Item 1. Business.
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, the Registrant acquired substantially all of the assets (with the exception of the cash) and the business of Lite King Corporation, a manufacturer and assembler of wiring devices, cord sets and sockets. The assets acquired had a total cost of $738,079, consisting of machinery and equipment, inventory, accounts receivable, a non compete clause entered into with Lite King Corporation's former president and principal shareholder and a rent deposit. The purchase price ($663,079 in cash and a $75,000 five year note payable in quarterly installments with interest of 12%) was arrived at by arms length negotiations and the Registrant obtained the funds for the purchase from its own internal sources. There was no material relationship between the Registrant and Lite King Corporation or any of its officers or directors prior to this transaction. The Registrant had entered into a six month consulting agreement with Lite King Corporation's former president and owner Mr. Jerold Kolton. For the consulting services rendered, the Registrant paid Mr. Kolton the sum of $36,000 plus expenses of $9,000, or a total of $45,000.
Lite King and its predecessors have been in operation for over twenty five years and its customers are in the Christmas, Halloween, lamp, lighting, point of purchase display and ceramic products field. Lite King's electrical wiring devices, consists of wiring harnesses, "pigtails", power supply cords and the sale of bulbs. Wiring harnesses consist of wire, one or more sockets on a line with a polarized plug and with or without a plug and a switch (which is optional). "Pigtails" consist of a socket and wire. Power supply cords consists of a plug, wire and a switch (which is optional). The Registrant's customers consists of manufacturers of lamps, chandeliers, Christmas and Halloween illuminated decorations, novelties, point of purchase displays, signs, religious illuminated items, illuminated ceramic products and electrical specialties. The Registrant's "pigtails" are primarily sold to lamp and chandelier manufacturers while wiring devices and power supply cords are sold primarily to the Registrant's other customers.
The Registrant obtains its raw materials from a number of different suppliers and believes that it is not dependent upon any source of supply. It faces competition from a number of domestic and international wiring device manufacturers, several of whom are considerably larger than the Registrant. Competition is believed to be intense and while the Registrant believes it is able to finance future growth internally, management believes that a number of the Registrant's competitors are materially stronger financially along with having production facilities located domestically and overseas, taking advantage of lower rates offshore.
Lite King's facilities consist of approximately 16,000 square feet of office and factory space with annual lease payments of $54,000 plus tax escalations. The lease is scheduled to expire on April 30, 2002. At June 30, 1996, there were approximately 31 employees, all except three which were engaged in manufacturing and assembly activities. For the year ended June 30, 1995, four customers accounted for 31.3%, 29.8%, 25% and 5%, respectively of total revenues. For the fiscal year ended June 30, 1996 four customers accounted for 43%, 24.4%, 15.1% and 5.2% respectively of total revenues. The loss of any one of these customers would have a material adverse effect on the Registrant's future operations. No other customer accounted for 10% or more of revenues for the 1995 and 1996 fiscal years.
Lite King has embarked upon a modernization program which resulted in upgrading some of its present tooling and equipment. The modernization program has resulted in some improvement in productivity in some production areas and in making available some improved products. Management will also continue to seek out the acquisition of other companies or the purchase of assets of other firms which may be in a related field to Lite King or which may complement Lite King's business although no assurances can be given that such an acquisition or purchase will be completed in the near future.
Item 2.

Item 2. Properties
As of June 30, 1996, the Registrant owned no property. Lite King's facilities consist of 16,000 square feet of office and factory space pursuant to a five year lease scheduled to expire on April 30, 2002. Annual lease payments during the first two years ending on June 30, 1999 will amount to $58,000 plus tax escalations. During the third year the rental amounts to $60,000 plus tax escalations and during the fourth and fifth year of the lease ending April 30, 2992, the annual lease payment amounts to $62,000 plus tax escalations. The Registrant's corporate office is in the facility of Modern Technology Corp., an affiliated company for which it does not pay rent.
Item 3.

Item 3. Legal Proceedings
The President and Secretary-Treasurer of the Registrant 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 commenced in February 1989. The complaint alleges violations of the securities laws(section 10b and Rule 10b-5 of the Securities and Exchange Act of 1934) in trading certain securities including those of the Company and its affiliated company, Davin Enterprises Inc., by all of the defendants. The officers and directors of the Registrant named in the complaint, who are also officers and directors of Davin Enterprises Inc., deny the allegations and believe the suit to be without merit. The Registrant 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. A judgement by settlement was entered against certain defendants other than those who are officers of this Registrant. The officers of the Registrant continue to deny the allegations against them and plaintiffs have not been pursuing the suit against them. 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 Registrant's future financial condition.
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, 1994 * * Quarter ended December 31, 1994 * * Quarter ended March 31, 1995 * * Quarter ended June 30, 1995 * * Quarter ended September 30, 1995 * * Quarter ended December 31, 1995 * * Quarter ended March 31, 1996 * * Quarter ended June 30, 1996 * *
*there were no pink sheet market makers for the Registrant's common stock; no price information was available.
On September 12, 1996, there was no market for the shares of the Registrant. Number of shareholders of record on September 12, 1996 was 695.
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 7. Management's Discussion And Analysis of Results of Operations.
For the year ended June 30, 1994, the Registrant generated revenues of $2,127,327. During the year ended June 30, 1995, the Registrant generated revenues of $2,907,587. During the year ended June 30, 1996, the Registrant generated revenues of $1,610,409. During the year ended June 30, 1996, the Registrant generated a net loss of $31,332 as compared with a net income after taxes of $114,996 for the year ended June 30, 1995 and net income after taxes of $71,878 for the year ended June 30, 1994. The decrease in profitability for fiscal year 1996 as compared with fiscal year 1995 was due to lower revenues. The fiscal year 1996 loss figure consists of a gross margin of $386,769 and interest income of $11,193, offset by general and administrative expenses of $391,837, and depreciation and amortization expense of $39,741 less an income tax expense benefit amounting to $2,284 resulting in a net loss of $31,332. For the year ended June 30, 1995, net income before income taxes amounted to $191,959 and income tax expense of $76,963, resulting in net income of $114,996.
The fiscal year 1995 net income figure of $114,996, consisted of a gross margin of $748,897 and interest income of $14,068, offset by general and administrative expenses of $521,783, interest expense of $718 and depreciation and amortization expense of $48,505 and combined federal and state income taxes of $76,963.
As of June 30, 1996, the Registrant had total assets of $1,981,225 as compared with total assets of $2,232,032 at June 30, 1995. The decrease in assets of $250,807 can be attributed to a decline in the following current asset categories: cash and cash equivalents ($163,236), and accounts receivable ($190,105) and and increase in several current asset categories, such as inventory $96,074 and prepaid expenses $29,066. There was a decrease in the fixed asset account: $22,606 (net).
During fiscal year 1996, total liabilities declined by $219,475 reflected by a decrease in current liabilities of $220,499, while deferred tax liabilities rose by $1,024. At June 30, 1996, shareholders' equity amounted to $1,628,887 as compared with $1,660,219 at June 30, 1995. The current ratio (current assets to current liabilities) at June 30, 1996 was approximately 5:1.
Management presently is considering a number of negative factors which could have a material adverse effect on fiscal 1997 revenues and profitability. The Company presently works with two non profit testing organizations for its U.S. and Canadian electrical products(Underwriters Laboratories[U.L.] and the Canadian Standards Association[C.S.A.]). U.L. has proposed new standards for 1997 seasonal products for the U.S. which management considers extreme and unrealistic. For example, as of 9/15/96, no new fused plug for the seasonal cord sets has been approved by U.L. for 1997. Since this is an important component of the Company's product, the lack of an approved plug could have a material adverse effect on the Company's business. The company is working to have its components approved for the 1997 U.L. standard before 12/31/96. While the company is attempting to also obtain another testing organization's approval for the 1997 seasonal product standards, no assurance can be given at this time that approval for 1997 U.S. seasonal products will be obtained. If the Company's customers require product with these 1997 approvals and approvals are not received by January 1, 1997, this could have a materially negative effect on Company's revenues and operations. Because of these uncertainties, management can not forecast fiscal year 1997 revenues or profitability.
Item 8.

Item 8. Financial Statements
Attached and listed in Item 14.
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 45 President and Director Next annual meeting Anne Seidenfeld 83 Treasurer,Secretary and Director Next annual meeting Gerald Kaufman 55 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, President and Director 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 has also served as President and Director of Modern Technology Corp., a public company since 1983. Mr. Seidenfeld is also President and a Director of Davin Enterprises, Inc., a public company whose proposed business is to provide a mechanism to take advantage of business opportunities, which went public during the quarter ended September 30, 1987. From July 1994, he is also treasurer-secretary of Soft Sail Wind Power Inc., a newly established company engaged in wind energy research and development activities.
Anne Seidenfeld, Secretary-Treasurer and Director, received her diploma from Washington Irving High School, New York City, in 1931. Mrs. Seidenfeld is Treasurer, Secretary and a Director of Modern Technology Corp. and is Treasurer, Secretary and a Director of Davin Enterprises, inc.
Gerald Kaufman, Director, has been a practicing attorney for over twenty five years. He has served as a director of the Registrant, along with being a director of Modern Technology Corp. and Davin Enterprises, Inc. since November 1990. 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 filed by officers or directors during the fiscal year ended June 30, 1996.
Item 11.

Item 11. Management - Remuneration and Transactions
For the year ended June 30, 1996, Arthur Seidenfeld, President and a Director of the Company received a salary of $66,473 from Lite King Corp. Anne Seidenfeld, Treasurer and a Director of the Company, received a salary of $20,700- for the year ended June 30, 1996 from Lite King Corp. She has performed bookkeeping and other administrative services for Lite King Corp. No other option or bonus plan exists. The loss of the President's involvement with Lite King Corp. may have an adverse effect on future Company operations. The officers of the Company did not receive salaries from the Registrant during the year ended June 30, 1996 with the exception of the salaries received from Lite King Corp., listed above. 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. 461 Beach 124 Street Belle Harbor, 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 49% 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 Modern Technology 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, 1996 and 1995. Consolidated Statement of Shareholders' Equity For the Period July 1, 1993 to June 30, 1996. Consolidated Statement of Operations For the Years Ended June 30, 1996, 1995 and 1994. Consolidated Statement of Cash Flows For the Years Ended June 30, 1996, 1995, and 1994.
b) Schedules
V PROPERTY AND EQUIPMENT VI ACCUMULATED DEPRECIATION X STATEMENT OF EXPENSES AMOUNTING TO 1% OR MORE OF NET SALES XIII CAPITAL SHARES XVI SUPPLEMENTARY INCOME STATEMENT INFORMATION
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 18, 1996
DAINE INDUSTRIES, INC.
FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
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 6-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 8-11
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and Shareholders DAINE INDUSTRIES, INC. 461 Beach 124 Street Belle Harbor, New York 11694
We have audited the accompanying consolidated balance sheets of DAINE INDUSTRIES, INC. as of June 30, 1996 and 1995 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, 1996. 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, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles.
GREENBERG & COMPANY LLC
Springfield, New Jersey August 7, 1996
Page 1 of 11
DAINE INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS
A S S E T S
June 30, 1996 1995
CURRENT ASSETS Cash and Cash Equivalents $ 287,482 $ 450,718 Accounts Receivable 519,935 710,040 Inventory 903,353 807,279 Prepaid Expenses 38,237 9,171 Total Current Assets 1,749,007 1,977,208
FIXED ASSETS, At Cost Machinery and Equipment 384,873 369,890 Leasehold Improvements 9,787 7,635 Less: Accumulated Depreciation and Amortization (168,542) (128,801) 226,118 248,724
OTHER ASSETS Deposits 6,100 6,100
TOTAL ASSETS $1,981,225 $2,232,032
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
June 30, 1996 1995
CURRENT LIABILITIES Accounts Payable and Accrued Expenses $ 335,486 $ 555,985
OTHER LIABILITIES Deferred Income Tax Liability (Note 4) 16,852 15,828
TOTAL LIABILITIES 352,338 571,813
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 184,805 216,137
TOTAL SHAREHOLDERS' EQUITY 1,628,887 1,660,219
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,981,225 $2,232,032
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, 1993 to June 30, 1996
Total Number $.00001 Share- of Par Paid-In Retained holders' Shares Value Capital Earnings Equity
BALANCES AT JULY 1, 1993 248,461,935 $2,485 $1,441,597 $ 29,263 $1,473,345
Net Income for the Year Ended June 30, 1994 71,878 71,878
BALANCES AT JUNE 30, 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
(Loss) for the Year Ended June 30, 1996 (31,332) (31,332)
BALANCES AT JUNE 30, 1996 248,461,935 $2,485 $1,441,594 $184,805 $1,628,887
The accompanying notes are an integral part of these financial statements.
Page 4 of 11 DAINE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended June 30, 1996 1995 1994
REVENUES Sales - Net $1,610,409 $2,907,587 $2,127,327
COST OF GOODS SOLD Beginning Inventory 807,279 810,385 561,479 Purchase and Freight 1,106,998 1,795,974 1,470,378 Direct Labor 212,716 359,610 285,578 2,126,993 2,965,969 2,317,435
Less: Inventory - End of Period 903,353 807,279 810,385 1,223,640 2,158,690 1,507,050
GROSS MARGIN 386,769 748,897 620,277
Interest Income 11,193 14,068 14,493
General and Administrative Expenses (391,837) (521,783) (466,189)
Interest Expense -0- (718) (2,475) Depreciation and Amortization Expense (39,741) (48,505) (47,509)
INCOME (LOSS) BEFORE INCOME TAXES (33,616) 191,959 118,597
Income Tax Expense (Benefit) (Note 4) (2,284) 76,963 46,719
NET INCOME (LOSS) $ (31,332) $ 114,996 $ 71,878
Earnings (Loss) Per Share NIL NIL NIL
Weighted Average Number of Shares of Common Stock Outstanding 248,461,935 248,461,935 248,461,935
The accompanying notes are an integral part of these financial statements.
Page 5 of 11 DAINE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended June 30, 1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ (31,332) $114,996 $ 71,878 Adjustment to Reconcile Net Income to Net Cash Provided By (Used In) Operating Activities: Depreciation and Amortization Expense 39,741 48,505 47,509 Change in Assets and Liabilities: Decrease (Increase) in Accounts Receivable 190,105 (204,584) (103,961) Decrease (Increase) in Inventory (96,074) 3,106 (248,906) Decrease (Increase) in Prepaid Expenses (29,066) (5,206) 7,180 Decrease (Increase) in Deferred Taxes - Current -0- -0- 4,814 Decrease (Increase) in Deposits -0- -0- 14,500 Decrease (Increase) in Deferred Taxes - Noncurrent -0- -0- 2,467 Increase (Decrease) in Accounts Payable and Accrued Expenses (220,499) 53,148 203,729 Increase (Decrease) in Deferred Income Tax Liability 1,024 9,296 6,532 Net Cash Provided By (Used In) Operating Activities (146,101) 19,261 5,742
CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (17,135) (82,157) (50,950) Net Cash (Used In) Investing Activities (17,135) (82,157) (50,950)
The accompanying notes are an integral part of these financial statements.
Page 6 of 11 DAINE INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended June 30, 1996 1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES Net Borrowings (Repayment) Under Short-Term and Long-Term Debt -0- (11,250) (15,000)
Net Cash Provided By (Used In) Financing Activities -0- (11,250) (15,000)
Net Increase (Decrease) in Cash and Cash Equivalents (163,236) (74,146) (60,208)
Cash and Cash Equivalents at Beginning of Period 450,718 524,864 585,072
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 287,482 $450,718 $524,864
Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest $ -0- $ 718 $ 2,475 Income Taxes $ 52,519 $ 41,407 $ 18,639
The accompanying notes are an integral part of these financial statements.
Page 7 of 11 DAINE INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
NOTE 1: 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:
6/30/96 6/30/95 Raw Materials $766,527 $627,270 Work-in-Process 27,412 61,503 Finished Goods 109,414 118,506 $903,353 $807,279
MAJOR CUSTOMERS
During the years ended June 30, 1996 and 1995, three customers accounted for approximately 43%, 24%, 15%, and 31%, 30%, 25%, 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.
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.
Page 8 of 11 DAINE INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994 (Continued)
REVENUE RECOGNITION POLICY
The company recognizes sales, for both financial statement purposes and for tax purposes, when the products are shipped to customers.
SHAREHOLDERS' EQUITY
The company issued 50,000,000 units, consisting of one share common stock, $.00001 par value, one redeemable Class A Common Stock Purchase warrant and one redeemable Class B Common Stock Purchase warrant, and 152,000,000 shares to officers of the company and other individuals. As of June 30, 1994, June 30, 1993 and June 30, 1992, 37,224,425 Class "A" and 9,237,510 Class "B" warrants were exercised, and the balance of the warrants have expired.
NOTE 2: 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 (see footnote 4).
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 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:
1997 $ 54,667 1998 58,000 1999 58,333 2000 60,333 2001 62,000 Total $293,333
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 affiliated
Page 9 of 11 DAINE INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994 (Continued)
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 4: INCOME TAXES
Income taxes are accrued at the statutory U.S. and state income tax rates. The company has been following APB Opinion No. 11 for reporting income taxes in prior years. 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 for June 30, 1996 is principally due to state and local income taxes based upon capital. Deferred tax liabilities relate to depreciation timing differences.
June 30, 1996 1995 1994
Current tax expense (benefit): Income tax at statutory rates $ 3,143 $67,666 $56,645 Operating loss carryback (5,930) -0- (13,992) Other differences (521) -0- (2,466) (3,308) 67,666 40,187
Deferred tax expense: Depreciation 1,024 9,297 6,532
Total Tax Expense (Benefit) $(2,284) $76,963 $46,719
Page 10 of 11 DAINE INDUSTRIES, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994 (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.
Page 11 of 11
Our examination was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The information contained in the following Schedules is presented for purposes of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Securities and Exchange Commission. Such information has been subjected to the auditing procedures applied in the examination of the basic financial statements and, in our opinion, is fairly stated in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
GREENBERG & COMPANY LLC
Springfield, New Jersey August 7, 1996
SCHEDULE V
DAINE INDUSTRIES, INC. PROPERTY AND EQUIPMENT For The Year Ended June 30, 1996
Column A Column B Column C Column D Column E Column F
Classification Balance at Additions Retirements Other Changes Balance at Beginning At Cost Add (Deduct) End of of Period Describe Period
EQUIPMENT $369,890 $14,983 $384,873
STRAIGHT LINE BASIS 10 YEAR LIFE
IMPROVEMENTS $7,635 $2,152 $9,787
STRAIGHT LINE BASIS 5 YEAR LIFE
-------- -------- -------- TOTAL $377,525 $17,135 $394,660 ======== ======== ========
SCHEDULE VII
DAINE INDUSTRIES, INC. ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY AND EQUIPMENT For The Year Ended June 30, 1996
Column A Column B Column C Column D Column E Column F
Description Balance at Additions Retirements Other Changes Balance at Beginning Charged to Add (Deduct) End of of Period Costs and Describe Period Expenses
ACCUMULATED DEPRECIATION $128,801 $39,741 $168,542
STRAIGHT LINE BASIS 5 & 10 YEAR LIFE
SCHEDULE X
DAINE INDUSTRIES, INC.
STATEMENT OF EXPENSES AMOUNTING TO 1% OR MORE OF NET SALES For the Year Ended June 30, 1996
ITEM AMOUNT
Officers Salaries $87,173
Utilities 18,859
Insurance - Employee Group 45,641
Insurance - General 47,119
Professional Fees 31,738
Total $230,530
SCHEDULE XVI DAINE INDUSTRIES, INC.
SUPPLEMENTAL STATEMENT OF OPERATIONS INFORMATION
For the Year Ended June 30, 1996
Column A Column B
Item Charged to costs and expenses for the period
Maintenance and Repairs $ 10,488
Depreciation 39,741
Taxes, Other Than Income Taxes - Payroll 24,684
State and Local Income Taxes 4,289
Commercial Rent Tax 2,356
Rent 54,000
Advertising Costs 6,407
Total $141,965
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 indicated.
Name Title Date
Arthur Seidenfeld President and Director September 18, 1996 Principal Executive Officer and Principal Financial Officer
Anne Seidenfeld Treasurer, Secretary September 18, 1996 and Director
Gerald Kaufman Director September 18, 1996


ITEM 1. BUSINESS
General
LeaRonal, Inc. was incorporated in 1953 under the laws of the State of New York. The business of LeaRonal, Inc. and its subsidiaries (hereinafter "the Company") consists of the development, production, sale and worldwide distribution of specialty chemical additives and other products used by the connector, printed circuit board, semiconductor, and industrial metal finishing industries. In addition to its facilities in the United States, the Company has subsidiaries located in England, Switzerland, Germany, France, Hong Kong, Singapore, Taiwan, and South Korea, and 50% owned affiliates in Japan and Italy to serve its worldwide customer base. The Company's specialty chemical additives are proprietary and the majority of them are patented.
In the five fiscal years ended February 29, 1996, the Company's precious metal electroplating processes accounted for approximately 60% of the Company's net sales volume but less than 50% of the Company's income before income taxes. The disproportionate contribution of the precious metal processes to sales as compared to income is principally due to the high cost of the precious metal content of such processes, which is included as a component of sales, and is generally priced at the market price on the date of shipment.
Aside from its sales of precious metal electroplating processes, the Company produces and markets in excess of 100 other electroplating processes and chemical additives relating to the deposition of nickel, tin, copper, zinc, and other metals. The users of the Company's nonprecious metal processes generally provide their own metals. In addition, the Company has, over the years, expanded its product line to include non-electroplating specialty chemicals used in the fabrication of printed circuit boards and other electronic components.
- 2 - The following table sets forth, for the five fiscal years ended February 29, 1996, the division of the Company's net sales as among its precious metal processes, non-precious metal processes and other products, and the precious metal content (primarily gold) of its electroplating processes:
- -------------------------
* Primarily consists of sales of electroplating equipment, supplies and other products.
In fiscal 1996, there were no sales to any one customer in excess of 10% of net sales. No single customer accounted for more than 3% of all process sales in any of said years. The loss of any one customer would not have a material adverse effect on the Company's business.
- 3 - Gold Electroplating Processes
Gold electroplating over base metals is used in order to inexpensively achieve certain chemical and metallurgical properties of solid gold, such as resistance to tarnish and corrosion, solderability, conductivity and heat emissivity.
The majority of the Company's sales of gold electroplating processes are made to the electronics industries; the balance is made to manufacturers of decorative items like watches, spectacle frames, and jewelry. The Company has developed a number of processes for gold electroplating, used in the production of semiconductors, printed circuit boards and electrical contacts, all of which are components of such end use items as: guidance systems, telecommunications equipment, computers, consumer appliances, electrical equipment and electronic games.
The Company's gold electroplating processes are distributed to several hundred customers, which include many of the world's largest electronics and electrical equipment manufacturers.
Most of the Company's gold electroplating processes have been patented or have patents pending, and are sold under various trade names including AUROGLO(R)*, AURONAL(R), AUROVEL, AUROGLEAM, AURODURE(R), ENDURAGLO(R), AUROJET, AUROSPEED, AUROSPOT, AUROTAB, RONOVEL and DECRONAL.
Gold metal used in the production of chemical additives for the Company's gold electroplating processes is purchased at unregulated market prices which vary from day to day. During the past five fiscal years, the New York market price of gold has fluctuated between approximately $300 and $500 an ounce. On May 8, 1996, the New York market price for gold was $395.
The Company maintains an inventory of gold metal and, accordingly, may achieve profits or suffer losses in the value of its inventory as a result of market fluctuations. However, the Company does not hold gold for investment purposes and believes that its practice of purchasing and pricing the gold metal content of its gold electroplating processes on a current basis tends to minimize such profits or losses over the long term. The price which the Company charges its customers for the gold metal content of its gold electroplating processes is generally the market price of gold on the date of shipment. The Company does not believe that the fluctuations in the price of gold have had a material adverse effect on its sales of gold electroplating processes; however, there is no assurance that future fluctuations in the price of gold will not have such effect on sales.
- -----------------------------
* (R) indicates the existence of a registered trademark.
- 4 - Other Precious Metal Processes
The Company offers a series of palladium, palladium-nickel, and silver electroplating processes primarily for use in the electronics and decorative industries. These systems, called PALLADURE, PALLAMET, and SILVERJET respectively, provide, in certain instances, a suitable substitute for existing plated finishes.
Non-Precious Metal Electroplating Processes
The Company's non-precious metal electroplating processes are distributed to over 2,000 customers. In the fiscal year ended February 29, 1996, no single customer or distributor accounted for more than 5% of the Company's net sales of such processes.
The Company offers a number of patented acid copper electroplating processes for plating printed circuit boards sold under the trade name COPPER GLEAM. These processes offer significant technological advantages over previous processes and have gained wide acceptance in the industry. Newer versions of COPPER GLEAM have kept pace with increasing demands for the production of more sophisticated printed circuit boards.
The Company is the exclusive U.S. and Canadian licensee for bright acid zinc electroplating processes known as SLZ, SLZ PLUS, and MILLENIUM. The Company also sells a line of alkaline zinc plating processes under the name ZINCAL. All of these processes are cyanide-free and non-polluting.
The Company manufactures and markets a tin electroplating process known as TINGLO CULMO. This process is used primarily in the electronic and electrical equipment industries to deposit a bright tin finish on semiconductors, integrated circuits, and printed circuit boards.
The Company sells a tin-lead electroplating bath called PLUTIN LA. This system, which is primarily used to plate printed circuit boards, has many advantages over the conventional tin- lead plating baths.
A complete line of patented tin and tin-lead alloy plating processes, known as SOLDERON, has gained wide acceptance in electronics markets. These processes eliminate the use of toxic and difficult to dispose of chemicals in addition to providing technological advantages over all earlier chemistries. The Company has a dominant position in the sales of these processes, which are being expanded into additional markets worldwide.
RONSTAN TP represents the first new tin plating process introduced to the steel industry in over forty years. This process allows for the continuous coating of steel sheet with pure tin and offers both environmental and technical advantages over prior technology.
SOLDERON PC has achieved a strong position as the tin-lead plating process of choice in the printed circuit industry. This is due in large part to the fact that the process eliminates the environmental problems associated with earlier fluoborate type chemistry.
- 5 - SOLDERON SC and SOLDERON LG are used extensively for plating semiconductor lead frames and capacitors respectively and SOLDERON MHS is the industry leader for wire plating.
In contrast to the Company's gold, silver, and palladium electroplating processes, where the precious metal is offered by the Company as a component of the process, in most of the processes described above, the Company supplies only the specialized chemical additives necessary for the process, and the user supplies the metal and other chemicals. The raw materials required for these processes are in adequate supply.
The Company continues to focus its efforts in the area of environmentally benign and cost effective processes.
Other Products
The Company has a license agreement with Tokyo Ohka (TOK), a Japanese company, which gives it the exclusive rights to manufacture and sell a complete line of photoimageable solder masks, under the name of RONASCREEN OPSR and RONACOAT OPSR. The market for these items in the printed circuit board industry is large, although competitive. The Company believes its technology has technical advantages over existing processes which could enhance the Company's opportunities for significant market acceptance of its imaging products.
The Company also offers, under licensing agreements with TOK, dry film photoresists for sale in Europe, Southeast Asia, and South America.
Research and Development
The Company's research and development program is particularly important due to rapid technological changes and advances in the industries the Company serves. For example, in order to keep pace with changing technology in the electronics industries, the Company maintains an extensive worldwide research program and pilot plating facilities to simulate production conditions. Amounts expended on research and development during fiscal 1996, 1995, and 1994 were approximately $3,406,000, $2,815,000, and $2,504,000, respectively. It is the Company's policy to write off all research and development expenditures in the year in which incurred.
In addition to the corporate research facilities in Freeport, New York, research is also conducted at other Company facilities in both Europe and the Far East. Programs are coordinated among LeaRonal and its subsidiaries to maximize efficiency.
Recent Developments
In order to increase market penetration with its RONACOAT Imaging products, the Company has introduced a line of automated equipment for electrostatic coating of these products. To date, six of these systems have been sold and installed in the United States. In addition, the Company has successfully introduced its RONASCREEN OPSR into competitive
- 6 - electrostatic coating systems and in 1995 began offering products for other application techniques such as curtain coating.
The Company is continuing its research in the area of direct metallization of printed circuit boards. There is a significant market for this technology to meet demands for environmentally acceptable processes. The Company introduced CONDUCTRON, a complete system for direct metallization of plated through holes which is being well received by the printed circuit board industry. This technology overcomes many of the technical and environmental problems encountered with conventional processes and can be applied in fully automated equipment. Competitive processes have simultaneously been offered by a number of other suppliers.
In addition, the Company continues to expand its line of specialty items such as cleaners and film strippers which it offers to the printed circuit industry.
Patents and Licenses
The Company maintains an active program of obtaining patents to protect the results of its research and development program. While the majority of the Company's processes are patented and it regards its patents as important to its business, it does not believe that its sales are materially dependent upon any particular patent or group of related patents. As of February 29, 1996, the Company owned in excess of 100 patents, and had many domestic and foreign patent applications pending. There is no assurance that United States or foreign patent applications filed will result in patents. It is the Company's policy to amortize the cost of patents over the life of the respective patents.
The Company is the licensee under several license agreements for the use of certain patent rights of other corporations. These licenses relate to certain aspects of the Company's zinc electroplating processes, strippers, and imaging products. Some of these licenses are subject to the right of cancellation prior to the expiration of the patents to which they relate, and there is no assurance that such right will not be exercised prior thereto. The Company believes that the cancellation of these licenses would not have a materially adverse effect on the Company.
From time to time, the Company grants licenses to unconsolidated affiliates and unrelated suppliers for the manufacture and sales of products for which the Company receives royalties. Royalty income for fiscal 1996, 1995, and 1994 was approximately $2,004,000, $1,801,000, and $1,440,000, respectively.
- 7 - Domestic Distribution and Technical Services
The Company markets its processes and products directly and through certain independent distributors located in various parts of the United States. The Company's Sales and Technical Services departments work with these distributors and directly with the Company's ultimate customers to satisfy customers' requirements.
Sales made through distributors, the largest one of which accounted for less than 10% of the Company's net sales during the fiscal year ended February 29, 1996, are in all cases subject to the customary distributors' discount. The Company does not believe that there was any significant difference in profitability between direct sales and those made through distributors.
Foreign Operations
The Company's specialty chemicals are also manufactured by its subsidiaries. LeaRonal (UK) plc ("UK") located in Buxton, Derbyshire, England, and LeaRonal AG ("AG") located in Lucerne, Switzerland, each have complete laboratory and manufacturing facilities for the manufacture and sale of substantially all of the Company's products and processes. Certain of the Company's products are also manufactured at its other European and Asian facilities.
UK markets the Company's processes throughout Great Britain and to many countries on the European continent, through its affiliates and a limited number of independent distributors. UK has been in operation for more than 30 years and affords the Company a base of operations for Europe. During the Company's five fiscal years ended February 29, 1996, UK accounted for the following percentages of the Company's operating profit: 1996 - 21%; 1995 - 22%; 1994 -19%; 1993 - 24%; and 1992 - 25%. For a discussion of items impacting 1996 earnings, see Management's Discussion and Analysis of Operations.
AG was formed in September 1971 to manufacture and market the Company's products and processes in Switzerland, Austria, Germany and Southeast Asia. In Germany, these products are sold by LeaRonal GmbH. In Southeast Asia, these products are sold through LeaRonal (S.E. Asia) ("SEA"), as well as subsidiaries in Taiwan, Korea, and Singapore. 82% of the outstanding stock of LeaRonal SEA is owned by LeaRonal AG and the remaining approximately 18% is owned by its employees. For the Company's five fiscal years ended February 29, 1996. LeaRonal AG (including SEA) accounted for the following percentages of the Company's operating profit: 1996 - 47%; 1995 - 44%; 1994 - 43%; 1993 - 40%; and 1992 - 35%. Approximately 93% of the outstanding stock of AG is owned by the Company, the remaining 7% being owned by its employees.
In January 1995, LeaRonal Singapore and an office in Malaysia were formed to better serve our customers in those countries.
In March 1974, LeaRonal France (formerly Ronal-Chimie S.A.) was formed to market the Company's products and processes in France. In January 1987, the Company relocated to a new facility offering improved manufacturing, sales, service and administrative capabilities to its customer base. Approximately 85% of the outstanding stock of LeaRonal France is owned
- 8 - by the Company; the remaining 15% is owned by its employees.
In 1977, the Company acquired 30% of the outstanding stock of Surpro B.V. (a Netherlands company) and 70% of Surpro GmbH (a German company which changed its name to LeaRonal GmbH). These companies were formerly independent distributors of the Company's products in the Dutch and German markets. In 1983, the Company exchanged its 30% stock interest in Surpro B.V. for an additional 30% stock interest in LeaRonal GmbH, making the German company a wholly owned subsidiary. In May, 1990, an expansion of the Company's manufacturing and customer service laboratories was completed in Birkenfeld, Germany.
In June 1970, Japan Ronal, Inc. was formed by the Company and Japan Meltex, a non-affiliated Japanese company, each of which owns 50% of the outstanding stock, to manufacture and sell the Company's products. A new research facility was completed and dedicated in June 1990, at Miyahara, Japan. At the same time, the name of the Company was changed to LeaRonal Japan. Sales of the Company's products continue to be carried out by Japan Meltex, with technical support provided by LeaRonal Japan.
The Company and its subsidiaries are subject to the usual risks of doing business abroad, including currency fluctuations, restrictions on the transfer of funds, price controls and import and export restrictions.
Foreign and Domestic Operations and Export Sales
Information pertaining to foreign and domestic operations, export sales and sales by geographic area is included in Note 6 of Notes to Consolidated Financial Statements for the three fiscal years ended February 29, 1996 and is incorporated herein by reference.
Employee Relations
The Company had approximately 650 employees worldwide as of February 29, 1996, of which over 100 are graduate engineers or holders of other technical degrees. The Company has enjoyed excellent relations with its employees and has never experienced a work stoppage.
The Company provides a number of employee benefits, including a 401(k) savings plan, group life, long-term disability and comprehensive medical and dental insurance.
Competition
The Company believes that it is one of the principal worldwide suppliers (although not necessarily the largest) of specialty chemical additives to the electronics and metal finishing industries.
The Company has a limited number of competitors. Its products, however, are sold under highly competitive conditions, in which the Company competes with certain corporations having substantially greater financial resources. The markets in which the Company's products
- 9 - are sold experience rapid technological changes in which new products are constantly being developed which may replace or reduce the demand for older products. The Company's ability to compete successfully in the future depends not only on its efficiency in production, marketing and sales, but also on its skill in developing new products.
Backlog
The Company does not generally have a substantial backlog of customers' orders because the Company's production is principally on a job order basis. Certain of the Company's customers furnish purchase orders for future delivery; however, the aggregate of such purchases is not significant.
Environmental Matters
The Company believes that its operations are substantially in compliance with all applicable environmental regulations, and that no significant adverse affect upon capital expenditures, earnings and competitive positions will result from continued compliance therewith.
ITEM 2.

ITEM 2. PROPERTIES
The Company owns three buildings in Freeport, New York. The first is a one-story building containing approximately 46,000 square feet of which 15,000 square feet are utilized for executive, administrative, and sales offices, and the remaining 31,000 square feet are utilized for research laboratories, warehousing, manufacturing, and customer services. The second building contains laboratories, production, and warehouse facilities. The purchase of the land of 1.25 acres and building containing 40,000 square feet was financed with funds provided through the Nassau County Industrial Development Agency and Chemical Bank. The cost of this facility was approximately $2,600,000. In April 1995, the Company purchased a 17,000 square foot building adjacent to its Freeport facility for $980,000 and commenced a complete renovation of the offices, research and development, and warehousing spaces. The Company previously leased this building.
The Company leases a one-story building containing approximately 19,000 square feet in Addison, Illinois (a suburb of Chicago), for laboratory, warehousing and related office purposes at an initial annual base rental of $108,000, payable monthly, for a term expiring July 31, 1999.
The Company owns a one-story building purchased in fiscal 1986 containing approximately 34,000 square feet in Orange County, California, for manufacturing, warehousing, and related office purposes. The cost of this facility was approximately $1,250,000.
In November 1989, the Company entered into a lease for the rental of 19,000 square feet of manufacturing and office space in Orange, California, in the vicinity of its main manufacturing facility. The lease is for seven years, with optional renewals to extend the term to 15 years. The initial annual base rental is $108,000, plus taxes and maintenance.
- 10 - Commencing November 1, 1993, the Company subleased the manufacturing and warehouse portion of this building which previously housed the Company's dry film photoresist operations. The sublease expires February 28, 1997, the date the initial lease term expires.
LeaRonal UK owns a laboratory, manufacturing, and refining facility totalling in excess of 40,000 square feet in Buxton, Derbyshire, England. During fiscal 1995, LeaRonal UK purchased additional land near its Buxton site, and during fiscal 1996, the Company constructed a new building to house its imaging operations on this site.
LeaRonal AG owns a modern, 25,000 square foot multi-story facility in Lucerne, Switzerland, which is used for production, laboratories, and administration.
LeaRonal France owns a one story, 18,000 square foot building in Lyon, constructed in 1986, which houses offices, customer service labs, production facilities, and a warehouse.
LeaRonal GmbH, located in Birkenfeld, owns a multi-story, 14,000 square foot facility which houses offices, customer service laboratories, a warehouse, and a limited production area.
LeaRonal Taiwan has purchased approximately 21,000 sq. ft. of land on which a new 15,000 sq. ft. facility will be constructed.
In September 1995, LeaRonal (S.E. Asia) purchased a new 50,000 sq. ft. building in the Fanling section of Hong Kong. The cost of this building was approximately $6,000,000. This building will be used as the center of the Company's southeast Asian operations and will house laboratories, production facilities, offices, and warehousing space. LeaRonal (S.E. Asia) intends to occupy the facility by the summer of 1996.
During 1995, LeaRonal Singapore purchased a new one-story, 22,000 sq. ft. building to support its expanding customer base in that country. The cost of this building was approximately $1,125,000.
The Company's production facilities are in good condition and are generally being utilized on a one-shift basis. The Company believes that its present facilities should be adequate for the foreseeable future.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
There is no material litigation pending or threatened against the Company.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
- 11 - PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's Common Stock, $1.00 par value, is listed on the New York Stock Exchange and its symbol is LRI. The following table indicates the quarterly high and low sale prices for LeaRonal Common Stock on the New York Stock Exchange and cash dividends declared for the past two years:
Approximate number of record holders of Common Stock on May 8, 1996: 3,500.
- 12 - ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
LEARONAL, INC. AND SUBSIDIARIES
The following selected consolidated financial data for the five fiscal years ended February 29, 1996 should be read in conjunction with the Consolidated Financial Statements and the notes thereto appearing herein in Item 8:
(in thousands except share amounts)
- 13 - ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES
Fiscal 1996/Fiscal 1995
Net sales increased $34,621,000 or 20% to $211,625,000 in fiscal 1996. Net sales consists of proprietary and patented specialty chemicals and imaging chemicals, referred to as "process sales," the precious metal content of the Company's electroplating processes, and sales of other products. Process sales increased $21,547,000 or 27% to $100,027,000 in fiscal 1996. Process sales increased 46% in Asia, 32% in Europe, and 11% in the United States. Precious metal content sales totalled $105,557,000, an increase of $12,072,000 or 13% from fiscal 1995. The increase was due to increased precious metal content sales volume in the United States, partially offset by decreased sales volume of low-margin third-party gold sales by the Company's UK subsidiary. Low-margin third-party gold sales from the Company's UK subsidiary were $10,088,000, $14,424,000, and $5,352,000 for fiscal 1996, 1995, and 1994, respectively. The average gold price per troy ounce for the fiscal 1996 and fiscal 1995 periods were $388 and $383, respectively.
The decline of the U.S. dollar against certain foreign currencies had the impact of increasing the U.S. dollar reported sales amounts, resulting from translating the subsidiaries' sales from their functional currency into U.S. dollars. Process sales increased $2,504,000 and precious metal content and other sales increased $3,025,000 due to the effect of currency rate changes on translated amounts.
Fiscal 1995/Fiscal 1994
Net sales increased $25,937,000 or 17% in fiscal 1995. Precious metal content sales increased $18,102,000 or 24% to $93,485,000 in fiscal 1995, principally due to increased sales volume. The increase occurred principally in the United Kingdom from increased sales volume of low-margin third-party gold sales, and in the United States, due to overall sales volume increases. Low-margin third-party gold sales from the Company's UK subsidiary were $14,424,000 and $5,352,000 for fiscal 1995 and fiscal 1994, respectively. The average gold price per troy ounce for the fiscal 1995 and fiscal 1994 periods were $383 and $369, respectively. Process sales increased $8,344,000 or 12% to $78,479,000 in fiscal 1995. Process sales increased 18% in Asia, 12% in the United States, and 5% in Europe, despite the sale of the Company's dry film slitting subsidiary as of December 1, 1993 to its unconsolidated Italian affiliate. This subsidiary had $2,700,000 in process sales in fiscal 1994. The fiscal 1994 period process sales included $2,900,000 in process sales related to the change in the fiscal year end from December to February for LeaRonal (S.E. Asia) and LeaRonal GmbH.
COST OF SALES/GROSS PROFIT
Fiscal 1996/Fiscal 1995
Cost of sales increased $20,725,000 or 16% in fiscal 1996. The increase was due to increased process sales in all locations and increased precious metal content sales from increased volume in the
- 14 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
United States. Gross profits in the fiscal 1996 period increased $13,896,000 or 31% to $58,753,000 from $44,857,000 in the fiscal 1995 period. The Company's overall gross profit percentage increased principally due to the increase in process sales, which have a higher gross margin, as a percentage of total sales.
Fiscal 1995/Fiscal 1994
Cost of sales increased $20,636,000 or 19% in fiscal 1995. The increase was due principally to increased precious metal content sales from increased sales volume in the United Kingdom and the United States. Gross profits increased $5,301,000 or 13% in fiscal 1995. The Company's overall gross profit percentage declined in fiscal 1995, principally due to the increase in precious metal content sales as a percentage of total sales, offset by an increased gross profit percentage on the Company's UK subsidiary's process sales, as low-margin dry film sales were eliminated.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Fiscal 1996/Fiscal 1995
Selling, general, and administrative expenses increased $6,927,000 or 25% in fiscal 1996. Expenses increased principally in Europe and Asia due to increased sales and technical service costs to support our expanded customer base and market growth. During the fiscal 1996 period, the average exchange rates used to translate expenses from the subsidiaries' functional currency into U.S. dollars resulted in an increase of approximately $1,089,000 in reported selling, general, and administrative expenses.
Fiscal 1995/Fiscal 1994
Selling, general, and administrative expenses increased $1,684,000 or 6% in fiscal 1995. The increase occurred principally in the United States as a result of additional sales and technical service specialists needed to meet customer requirements. Expenses increased to a lesser extent in Southeast Asia from increased occupancy costs needed to support increased sales. The fiscal 1994 period included fourteen months of expenses for LeaRonal (S.E. Asia) and LeaRonal GmbH, due to the change in fiscal year end from December to February.
OTHER INCOME
Fiscal 1996/Fiscal 1995
Other income includes royalty income, earnings of unconsolidated affiliates, foreign currency gains and losses, and investment income. Other income increased $501,000, as increased royalty income, investment income, and other income were partially offset by decreased earnings of unconsolidated affiliates.
- 15 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Fiscal 1995/Fiscal 1994
Other income increased $58,000 in fiscal 1995 as increased royalty income and earnings of unconsolidated affiliates were mostly offset by losses on sales of investments. The fiscal 1994 period included a $408,000 gain from the sale of investment securities, while fiscal 1995 includes a $314,000 loss from the sale of investment securities.
OPERATING PROFITS
Fiscal 1996/Fiscal 1995
Operating profits increased 43% from $17,085,000 in fiscal 1995 to $24,393,000 in fiscal 1996. Operating profits increased due to increased sales, gross profits, other income, and interest income, which were partially offset by increased selling, general, and administrative expenses and increased research and development expenses. Operating profits increased 59% in Europe, 16% in Asia, and 24% in the United States.
Fiscal 1995/Fiscal 1994
Operating profits increased 24% in fiscal 1995 due to increased sales, gross profits, and interest income which were partially offset by increased selling, general, and administrative expenses. Operating profits increased approximately 18% in the United States, 54% in Asia, and 21% in Europe.
INCOME TAXES
Fiscal 1996/Fiscal 1995
The effective income tax rate increased from 26% in fiscal 1995 to 34% in fiscal 1996. In the fiscal 1995 period, the Company's Swiss subsidiary reported lower effective income tax rates due to a change in Swiss tax law, the benefit from which was fully realized during fiscal 1995. The effective tax rate in fiscal 1995 would have been 34% without the effect of this Swiss tax law change.
Fiscal 1995/Fiscal 1994
The effective income tax rate increased from 24% in fiscal 1994 to 26% in fiscal 1995. During fiscal 1994, the Company's German subsidiary declared a dividend of substantially all its retained earnings which resulted in a reduction in German income taxes of $617,000. The German company declared a dividend during fiscal 1995 which reduced income taxes approximately $130,000 and the Company plans to dividend its German subsidiary's income in future years to obtain the benefit of the lower tax rate. The fiscal 1995 period includes additional income taxes attributable to a change in U.S. tax law which makes undistributed earnings of certain foreign subsidiaries subject to U.S. income tax rates. Both fiscal 1995 and 1994 include a decrease in the effective rate due to changes in Swiss tax laws.
- 16 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
NET INCOME
Fiscal 1996/Fiscal 1995
Net income increased $3,166,000 or 25% from $12,429,000 in fiscal 1995 to $15,595,000 in fiscal 1996, primarily due to increased gross profits from increased sales, increased interest, and other income, partially offset by increased selling, administrative, and general expenses, research and development expenses, and higher effective income tax rates.
The results of operations continues to reflect the importance of the Company's foreign subsidiaries and unconsolidated affiliates. (See Note 6 to the Consolidated Financial Statements.) The effect of translating the foreign operations financial statements from functional currencies into U.S. dollars impacts the reported results of operations. Net income for the 1996 period increased by $901,000 or 7% from the prior year period principally due to an increase in the average exchange rates used to translate the European subsidiaries' income statements from local currency into U.S. dollars.
Fiscal 1995/Fiscal 1994
Net income increased $2,092,000 or 20% in fiscal 1995, primarily due to increased gross profits from increased sales and increased interest income partially offset by increased selling, general, and administrative expenses and higher effective income tax rates.
FINANCIAL CONDITION AND OTHER
At February 29, 1996, the Company had working capital of $77,116,000 and current assets of $101,304,000, including $37,825,000 in cash, cash equivalents, and short-term investments. The Company's immediate capital expansion requirements will be funded primarily by working capital and cash flow from operations. The Company has sufficient lines of credit available with banks, should any additional funds be required.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this section is set forth at the end of this Report.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- 17 - ITEM 10.

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Information concerning the directors and officers of the registrant is contained in the registrant's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A no later than 120 days after the close of the fiscal year ended February 29, 1996. Such information is incorporated herein by reference.
ITEM 11.

ITEM 11. MANAGEMENT REMUNERATION
Information concerning management remuneration is contained in the registrant's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A no later than 120 days after the close of the fiscal year ended February 29, 1996. Such information is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning the security ownership of certain beneficial owners and management is contained in the registrant's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A no later than 120 days after the close of the fiscal year ended February 29, 1996. Such information is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions is contained in the registrant's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A no later than 120 days after the close of the fiscal year ended February 29, 1996. Such information is incorporated herein by reference.
- 18 - PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules: See accompanying index to financial statements and schedules in Item 8. (3) Exhibits: Exhibits are listed on the Exhibit Index on page 22.
(b) Reports on Form 8-K: Registrant did not file any reports on Form 8-K during the last quarter of the period covered by this Report.
(c) Exhibits. See Item 14(a)(3).
(d) Financial Statement Schedules are submitted at the end of this Report.
- 19 - SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: May 8, 1996
LeaRonal, Inc.
By /s/ Donald Thomson ------------------ Donald Thomson Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Barnet D. Ostrow /s/ Fred I. Nobel - ----------------------------------- ---------------------------------- Barnet D. Ostrow Fred I. Nobel Chairman of the Board Vice Chairman of the Board and Director and Director May 8, 1996 May 8, 1996
/s/ Ronald F. Ostrow /s/ Richard Kessler - ----------------------------------- ---------------------------------- Ronald F. Ostrow Richard Kessler President, Chief Executive Officer Executive Vice President and Director and Director May 8, 1996 May 8, 1996
/s/ Arthur M. Winston /s/ Kenneth L. Stein - ----------------------------------- ---------------------------------- Arthur M. Winston Kenneth L. Stein Director Director May 8, 1996 May 8, 1996
/s/ David Rosenthal - ----------------------------------- David Rosenthal Treasurer, Chief Financial Officer and Chief Accounting Officer May 8, 1996
- 20 - Annual Report On Form 10-K Item 8, Item 14(a)(1) and (2) and (d)
and Financial Statement Schedule
Financial Statements
Financial Statement Schedule
Year ended February 29, 1996
LeaRonal, Inc. and Subsidiaries
Freeport, New York
Form 10-K - Item 14(a)(1) and (2) and (d)
LeaRonal, Inc. and Subsidiaries
Index to Financial Statements and Financial Statement Schedule
The following consolidated financial statements of LeaRonal, Inc. and Subsidiaries are included in Item 8:
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.
[ERNST & YOUNG LLP Letterhead]
Report of Independent Auditors
Stockholders and Board of Directors LeaRonal, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of LeaRonal, Inc. and Subsidiaries as of February 29, 1996 and February 28, 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended February 29, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of LeaRonal, Inc. and Subsidiaries at February 29, 1996 and February 28, 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 29, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, in 1995 the Company adopted Financial Accounting Standards Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities."
ERNST & YOUNG LLP
Melville, New York May 8, 1996
LeaRonal, Inc. and Subsidiaries
Consolidated Balance Sheets
LeaRonal, Inc. and Subsidiaries
Consolidated Balance Sheets (continued)
See accompanying notes.
LeaRonal, Inc. and Subsidiaries
Consolidated Statements of Income
See accompanying notes.
LeaRonal, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
See accompanying notes.
LeaRonal, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
LeaRonal, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
See accompanying notes.
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
February 29, 1996
1. BUSINESS DESCRIPTION AND SUMMARY OF ACCOUNTING POLICIES
BUSINESS DESCRIPTION
The business of LeaRonal, Inc. and its consolidated subsidiaries consists of the development, production, sale and worldwide distribution of specialty chemical additives and other products used by the connector, printed circuit board, semiconductor, and industrial metal finishing industries. Several of the Company's specialty chemical products are used as components of a variety of electroplating processes, which is the deposition of a metal in solution onto another metal object with the use of an electric current. The Company's specialty chemical additives are proprietary and the majority of them are patented.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company, its wholly-owned domestic subsidiaries and its foreign subsidiaries, LeaRonal (UK) plc. and subsidiaries (100%), LeaRonal AG (93%), LeaRonal France (85%), LeaRonal GmbH (100%), LeaRonal (S.E. Asia), Ltd. (76%) and LeaRonal Korea (80%). The financial statements of the Company's affiliates are included in the consolidated financial statements from the time the Company acquires an interest in excess of 50%. LeaRonal Korea is included on the basis of a fiscal year ended December 31. During fiscal 1994, LeaRonal GmbH and LeaRonal S.E. Asia changed their fiscal year-end from December to February. The net effect of this change was to increase net sales by $3,422,000 and net income by $149,000 in the 1994 results of operations. All significant intercompany accounts and transactions have been eliminated. Investments in the common stock of other affiliates (20% to 50% owned) are accounted for by the equity method.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
PROPERTY, PLANT AND EQUIPMENT AND PATENTS
Depreciation is computed on the straight-line and declining balance methods at rates calculated to amortize the cost of the depreciable assets over the related estimated useful lives. Upon sale or retirement, the cost of the assets and related allowances for
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
depreciation are removed from the accounts and the resulting gains or losses are included in operations. Patents are being amortized on the straight-line method over their estimated useful lives.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company adopted the provisions of the new standard for investments held as of or acquired after March 1, 1994. SFAS No. 115 requires the Company to evaluate its investment policies and classify investments as either trading, available-for-sale or held-to-maturity.
The Company has evaluated its investment policies and determined that all of its investment securities, except bank time deposits, are classified as available-for-sale. Bank time deposits with maturities of more than three months when purchased are classified as held-to-maturity. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Held-to-maturity investments are securities the Company has the positive intent and ability to hold to maturity. Held-to-maturity investments are stated at cost. Available-for-sale investments are carried at fair value, with the unrealized gains and losses, net of tax, reported as a separate component of stockholders' equity. Realized gains and losses, and losses in value judged to be other than temporary on available-for-sale investments, are included in other income. The cost of securities sold is based on the specific identification method.
In accordance with SFAS No. 115, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect of adopting SFAS No. 115 as of March 1, 1994 increased 1995 net income by $53,000 (net of $27,000 in deferred income taxes).
INVENTORIES
Domestic gold and silver inventories are carried at the lower of cost (last-in, first-out ("LIFO") method) or market, which represent 26% and 28% of total inventory at February 29, 1996 and February 28, 1995, respectively. All other inventories are carried at the lower of cost (first-in, first-out ("FIFO") method) or market. If the FIFO method of accounting had been used by the Company, domestic gold and silver inventories at February 29, 1996 and February 28, 1995 would have been $4,712,000 and $4,058,000
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
higher, respectively. The Company, from time to time, hedges a portion of its domestic gold inventories by entering into forward commodity contracts. The results of these gold hedging transactions are included in cost of sales. No such contracts were outstanding at February 29, 1996 or February 28, 1995.
INCOME TAXES
In accordance with SFAS No. 109, the liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities using tax rates and laws that will be in effect when the differences are expected to reverse.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
CONCENTRATION OF CREDIT RISK
The Company and its subsidiaries sell specialty chemical additives worldwide to customers in the connector, printed circuit board, semiconductor and industrial metal finishing industries. Some of the Company's electroplating process sales include precious metal content. Receivables from precious metal customers represent a significant percentage of the Company's outstanding receivables balance at year end. The Company performs periodic credit evaluations of its customers and generally does not require collateral. Receivables are generally due within 30 days or less for precious metal sales and 60 days for other products. In the past, credit losses have not been significant and management believes credit policies are adequate.
The Company has a money market account totaling $6,500,000 managed by a major U.S. brokerage company.
The Company and its UK subsidiary guarantee the indebtedness of one of its unconsolidated affiliates. These guarantees totaled approximately $1,100,000 at February 29, 1996.
REVENUE RECOGNITION
Sales and related costs of sales are included in income when goods are shipped or services are rendered to the customer.
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. BUSINESS DESCRIPTION AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
PER SHARE DATA
Net income per share of common stock has been computed based on the weighted average number of shares and common share equivalents outstanding during each period as follows: 8,953,832 (1996); 8,893,751 (1995); and 8,789,256 (1994).
RECENTLY ISSUED ACCOUNTING STANDARD
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which requires adoption of the disclosure provisions no later than the fourth quarter of fiscal 1997. The new standard defines a fair value method of accounting for the issuance of stock options and other equity instruments. Under the fair value method, compensation cost is measured at the grant date based on the fair value of the award and is recognized over the service period, which is usually the vesting period. Pursuant to SFAS No. 123, companies are encouraged, but are not required, to adopt the fair value method of accounting for employee stock-based transactions. Companies are also permitted to continue to account for such transactions under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but would be required to disclose proforma net income and per share amounts as if the Company had applied the new method of accounting. SFAS No. 123 also requires increased disclosures for stock-based compensation arrangements. The Company has not yet determined if it will elect to change to the fair value method or provide the necessary proforma information, nor has it determined the effect the new standard will have on its operating and per share results should it elect to make such change.
2. INVESTMENTS
The following is a summary of investments available-for-sale:
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Gross realized gains on sales of investments available-for-sale totaled $76,000, $39,000 and $466,000, and gross realized losses totaled $22,000, $433,000, and $0 for the years ended February 29, 1996, February 28, 1995 and 1994, respectively.
The amortized cost and fair value of investments available-for-sale at February 29, 1996, by contractual maturity, are shown below:
Investments held-to-maturity at February 29, 1996 and February 28, 1995 consisted entirely of bank time deposits with maturities less than one year. There were no realized or unrealized gains or losses on investments held-to-maturity in fiscal 1996, 1995 and 1994.
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
At February 29, 1996, the Company's UK subsidiary has a capital loss carryforward of approximately $300,000. For financial reporting purposes, a 100% valuation allowance has been recognized to offset the deferred tax assets related to the capital loss carryforward.
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. INCOME TAXES (CONTINUED)
The reconciliation of the difference between total income tax expense and the amount computed by applying the statutory federal income tax rate to income before income taxes is as follows for the three years ended February 29, 1996:
Undistributed earnings of the Company's foreign subsidiaries amounted to $43,101,000 at February 29, 1996, of which $38,916,000 are considered to be permanently reinvested. No provision for U.S. federal and state income taxes has been provided on the amount considered to be permanently reinvested. Should those earnings be distributed, the Company might be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the complexities associated with its calculation.
4. LONG-TERM DEBT
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
In September 1995, LeaRonal S.E. Asia entered into a term loan agreement with the Bank of America (Asia) Ltd. for $3,491,000. The loan is payable in monthly principal installments of $42,000 through August 2002, with a final payment of $5,000 due September 2002. Interest is payable monthly at 2% above the Bank of America (Asia) Ltd. one month HIBOR (7.09% at February 29, 1996) on the outstanding loan balance. The loan is collateralized by a building, located in Hong Kong, with a carrying value of $5,900,000 at February 29, 1996.
The I.D.A. loan was provided by the issuance of a $2,000,000 Industrial Development Bond by the Nassau County Industrial Development Agency (I.D.A.). The loan is payable in quarterly installments of $33,333 through October 1, 1997 with interest at 65% of the bank's prime rate. The Bond is guaranteed by the Company and its domestic subsidiaries. The loan agreements require the Company to maintain certain amounts of consolidated tangible net worth and consolidated working capital and limit consolidated unsubordinated liabilities, as defined in the agreements. In addition, the loan is collateralized by land and building included in property, plant and equipment with a carrying value of $1,579,000 at February 29, 1996.
The carrying amounts of the Company's outstanding indebtedness approximate their fair market value at February 29, 1996.
Future annual maturities of all outstanding long-term debt amount to $842,000 - 1997; $663,000 - 1998; $549,000 - 1999; $545,000 - 2000; $550,000 - 2001 and $759,000 thereafter.
5. STOCKHOLDERS' EQUITY
In July 1990, the Company adopted the 1990 Nonqualified Stock Option Plan for key employees, officers and directors of the Company. Those persons who own 5% or more of the Company's outstanding common stock are ineligible. Under this Plan, the Company can grant options for the purchase of an aggregate of 400,000 shares of common stock of the Company at not less than fair market value at the date of grant. No option may be granted after May 31, 2000. The options expire ten years after the date of grant. Options are exercisable in their entirety or in part from time to time provided that no more than 25% of the options granted can be exercised in any twelve-month period. At February 29, 1996, there were 6,750 shares available for granting of future options.
5. STOCKHOLDERS' EQUITY (CONTINUED)
Option activity under the Nonqualified Stock Option Plan during the three years ended February 29, 1996 is summarized as follows:
In January 1996, the Company adopted the LeaRonal, Inc. 1996 Long Term Incentive Plan ( the "Plan") for key employees and officers of the Company. The Plan, which is administered by a Committee consisting of outside Directors, is authorized to grant stock options, stock appreciation rights, restricted stock and/or long-term performance awards. The maximum number of shares of the Company's common stock available for grant awards under the Plan is 800,000. On April 11, 1996 the Committee approved the granting of nonqualified stock options aggregating 475,000 shares to certain officers of the Company subject to stockholder approval of the Plan. The option price is $24.50 per share, the fair market value of the stock at the date of grant. The options may not be exercised sooner than the fifth anniversary from the date of grant, or later than the tenth anniversary from the date of grant. Common stock acquired pursuant to the exercise of options must be held at least two years from the date of exercise. The 1996 Long-Term Incentive Plan is subject to stockholder approval in July 1996.
Retained earnings at February 29, 1996 includes $50,551,000 related to the undistributed earnings of foreign subsidiaries and affiliates, of which $7,450,000 relates to unconsolidated affiliates.
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. STOCKHOLDERS' EQUITY (CONTINUED)
In October 1988, the Board of Directors of the Company authorized the purchase of up to an aggregate of 937,500 shares of the Company's common stock. As of February 29, 1996, the Company has purchased a total of 444,664 shares for approximately $7,293,000.
6. DOMESTIC AND FOREIGN OPERATIONS
The Company and its consolidated subsidiaries are in the business of the development, production, sale and distribution of a varied group of electroplating processes and chemical additives to industrial users throughout the United States (Domestic), Europe and Asia.
Information as to the Company's operations by geographic area for the three years ended February 29, 1996 is summarized below:
Transfers between geographic areas are accounted for at prices comparable to unaffiliated customer sales. Revenue is net sales, interest and other income less equity in the earnings of unconsolidated affiliates. Operating profit is revenue less operating expenses, excluding interest expense and minority interest. Identifiable assets are total assets less investment in unconsolidated affiliates.
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
6. DOMESTIC AND FOREIGN OPERATIONS (CONTINUED)
Amounts due from unconsolidated affiliates, included in receivables, were $1,044,000 at February 29, 1996 and $651,000 at February 28, 1995. Revenue includes sales to unconsolidated affiliates totaling approximately $3,723,000, $3,050,000 and $4,670,000 in fiscal 1996, 1995 and 1994, respectively. Domestic revenue includes export sales to unaffiliated customers of $1,598,000, $3,056,000 and $3,203,000 in fiscal 1996, 1995 and 1994, respectively. There were no sales to any one customer in excess of 10% of net sales in fiscal 1996, 1995 and 1994.
Summarized financial information reflecting the total operations for the Company's Italian and Japanese 50% owned unconsolidated affiliates (Elga Ronal and LeaRonal Japan) accounted for by the equity method is as follows:
The Company has used from time to time forward foreign exchange contracts to reduce the impact of currency fluctuations on its net investments in certain foreign subsidiaries and affiliates. Gains or losses on these contracts are included in the translation adjustment component of stockholders' equity. At February 29, 1996, the Company did not have any such forward foreign exchange contracts. In addition, LeaRonal AG enters into forward exchange contracts to hedge a portion of its U.S. dollar denominated accounts receivable. Changes in the value of these contracts due to currency movement offset the foreign exchange gains and losses of the receivables they are hedging. At February 29, 1996, LeaRonal AG had open forward foreign exchange contracts totaling $9,900,000.
LeaRonal, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LINES OF CREDIT
The Company has unsecured line of credit arrangements (reviewed annually) with domestic banks under which it may borrow, at the option of the banks, up to $15,000,000 at the banks' prime interest rates.
8. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
9. OTHER INCOME
Other income for the three years ended February 29, 1996 consists of the following:
Royalty income includes royalties from an unconsolidated affiliate of $1,576,000 (1996), $1,449,000 (1995) and $1,351,000 (1994).
Schedule II - Valuation and Qualifying Accounts
LeaRonal, Inc. and Subsidiaries
(a) Write-off of uncollectible accounts.
EXHIBIT INDEX
21 Subsidiaries
27 Financial Data Schedule
- 21 -