Item 1. Business.
Daine Industries, Inc. ("The Registrant") was incorporated on September 24, 1987 and is currently seeking to acquire an operating business. From February 1990 until November 19, 1998 operated the business of Lite King Corp. and currently is a public vehicle to acquire an operating business.
On February 26, 1990, the Registrant acquired substantially all of the assets (with the exception of the cash) and the business of Lite King Corporation ("Lite King"), a manufacturer and assembler of wiring devices, cord sets and sockets. On November 19, 1998, the Registrant filed a Form 10-SB to spin-off Lite King Corp's shares of common stock to its shareholders on a pro rata basis. The Registrant owned all of the 2,484,620 outstanding shares of Lite King which was distributed to its shareholders as of November 30, 1998 on the basis of one share of Lite King for each 100 shares of Daine held. The distribution of stock certificates of Lite King was made in May 1999.
Management of the Registrant believe the two companies as separate entities may create additional value for the shareholders. There is no assurance of any trading market developing. Management will attempt to use the Registrant as a "shell" vehicle to acquire an operating business.
During the fiscal year ended June 30, 1999, the Registrant had revenues of $1,080,031 and a net loss of $97,486. The accounts of Lite King Corp were included in the financial statements through March 31, 1999 (reflecting a nine month period). Through March 31, 1999 Lite King Corp incurred a loss of $36,841 for the nine month period ended March 31, 1999.
The Registrant has evaluated the impact of the Year 2000 issue on the business and does not expect to incur significant costs with year 2000 compliance. The Registrant believes that all software and hardware requirements to enable it to cope with the Year 2000 issue have been or are being currently implemented. However, there can be assurance that unanticipated costs may arise in implementing these requirements.
Item 2.
Item 2. Properties
As of June 30, 1999, the Registrant owned no property. The Registrant utilizes some space in the offices of Lite King Corp., an affiliated company.
Item 3.
Item 3. Legal Proceedings
Certain officers and directors of the Company had 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 alleged violations of the securities laws in trading certain securities including those of the Company and its former affiliated company, Davin Enterprises Inc., by all of the defendants. A motion was submitted to the judge by the attorney for the class to discontinue the action against the officers and directors of the Company, which motion was granted on September 13, 1999. As a result, this case has been terminated and all allegations against the defendants have been dismissed. The Company had 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 were not entitled to be indemnified. The expenses incurred were not material.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholders Matters.
The following table sets forth, for the periods indicated, the Company's common stock as published by the National Daily Quotation Service. Prices represent quotations between dealers without adjustments for retail markups, markdowns or commissions, and may not represent actual transactions.
High Bid Low Bid
Quarter ended September 30, 1997 * * Quarter ended December 31, 1997 * * Quarter ended March 31, 1998 * * Quarter ended June 30, 1998 * * Quarter ended September 30, 1998 * * Quarter ended December 31, 1998 * * Quarter ended March 31, 1999 * * Quarter ended June 30, 1999 * *
*there were no pink sheet market makers for the Registrant's common stock; no price information was available.
On September 17, 1999, there was no market for the shares of the Registrant. Number of shareholders of record on September 17, 1999 was 674.
Dividends - The Company has not paid any dividends since its inception and presently anticipates that all earnings, if any, will be retained for development and expansion of the Registrant's business and that no dividends on the common stock will be declared in the foreseeable future.
Item 6.
Item 6. Selected Financial Data
For The Year Ended June 30, 1999 1998 1997 1996 1995
Net Sales $1,080,031 $1,521,660 $1,850,407 $1,610,409 $2,907,587 Interest Income 21,032 23,732 9,037 11,193 14,068 Net Income (Loss) (97,486) (41,376) (8,909) (31,332) 114,996 Net Income (Loss) Per Share NIL NIL NIL NIL NIL Total Assets 119,788 1,916,848 1,782,416 1,981,225 2,232,032 Long Term Debt -0- -0- -0- -0- -0- Dividends -0- -0- -0- -0- -0-
Item 7.
Item 7. Management's Discussion And Analysis of Results of Operations.
It is not feasible to compare operations for the fiscal year ended June 30, 1999 with the year ended June 30, 1998 since the Registrant's results for the fiscal year ended June 30, 1999 includes only 9 months of operations for Lite King Corp as compared with a full year's operations for Lite King for fiscal year ended June 30, 1998. The accounts of the Registrant and its consolidated former 100% owned subsidiary, Lite King Corp, are included in the consolidated financial statements through March 31, 1999.
For the fiscal year ended June 30, 1999 Lite King Corp experienced declining gross margins due to its inability to pass along price increases to its customers. Through March 31, 1999, Lite King incurred a loss of $36,841.
Sales declined 18% from fiscal year 1997 to fiscal year 1998. This decrease of approximately $328,000 was due to a downturn in orders from blow molded figurine customers who buy cord sets from Lite King Corp. In addition, during fiscal year 1998 Underwriters Laboratories mandated changes in fused plugs and wire used by Lite King Corp. in seasonal outdoor cord sets. The Company also experienced increased competition from cord set manufacturers based in China, where labor costs are considerably lower than those experienced by Lite King Corp.
During fiscal year 1997 these blow molded figurine manufacturers purchased at normal levels, accounting for a 14% increase in sales of about $240,000 for fiscal year 1997 (as compared with fiscal year 1996 sales).
Gross margins for fiscal year 1998 was 27% as compared with 30% in fiscal year 1997 and 24% in fiscal year 1996. The decrease in fiscal year 1998 gross margins was due to the inability of passing along price increases to company customers as higher unit labor costs were absorbed by Lite King Corp. Fiscal year 1997 gross margins increased as compared with fiscal year 1996 gross margins due to higher prices charged to company customers.
General and administrative expenses declined by approximately $71,000 between fiscal year 1998 and fiscal year 1997. This decline can be attributed to lower amounts for underwriters laboratories fees $8,000; group insurance expenses $12,000; general insurance expense $35,000; legal and accounting expense $18,000; rent expense (real estate taxes) $35,000; and utilities expense $4,000 - offset by higher officers' salaries $22,000 and maintenance expense $8,000. The declines in these expense categories are consistent with lower levels of sales activities. Increased officers' salaries were paid to Lite King's president and treasurer.
General and administrative expenses increased by approximately $120,000 between fiscal year 1996 and fiscal year 1997. The increase can be attributed to increases in underwriters laboratories fees $12,000; officers salaries $41,000; insurance expense $21,000; and rent expense $32,000. The increase in underwriters laboratories fees relate to new product listings. The increase in rent expense relate to real estate taxes due for prior periods presented by Lite King Corp's landlord and are escalations in city real estate taxes paid by Lite King as part of its lease. Increased officer's salaries were paid to Lite King Corp's president and treasurer.
Net loss increased by about $32,467 between fiscal year 1998 and fiscal year 1997. The loss of $41,376 in fiscal year 1998 can be attributed to a 18% decline in sales in fiscal year 1998 and a related decline in general and administrative expenses. The reduction of the net loss from $31,332 in fiscal year 1996 to a net loss of $8,909 in fiscal year 1997 can be attributed to a 14% increase in sales offset by a rise in general and administrative expenses.
There has been a downward trend in sales as sales decreased between fiscal year 1997 to 1998 due to the factors discussed above.
The Registrant (through Lite King Corp) has financed its activities primarily from operating activities. For fiscal year 1999 and 1998 cash flows from investing activities have not been material.
During fiscal years 1997, 1998 and 1999, cash flows from financing activities have been immaterial.
As of June 30, 1999, the Registrant had total assets of $119,788, total liabilities of $6,500 and shareholders' equity of $113,288. A comparison with total assets, liabilities and shareholders' equity figures at June 30, 1998 would not be meaningful since June 30, 1998 figures include the assets, liabilities and shareholders' equity of Lite King Corp, the ownership of which was spun out to the Registrant's shareholders during the fiscal year ended June 30, 1999.
June 30, 1999 figures for the Registrant incude current assets of $111,126 (cash and cash equivalents), fixed assets of $8,662, current liabilities of $6,500 (accounts payable andd accrued expenses) and shareholders' equity of $113,288, consisting of common stock of $2,485, paid in capital of $1,441,597 and a retained deficit of $1,330,794. The current ratio (current assets to current liabilities) at June 30, 1999 was approximately 17:1.
Management is currently in discussion with several private companies regarding a possible merger/acquisition, although no assurance can be given that any of these discussions will lead to a completed transaction in the future.
Item 8.
Item 8. Financial Statements
Attached.
Item 9.
Item 9. Changes In and Disagreements with Accountants in Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers
The executive officers and directors of the Registrant are as follows:
Age Term Expires
Arthur Seidenfeld 48 President and Director Next annual meeting Anne Seidenfeld 86 Treasurer,Secretary and Director Next annual meeting Gerald Kaufman 58 Director Next annual meeting
Each of the above named individuals has served the Registrant in the capacity indicated since its formation on September 24, 1987 (with the exception that Anne Seidenfeld became the Registrant's secretary on December 17, 1989 and Gerald Kaufman became a director in 1990), and Arthur Seidenfeld and Anne Seidenfeld may be deemed a "parent" under the Rules and Regulations promulgated under the Securities Act of 1933, as amended.
Arthur Seidenfeld, has been president and a director of the Registrant since its formation. Mr. Seidenfeld was awarded a B.S. Degree in Accounting from New York University in 1972 and an M.B.A. in Finance in 1978 from Pace University.
He is also President and Director of Modern Technology Corp., a public company and Lite King Corp, a publicly traded company engaged in the manufacture and sale of electrical cord sets. He was also President and a Director of Davin Enterprises, Inc. ( a publicly traded company that went public in Sept. 1987), from 1987 until December 1997 when Davin merged with Creative Masters International, a manufacturer of replica cars. From July 1994 until April 1997, he was also treasurer-secretary of Soft Sail Wind Power Inc., a newly established company engaged in wind energy research and development activities. From December 1996 until December 1998, he was President and Director of Coral Development Corp., a public company which merged with Omnicomm Systems Inc., a company engaged in the computer software/internet field. He is president of Excess Materials, Inc., a 70% owned subsidiary of the Registrant engaged in the internet e-commerce field.
Anne Seidenfeld, Treasurer-Secretary and Director, received her diploma from Washington Irving High School, New York City, in 1931. Mrs. Seidenfeld is the Treasurer, Secretary and Director of Modern Technology Corp. and Lite King Corp. She is treasurer and secretary of Excess Materials Inc. She was Treasurer, Secretary and Director of Coral Development Corp. from December 1996 to December 1998 and was treasurer, secretary and director of Davin Enterprises, Inc. from 1987 until December 1997.
Gerald Kaufman, Director, has been a practicing attorney for over thirty years. He has served as a director of the Registrant, along with being a director of Modern Technology Corp. since 1990 and a director of Lite King Corp since 1998. He has also been a director of American Mayflower Life Insurance Co. since 1973.
Arthur Seidenfeld is the son of Anne Seidenfeld.
No forms 4 or 5 were required to be filed by officers or directors during the fiscal year ended June 30, 1999.
Item 11.
Item 11. Management - Remuneration and Transactions
The officers of the Registrant did not receive salaries from the Registrant during the year ended June 30, 1999 with the exception of the salaries received from Lite King Corp. During the year ended June 30, 1999 the president of the Registrant, Arthur Seidenfeld received a salary of $92,250 from Lite King Corp. Anne Seidenfeld, treasurer and secretary of the Registrant received a salary of $30,600.
PART IV
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
a. The following are known to Registrant to be beneficial owners of 5% or more of the Registrant's common stock:
Title of Class Common Stock
Name of Beneficial Owner Amount & Percentage Nature of of Class Beneficial Ownership
Modern Technology Corp. 240 Clarkson Ave Brooklyn, New York 72,000,000@ 29.0%
Arthur Seidenfeld 461 Beach 124 Street Belle Harbor, New York 36,000,000 14.5%
Anne Seidenfeld 461 Beach 124 Street Belle Harbor, New York 20,000,000 8.0%
American Israel Ventures Corp. 461 Beach 124 Street Belle Harbor, New York 15,000,000@ 6.0%
Arthur Seidenfeld and Anne Seidenfeld are president and secretary, treasurer respectively of Modern Technology Corp. and also own 48% and 12% respectively of the common stock of Modern Technology Corp.
Arthur Seidenfeld owns 70% of the outstanding shares of American Israel Ventures Corp. Anne Seidenfeld owns 25% of the outstanding shares of American Israel Ventures Corp. Arthur Seidenfeld and Anne Seidenfeld are president and treasurer-secretary respectively of American Israel Ventures Corp.
b. The shares owned by management are as follows: Common Stock.
Arthur Seidenfeld 36,000,000 14.5% Anne Seidenfeld 20,000,000 8.0% Gerald Kaufman 3,000,000 1.2%
Item 13.
Item 13. Certain Relationships and Related Transactions.
The Registrant's corporate office is in the facility of Lite King Corp., an affiliated company where it does not pay any rent.
Item 14.
Item 14. Exhibits, Financial Statements and Schedules.
a) Financial Statements and Financial Statement Schedules.
Consolidated Balance Sheets - June 30, 1999 and 1998. Consolidated Statement of Shareholders' Equity For the Period July 1, 1996 to June 30, 1999. Consolidated Statement of Operations For the Years Ended June 30, 1999, 1998 and 1997. Consolidated Statement of Cash Flows For the Years Ended June 30, 1999, 1998, and 1997. Notes to the Financial Statements For the Years Ended June 30, 1999, 1998 and 1997.
b) Schedules
Other schedules not submitted are omitted, because the information is included elsewhere in the financial statements or the notes thereto, or the conditions requiring the filing of these schedules are not applicable.
Supplemental information to be furnished with reports filed pursuant to Section 15(d) of the Securities Act of 1934 by Registrant which have not registered securities pursuant to Section 12 of the Securities Act of 1934:
a) No annual report or proxy material has been sent to security holders. When such report or proxy materials are furnished to securities holders subsequent to the filing of this report, copies shall be furnished to the Commission when sent to securities holders.
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.
DAINE INDUSTRIES, INC.
BY Arthur Seidenfeld President Dated: September 17, 1999
Pursuant to the requirements of the Securities 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 date indicted.
Name Title Date
Arthur Seidenfeld President and Director Principal Executive Officer and Principal Financial Officer Sept. 17, 1999
Anne Seidenfeld Treasurer, Secretary and Director Sept. 17, 1999
Gerald Kaufman Director Sept. 17, 1999
DAINE INDUSTRIES, INC.
FINANCIAL STATEMENTS
JUNE 30, 1999 AND 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 7-10
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Shareholders DAINE INDUSTRIES, INC. 240 Clarkson Avenue Brooklyn, NY 11226
We have audited the accompanying consolidated balance sheets of DAINE INDUSTRIES, INC. as of June 30, 1999 and 1998 and the related consolidated statements of operations, statements of shareholders' equity and cash flows for each of the three years in the period ended June 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based upon our audit.
We conducted our audits 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 misstatement. 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 DAINE INDUSTRIES, INC. as of June 30, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles.
GREENBERG & COMPANY LLC
Springfield, New Jersey August 6, 1999
Page 1 of 10
DAINE INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
A S S E T S
June 30, 1999 1998
CURRENT ASSETS Cash and Cash Equivalents $111,126 $ 750,874 Accounts Receivable -0- 392,787 Inventory -0- 595,194 Prepaid Expenses -0- 13,978 Deferred Taxes -0- 14,248 Total Current Assets 111,126 1,767,081
FIXED ASSETS, At Cost Machinery and Equipment 31,032 394,145 Leasehold Improvements -0- 9,787 Less: Accumulated Depreciation (22,370) (260,265) 8,662 143,667
OTHER ASSETS Deposits -0- 6,100
TOTAL ASSETS $119,788 $1,916,848
See accompanying summary of accounting policies and notes to the financial statements.
Page 2 of 10 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
June 30, 1999 1998
CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 6,500 $ 329,823 Total Current Liabilities 6,500 329,823
OTHER LIABILITIES Deferred Income Tax Liability -0- 8,423
TOTAL LIABILITIES 6,500 338,246
COMMITMENTS AND CONTINGENCIES
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 (Deficit) (1,330,794) 134,520
TOTAL SHAREHOLDERS' EQUITY 113,288 1,578,602
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 119,788 $1,916,848
See accompanying summary of accounting policies and notes to the financial statements.
Page 3 of 10 DAINE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For The Period July 1, 1996 to June 30, 1999
Total Number $.00001 Retained Share- of Par Paid-In Earnings holders' Shares Value Capital (Deficit) 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 248,461,935 2,485 1,441,597 175,896 1,619,978
Net Income (Loss) for the Year Ended June 30, 1998 (41,376) (41,376)
BALANCES AT JUNE 30, 1998 248,461,935 2,485 1,441,597 134,520 1,578,602
Net Income (Loss) for the Year Ended June 30, 1999 (97,486) (97,486)
Lite King Corp spinoff to Daine stockholders (1,367,828) (1,367,828)
BALANCES AT JUNE 30, 1999 248,461,935 $2,485 $1,441,597 $(1,330,794) $ 113,288
See accompanying summary of accounting policies and notes to the financial statements.
Page 4 of 10 DAINE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended June 30, 1999 1998 1997
Interest Income $ 5,598 $ 8,494 $ 9,037
General and Administrative Expenses (57,724) (40,884) (29,978)
Depreciation and Amortization Expense (5,320) (5,320) (5,523)
INCOME (LOSS) BEFORE INCOME TAXES (57,446) (37,710) (26,464)
Income Tax Expense (Benefit) 3,199 (9,728) (129)
INCOME (LOSS) FROM CONTINUING OPERATIONS (60,645) (27,982) (26,335)
Spun-off Operations: Income (loss) from operation of Lite King Corp subsidiary (less applicable income tax expense of $352, 198 and $2,887, respectively) (36,841) (13,394) 17,426
NET INCOME (LOSS) $(97,486) $(41,376) $ (8,909)
Earnings (Loss) Per Share NIL NIL NIL
Weighted Average Number of Shares of Common Stock Outstanding 248,461,925 248,461,925 248,461,925
See accompanying summary of accounting policies and notes to the financial statements.
Page 5 of 10 DAINE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended June 30, 1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES Net Income (Loss) $ (97,486) $ (41,376) $ (8,909) Adjustment to Reconcile Net Income to Net Cash Provided By (Used In) Operating Activities: Depreciation and Amortization Expense 32,763 43,780 47,943 Change in Assets and Liabilities: Decrease (Increase) in Accounts Receivable 355,281 109,472 17,676 Decrease (Increase) in Inventory 13,192 11,933 296,226 Decrease (Increase) in Prepaid Expenses (7,359) (3,127) 27,386 Decrease (Increase) in Deferred Taxes - Current -0- (14,248) -0- Increase (Decrease) in Accounts Payable and Accrued Expenses (249,416) 183,996 (189,659) Increase (Decrease) in Income Tax Payable -0- (1,573) 1,573 Increase (Decrease) in Deferred Income Tax Liability -0- (6,615) (1,814) Net Cash Provided By (Used In) Operating Activities 46,975 282,242 190,422
CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures -0- (359) (8,913) Net Cash (Used In) Investing Activities -0- (359) (8,913)
CASH FLOWS FROM FINANCING ACTIVITIES Spinoff of Lite King Corp (686,723) -0- -0- Net Cash (Used In) Financing Activities (686,723) -0- -0-
Net Increase (Decrease) in Cash and Cash Equivalents (639,748) 281,883 181,509
Cash and Cash Equivalents at Beginning of Period 750,874 468,991 287,482
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 111,126 $ 750,874 $ 468,991
Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest $ -0- $ -0- $ -0- Income Taxes $ 2,922 $ 12,024 $ 3,000
See accompanying summary of accounting policies and notes to the financial statements.
Page 6 of 10 DAINE INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
NOTE 1: ORGANIZATION AND NATURE OF OPERATIONS
Daine Industries, Inc. (Daine) is a Delaware corporation. Daine owned 100% of the stock of Lite King Corp. (LKC) a New York corporation through November 19, 1998. Daine's principal purpose is to acquire and merge with an operating company. LKC's principal business is the manufacture and assembly of electrical wiring devices, cord sets and sockets. LKC's customers consist 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 through March 31, 1999. LKC incurred a loss of $36,841 through March 31, 1999. (See spinoff) All significant 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. The carrying amount reported in the accompanying balance sheets approximates fair value.
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:
6/30/98 Raw Materials $506,875 Work-in-Process 65,427 Finished Goods 22,892 $595,194
Page 7 of 10 DAINE INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 (Continued)
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration of credit risk are accounts receivable. During the years ended June 30, 1999 and 1998, three customers accounted for approximately 62%, 15%, 6%, and 38%, 28%, 18%, 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.
ESTIMATES IN FINANCIAL STATEMENTS
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 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.
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.
Page 8 of 10 DAINE INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 (Continued)
SPINOFF
In April of 1999, Daine Industries Inc. distributed all 2,484,620 issued and outstanding shares of Lite King Corp. to the shareholders of Daine Industries Inc. on a pro rata basis. Daine did not recognize any gain or loss on the distribution and also relies on Internal Revenue Code section 355 to treat the distribution as a nontaxable stock dividend to Daine's shareholders.
The following financial information relating to Lite King Corp is provided pursuant to APB 30 (the amounts provided for the year ended June 30, 1999 only included the operations of Lite King through March 31, 1999).
For the Year Ended June 30, 1999 1998 1997
Sales, net $1,080,031 $1,521,660 $1,850,407 Interest income 15,434 15,238 -0- Depreciation expense 27,443 38,460 42,420
NOTE 3: COMMITMENTS AND CONTINGENCIES
Certain officers and directors of the company had 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 alleged violations of the securities laws, in trading certain securities including those of the company and its former affiliated company, Davin Enterprises Inc., by all of the defendants. A motion was been submitted to the judge by the attorney for the class to discontinue the action against the officers and directors of the Company, which motion was granted on September 13, 1999. As a result, this case has been terminated and all allegations against the defendents have been dismissed.
The company had 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 was ultimately determined that the officer or director was not entitled to be indemnified. The expenses incurred were not material.
Page 9 of 10 DAINE INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 (Continued)
NOTE 4: INCOME TAXES
Income taxes are accrued at the statutory U.S. and state income tax rates.
Income tax expense for June 30, 1997 is principally due to state and local income taxes based upon capital. Deferred tax liabilities relate to depreciation timing differences.
June 30, 1999 1998 1997 Current tax expense (benefit): Income tax at statutory rates $3,551 $ 7,016 $ 7,767 Other differences -0- (2,298) (1,872) 3,551 4,718 4,572 Deferred tax expense (benefit): Depreciation -0- 6,615 (1,814) Operating loss carryback -0- (20,863) (1,323) -0- (14,248) (3,137) Total Tax Expense (Benefit) $3,551 $(9,530) $ 2,758
The tax effect of significant temporary differences, which comprise the deferred tax assets and liabilities are as follows: June 30, 1999 1998 Deferred tax asset Operating loss carryback $20,060 $14,248 Valuation allowance (20,060) -0- Net deferred tax asset $ -0- $14,248 Deferred tax liability Depreciation $ -0- $ 8,423
During the year ended June 30, 1999, Daine distributed the stock of its subsidiary Lite King to Daine shareholders in a tax free spinoff. Therefore, Daine will not be filing a consolidated tax return with Lite King for the year ended June 30, 1999 and the loss that Daine has generated for this year of approximately $59,000 must be carried forward for tax purposes until 2019. The tax benefits associated with this loss have been fully reserved in the valuation allowance due to Daine's lack of operating profitability.
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.
Page 10 of 10