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 September 30, 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
SEPTEMBER 30, 1998
I N D E X
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT 1
CONSOLIDATED BALANCE SHEETS - ASSETS 2
CONSOLIDATED BALANCE SHEETS
- LIABILITIES AND SHAREHOLDERS' EQUITY 3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONSOLIDATED STATEMENTS OF CASH FLOWS 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 7-11
ACCOUNTANTS' REVIEW REPORT
To the Board of Directors and Shareholders
DAINE INDUSTRIES, INC.
Brooklyn, New York 11226
We have reviewed the accompanying consolidated balance sheets of DAINE
INDUSTRIES, INC. as of September 30, 1998 and the related consolidated
statements of operations, shareholders' equity and cash flows for the
three month periods ended September 30, 1998 and 1997, 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, 1998,
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 6, 1998, 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, 1998 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
October 29, 1998
Page 1 of 11
DAINE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
A S S E T S
Sept. 30, 1998
(Unaudited) June 30, 1998
CURRENT ASSETS
Cash and Cash Equivalents $ 714,894 $ 750,874
Accounts Receivable 625,263 392,787
Inventory 550,002 595,194
Prepaid Expenses 14,394 13,978
Deferred Taxes 14,248 14,248
Total Current Assets 1,918,801 1,767,081
FIXED ASSETS, At Cost
Machinery and Equipment 394,145 394,145
Leasehold Improvements 9,787 9,787
Less: Accumulated Depreciation
and Amortization (271,210) (260,265)
132,722 143,667
OTHER ASSETS
Deposits 6,100 6,100
TOTAL ASSETS $2,057,623 $1,916,848
Subject to the comments contained in the Accountants' Review Report.
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
Sept. 30, 1998
(Unaudited) June 30, 1998
CURRENT LIABILITIES
Accounts Payable & Accrued Expenses $ 381,817 $ 329,823
Income tax payable 28,197 -0-
Total Current Liabilities 410,014 329,823
OTHER LIABILITIES
Deferred Income Tax Liability 8,423 8,423
TOTAL LIABILITIES 418,437 338,246
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 195,104 134,520
TOTAL SHAREHOLDERS' EQUITY 1,639,186 1,578,602
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $2,057,623 $1,916,848
Subject to the comments contained in the Accountants' Review Report.
Page 3 of 11
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For The Period July 1, 1996 to September 30, 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 $1,441,594 $184,805 $1,628,887
Net Income(Loss)
for the Year
Ended
June 30, 1997 (8,909) (8,909)
BALANCES AT
JUNE 30, 1997 248,461,935 2,485 1,441,594 175,896 1,619,978
Net Income
(Loss) for the
Year Ended
June 30, 1998 (41,376) (41,376)
BALANCES AT
JUNE 30, 1998
(AUDITED) 248,461,935 2,485 1,441,594 134,520 1,578,602
Net Income(Loss)
for the Three
Months Ended
Sept. 30, 1998 60,584 60,584
BALANCES AT
SEPT. 30, 1998
(UNAUDITED) 248,461,935 $2,485 $1,441,594 $195,104 $1,639,186
Subject to the comments contained in the Accountants' Review Report.
Page 4 of 11
DAINE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For The Three Months Ended
September 30,
1998 1997
REVENUES
Sales - Net of Returns
and Allowances $ 759,850 $ 621,237
COST OF GOODS SOLD
Beginning Inventory 595,194 607,127
Purchase and Freight 423,246 285,899
Direct Labor 84,864 95,408
1,103,304 988,434
Less: Inventory - End of Period (550,002) (551,127)
Cost of Goods Sold 553,302 437,307
GROSS MARGIN 206,548 183,930
Interest Income 6,857 2,413
General and Administrative Expenses (112,369) (125,279)
Depreciation Expense (10,945) (11,149)
INCOME BEFORE INCOME TAXES 90,091 49,915
Income Tax Expense 29,507 18,238
NET INCOME $ 60,584 $ 31,677
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 CASH FLOWS
(Unaudited)
For The Three Months Ended
September 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 60,584 $ 31,677
Adjustment to Reconcile Net Income to
Net Cash Provided By (Used In)
Operating Activities:
Depreciation and Amortization Expense 10,945 11,149
Change in Assets and Liabilities:
Decrease (Increase) in Accounts
Receivable (232,476) 122,799
Decrease (Increase) in Inventory 45,192 56,000
Decrease (Increase) in Prepaid Expenses (416) 3,007
Increase (Decrease) in Accounts Payable
& Accrued Expenses 51,994 64,543
Increase (Decrease) in Income Tax Payable 28,197 13,991
Net Cash Provided By (Used In) Operating
Activities (35,980) 303,166
Cash and Cash Equivalents at
Beginning of Period 750,874 468,991
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $714,894 $772,157
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest $ -0- $ -0-
Taxes 1,309 2,673
Subject to the comments contained in the Accountants' Review Report.
Page 6 of 11
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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.
ADVERTISING
Advertising costs are expensed as incurred.
Page 7 of 11
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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:
9/30/98 6/30/98
Raw Materials $476,875 $506,875
Work-in-Process 55,427 65,427
Finished Goods 17,700 22,892
$550,002 $595,194
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentration of credit risk are accounts receivable. During
the periods ended September 30, 1998 and 1997, three customers
accounted for approximately 63.9%, 12.3%, 11.6%, and 45%, 20%,
12%, 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 8 of 11
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 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:
1999 $ 58,333
2000 60,333
2001 62,000
2002 51,667
Total $232,333
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
Page 9 of 11
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
(Continued)
Inc., by all of the defendants. Certain officers and
directors of the company deny the allegations and believe the
suit to be without merit. The alleged violations refer to
Section 10b and Rule 10b-5 of the Securities and Exchange Act
of 1934.
The company has undertaken to advance any expenses necessary
and incurred by the officers and directors in the litigation
subject to an undertaking by such officer and director to
repay the advances if it be ultimately determined that the
officer or director is not entitled to be indemnified. At
this date, expenses are not material.
In the event that the plaintiffs were to prevail against the
officers and directors and a judgment was issued against them,
this may have a material adverse effect on the company's
future financial condition. Management feels that an estimate
of the possible range of loss cannot be made at this time.
NOTE 4: INCOME TAXES
Income taxes are accrued at the statutory U.S. and state
income tax rates.
Deferred tax liabilities relate to depreciation timing
differences.
September 30,
1998 1997
Current tax expense:
Income tax at statutory rates $29,507 $18,238
Total Tax Expense $29,507 $18,238
The tax effect of significant temporary differences, which
comprise the deferred tax assets and liabilities are as
follows:
9/30/98 6/30/98
Deferred tax asset:
Operating loss carryback $14,248 $14,248
Deferred tax liability:
Depreciation $ 8,423 $ 8,423
Page 10 of 11
DAINE INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
(Continued)
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, 1998 to September 30, 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 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. During the quarter ended March 31, 1988,
the Registrant completed its proposed public offering. On February 26,
1990, Daine Industries, Inc. purchased the assets of Lite King Corp.
The purchase price was $738,079, which was paid $663,079 in cash and
$75,000 in a note.
Lite King's facilities consist of approximately 16,000 square feet
of office and factory space with annual lease payments of $58,000. Lite
King's work force fluctuates during the year, from about 6-30 employees,
all, except three, which were engaged in manufacturing and assembly
activities.
As a result of the acquisition of the assets of Lite King
Corporation by the Registrant's wholly owned subsidiary, during the
three months ended September 30, 1998, the Registrant generated revenues
of $759,850. During the three months ended September 30, 1997 the
Registrant generated revenues of $621,237. During the three months
ended September 30, 1998, the Registrant had a net income of $60,584 as
compared with net income of $31,677 for the three months ended September
30, 1997.
The increase in revenues can be attributed to added sales from one
of its major customers. Gross Margins for the months ended September
30, 1998 declined to 27% from 30% for the three months ended September
30, 1997. The decline is due to the Company's inability to pass along
price increases to its major customers and a reduction in the profit
margin earned on one of the Company's principal products.
General and administrative expenses declined by 10% when comparing
expenses for the three months ended September 30, 1998 and the three
months ended September 30, 1997. This decline can be attributed
primarily to lower insurance, maintenance and professional expenses.
Interest income increased by 184% for the three months ended
September 30, 1998 as compared with the three months ended September 30,
1997. This increase is due to higher balances in interest
bearing accounts.
Management anticipates activities for the quarter ended December
31, 1998 may result in a loss. The Registrant is experiencing added
competition from firms with production facilities in China, Mexico and
third world nations which resulted in lower gross margins. The
Registrant is at a disadvantage in that firms based in the above listed
nations have labor rates considerably lower than the Registrant's.
As of September 30, 1998, the Registrant had total assets of
$2,057,623, current assets of $1,918,801, fixed assets of $132,722,
other assets of $6,100, current liabilities of $410,014, other
liabilities of $8,423 and total shareholders' equity of $1,639,186. At
June 30, 1998, total assets amounted to $1,916,848, current assets of
$1,767,081, fixed assets of $143,667, other assets of $6,100, current
liabilities of $329,823, other liabilities of $8,423 and shareholders'
equity of $1,578,602.
Lite King is embarking 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 introduced 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 1999 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 September
30, 1998, Lite King's three largest customers accounted for about 88% 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
September 30, 1998 and June 30, 1998 were $714,894 and $750,874,
respectively. The decline in cash and cash equivalents was principally
the result of higher accounts receivable for the quarter ended September
30, 1998. 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 1999 (year
ended June 30, 1999) as a result of expected added competition from
Chinese based manufacturers and their U.S. representatives of electrical
cords. These firms may offer their products at lower prices making
their products more competitive with the Registrant's products.
The Registrant is importing one of its finished products from China
as opposed to producing it in its facilities. Importation results in a
lower profit margin and selling price (due to added competition) than
when the product was being manufactured by the Registrant. No assurance
can be given that this product will be available in fiscal year 1999 in
the quantity required by the Registrant.
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: November 12, 1998
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