liabilities of $54,087, and total
shareholders' equity of $1,542,875. 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.
The Registrant has introduced several new products for sale
directly to the end user as compared with current sales to original
equipment manufacturers. These products have been sold to craft
stores and as replacement items for blow molded novelty products.
Management does not anticipate sales of these new products to have
a material effect on fiscal year 1998 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 March 31, 1998, Lite King's
three largest customers accounted for about 75% 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
March 31, 1998 and June 30, 1997 were $713,842 and $468,991,
respectively. 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.
Management anticipates revenues to be stable for the quarter
ended June 30, 1998 and comparable to the quarter ended June 30,
1997. While management expects the quarter ended June 30, 1998 to
be profitable, it anticipates the Registrant recording a loss for
the year ended June 30, 1998.
The Registrant has received approval from Underwriters
Laboratories for its seasonal use wiring harnesses utilizing a
candelabra socket. While its wiring harness utilizing a medium
based socket has not received Underwriters Laboratories listing
approval for seasonal use, the Registrant is able to offer a medium
based wiring harness listed by the Canadian Standards Association
or import a medium based wiring harness manufactured in the Orient
and listed with Underwriters Laboratories for seasonal use. There
has been no material effect on the firm's operations by not having
a medium based wiring harness for seasonal use not listed by
Underwriters Laboratories.
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 and Chief Executive Officer
Dated: May 12, 1998
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