-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nr6+lUf725BhiQ6nI42r9jroxs3K7oUVOKzjAy0J9A9psnVAMoGlfRBbxDFgM3rS P017itjFU0fQ6VernC3tuA== 0000832489-97-000008.txt : 19970930 0000832489-97-000008.hdr.sgml : 19970930 ACCESSION NUMBER: 0000832489-97-000008 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970606 ITEM INFORMATION: FILED AS OF DATE: 19970813 DATE AS OF CHANGE: 19970911 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAUPHIN TECHNOLOGY INC CENTRAL INDEX KEY: 0000832489 STANDARD INDUSTRIAL CLASSIFICATION: 3570 IRS NUMBER: 870455038 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 033-21537-D FILM NUMBER: 97677071 BUSINESS ADDRESS: STREET 1: 800 E NORTHWEST STREET 2: STE 950 CITY: PALATINE STATE: IL ZIP: 60067 BUSINESS PHONE: 8473584406 8-K/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A AMENDMENT NO.1 TO CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. June 6, 1997 Date of Report (date of earliest event reported) DAUPHIN TECHNOLOGY, INC. (Exact name of Registrant as specified in its charter) Illinois 33-21537-D 87-0455038 (State or other jurisdiction of Commission File No. (IRS Employer incorporation or organization) Identification Number) 800 E. Northwest Hwy, Suite 950, Palatine, IL 60067 (Address of principal executive offices) (Zip Code) (847) 358-4406 Registrant's telephone number, including area code Former name or address, if changed since last report This Amendment No. 1 to the Registrant's Current Report on Form 8-K Dated June 6, 1997 (the "Form 8-K"), is being filed for the purpose of amending the information previously reported in Item 7(b) in the Form 8-K filed on June 20, 1997. Item 7. Financial Statements and Exhibits a) Financial Statements of Business Acquired: 1. The following audited financial statements of Richard M. Schultz & Associates, Inc. are attached as Exhibit E. I. Report of Independent Public Accountants II. Balance Sheets as of June 30, 1996 and 1995 III. Statement of Income for the Years Ended June 30, 1996, 1995 and 1994 IV. Statement of Retained Earnings (Deficit) for the Years Ended June 30, 1996, 1995 and 1994. V. Statement of Cash Flows for the Years Ended June 30, 1996, 1995 and 1994 VI. Notes to Financial Statements b) Pro Forma Financial Information: 1. The following updated, unaudited pro forma financial statements are attached hereto as an Exhibit F I. Unaudited Pro Forma Combined Condensed Balance Sheet as of March 31, 1997 II. Unaudited Pro Forma Combined Condensed Statement of Income for the Year Ended December 31, 1996 III. Unaudited Pro Forma Combined Condensed Statement of Income for the Quarters Ended March 31, 1997 IV. Notes to Pro Forma Combined Condensed Financial Statements The following exhibits are attached: A. *Stock Exchange Agreement B. *Richard M. Schultz Employment Agreement C. *Escrow Agreement D. *Press Release dated June 9, 1997 E. Audited Financial Statements for the Year Ended June 30, 1996 and 1995 F. Unaudited Pro Forma Combined Condensed Financial Statements for the Twelve Monthe Ended December 31, 1996 and Quarter Ended March 31, 1997 *-Previously filed as an exhibit to Registrant's Form 8-K dated June 6, 1997 filed June 20, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereto duly authorized. Dauphin Technology, Inc. By: Andrew Kandalepas President EXHIBIT INDEX A. *Stock Exchange Agreement B. *Richard M. Schultz Employment Agreement C. *Escrow Agreement D. *Press Release dated June 9, 1997 E. Audited Financial Statements for the Year Ended June 30, 1996 and 1995 F. Unaudited Pro Forma Combined Condensed Financial Statements for the Twelve Months Ended December 31, 1996 and Quarters Ended March 31, 1997 *- Previously filed as an exhibit to Registrant's Form 8-K dated June 6, 1997 filed June 20, 1997. R. M. SCHULTZ & ASSOCIATES, INC. FINANCIAL REPORT JUNE 30, 1996 C O N T E N T S INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS F-1 FINANCIAL STATEMENTS Balance sheets F-2 - F-3 Statements of income F-4 Statements of retained earnings (deficit) F-5 Statements of cash flows F-6 - F-7 NOTES TO THE FINANCIAL STATEMENTS F-8 - F-13 INDEPENDENT AUDITOR'S REPORT To the Board of Directors R. M. Schultz & Associates, Inc. McHenry, Illinois We have audited the accompanying balance sheets of R. M. Schultz & Associates, Inc. as of June 30, 1996 and 1995, and the related statements of income, retained earnings (deficit), and cash flows for the years ended June 30, 1996, 1995 and 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 financial statements referred to above present fairly, in all material respects, the financial position of R. M. Schultz & Associates, Inc. as of June 30, 1996 and 1995, and the results of its operations and its cash flows for the years ended June 30, 1996, 1995 and 1994, in conformity with generally accepted accounting principles. McGladrey & Pullen, LLP Lincolnshire, Illinois July 18, 1997 BALANCE SHEETS June 30, 1996 and 1995 ASSETS 1996 1995 Current Assets Cash $ 630 $ 29,844 Trade receivables, less allowance for uncollectible accounts 1996 and 1995 $7,500 568,593 412,779 Unbilled services 72,392 52,000 Due from officer-stockholder 9,627 13,060 Due from affiliate 10,234 - Income tax refunds - 12,654 Other receivables 3,493 2,810 Inventories 1,217,350 1,163,934 Prepaid expenses and supplies 16,926 18,725 --------- --------- Total current assets 1,899,245 1,705,806 Equipment Production and distribution equipment 590,735 552,175 Furniture and fixtures 37,629 37,629 Vehicles 24,247 36,363 Equipment under capital leases 65,558 65,558 --------- --------- 718,169 691,725 Less accumulated depreciation, including amortization applicable to assets under capital leases 1996 $20,224; 1995 $9,045 518,862 471,849 --------- --------- 199,307 219,876 Other Assets Patent costs 18,823 18,883 Loan fees 12,800 8,000 --------- --------- 31,623 26,883 --------- --------- $2,130,175 $1,952,565 ========= ========= See Notes to Financial Statements. LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 Current Liabilities Notes payable $ 791,734 $ 373,609 Current maturities of long-term debt 25,498 19,105 Current maturities of obligations under capital leases 14,340 13,147 Payable to affiliate - 26,084 Accounts payable 917,266 913,177 Income taxes payable 100 - Accrued expenses 56,156 96,279 --------- --------- Total current liabilities 1,805,094 1,441,401 Long-Term Debt, less current maturities Affiliate 369,390 378,253 Other 34,060 16,000 --------- --------- 403,450 394,253 Obligations Under Capital Leases, less current maturities 24,804 39,144 Contingency Stockholders' Equity Common stock, no par value; authorized 1,000,000 shares; issued and outstanding 177,050 shares 10,059 10,059 Additional paid-in capital 68,500 68,500 Retained (deficit) (181,732) (792) --------- --------- (103,173) 77,767 --------- --------- $2,130,175 $1,952,565 ========= ========= STATEMENTS OF INCOME Years Ended June 30, 1996, 1995 and 1994 1996 1995 1994 Net sales $ 4,790,349 $ 4,964,447 $ 4,106,834 Cost of goods sold 3,946,324 3,846,055 3,120,829 --------- --------- --------- Gross profit 844,025 1,118,392 986,005 Operating expenses 1,081,272 1,083,691 1,136,400 Operating income (loss) (237,247) 34,701 (150,395) Financial income (expense): Interest expense (102,359) (77,680) (54,178) Interest income 580 872 743 Gain on sale of investment - - 187,426 Gain from litigation settlement, net 159,000 - - --------- --------- --------- 57,221 (76,808) 133,991 (Loss) before income taxes (180,026) (42,107) (16,404) Federal and state income taxes 914 - 1,759 --------- --------- --------- Net (loss) $ (180,940) $ (42,107) $ (18,163) ========= ========= ========= See Notes to Financial Statements. STATEMENTS OF RETAINED EARNINGS (DEFICIT) Years Ended June 30, 1996, 1995 and 1994 1996 1995 1994 Balance, beginning $ (792) $ 41,315 $ 59,478 Net (loss) (180,940) (42,107) (18,163) --------- -------- ------- Balance, ending $ (181,732) $ (792) $ 41,315 ========= ======== ======= See Notes to Financial Statements. STATEMENTS OF CASH FLOWS Years Ended June 30, 1996, 1995 and 1994 1996 1995 1994 Cash Flows From Operating Activities Net (loss) $ (180,940) $ (42,107) $ (18,163) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation 61,086 67,361 43,577 Amortization of patent costs 1,345 - - Amortization of loan fees 3,200 - - Provision for doubtful accounts 28,250 - 4,655 (Gain) on sale of equipment (1,500) (422) - (Gain) on sale of investment - - (187,426) (Gain) from litigation settlement (159,000) - - Write off of patent costs - - 5,083 Change in assets and liabilities: (Increase) decrease in trade receivables (184,064) (160,478) 99,197 (Increase) in due from affiliate (10,234) - - (Increase) decrease in other receivables and prepaids 4,549 (13,192) 9,840 (Increase) decrease in income tax refund claim 12,654 (3,389) (9,265) (Increase) in inventories (219,416) (125,257) (138,277) (Increase) in unbilled services (20,392) - - Increase (decrease) in accounts payable and accrued expenses (36,034) 233,808 131,234 (Decrease) in customer deposits - - (3,500) Increase (decrease) in income taxes payable 100 - (155) Increase (decrease) in notes payable, suppliers (54,345) 54,345 - Increase (decrease) in due to affiliate (26,084) (4,869) 30,953 -------- ------- ------- Net cash provided by(used in) operating activities (780,825) 5,800 (32,247) Cash Flows From Investing Activities Proceeds from sale of investment - - 187,426 Proceeds from litigation settlement 325,000 - - Purchase of equipment (40,517) (32,985) (97,963) Proceeds from sale of equipment 1,500 2,190 - Addition to patent costs (1,285) (9,994) - -------- ------- ------- Net cash provided by (used in) investing activities 284,698 (40,789) 89,463 Cash Flows From Financing Activities Proceeds from long-term borrowings 100,000 23,247 - Proceeds from short-term borrowings (85,064) 85,064 - Net borrowings (payments) on revolving credit agreement 557,534 - (10,800) Principal payments on long-term borrowings (84,410) (27,076) (60,203) Principal payments on capital leases (13,147) (11,419) (1,232) Payment of loan fees (8,000) (8,000) - -------- ------- ------- Net cash provided by (used in) financing activities 466,913 61,816 (72,235) -------- ------- ------- Net increase (decrease) in cash $ (29,214) $ 26,827 $ (15,019) Cash: Beginning 29,844 3,017 18,036 -------- ------- ------- Ending $ 630 $ 29,844 $ 3,017 ======== ======= ======= Supplemental Disclosures of Cash Flow Information Cash payments (receipts) for: Interest $ 104,207 $ 77,680 $ 54,787 Income taxes, net of refunds 1996 $11,840; 1995 $9,312; 1994 $41 (11,840) 3,389 11,719 Supplemental Schedule of Noncash Investing and Financing Activities Capital lease obligations incurred for use of equipment - 49,000 15,942 See Notes to Financial Statements. 1. Nature of Business and Significant Accounting Policies Nature of business: The Company is involved in electronics design, development and production. Sales are primarily to manufacturers located in Illinois and Wisconsin. Credit is extended to customers with terms of net 30 days. A summary of the Company's significant accounting policies follows: Accounting estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. Unbilled services: Unbilled engineering services are stated at cost. Equipment: Equipment is stated at cost. Depreciation is computed primarily by the straight-line method over estimated useful lives of five to ten years. Amortization of leased assets is included with depreciation on owned assets. Patents: Patents are stated at cost. Amortization is provided on a straight- line basis over the 17 year life of the patent. Loan fees: Loan fees are stated at cost. Amortization is provided on a straight-line basis over the five-year loan term. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Financial instruments: Except for the related party debt discussed in Note 4, the Company has no financial instruments for which the carrying value materially differs from fair value. The fair value of the related party debt was determined using estimated future cash flows, discounted at the current interest rate for similar loans. Reclassifications: Certain items in the 1995 financial statements have been reclassified to conform to the 1996 presentation. 2. Major Customers Net sales to major customers for the years ended June 30, 1996, 1995 and 1994, is as follows: 1996 1995 1994 Customer A $ 2,308,172 $ 2,476,531 $ 2,667,726 Customer B 597,755 765,723 487,955 3. Inventories Inventories consisted of the following at June 30, 1996 and 1995: 1996 1995 Raw materials $ 641,794 $ 585,717 Work in process 542,959 508,468 Finished goods 232,597 69,749 --------- -------- 1,417,350 1,163,934 Allowance for obsolescence (200,000) - --------- -------- $1,217,350 $1,163,934 --------- -------- 4. Pledged Assets, Notes Payable, Long-Term Debt and Contingency Notes Long-Term Payable Debt -------- ---------- Revolving line of credit, bank, $900,000, interest at 2.0% over prime, due on demand* $ 791,734 $ Bank, monthly principal installments of $1,190, bearing interest at prime plus 2.25% to January 1999* 36,904 Enclave Corporation, a corporation with similar ownership, monthly installments of $2,575 including interest at 6.5% to June 2000 with a balloon payment in July 2000, unsecured, subordinated to all bank debt 376,044 Finance company, monthly installments of $487 including interest at 9.5% to August 2000, collateralized by equipment with a carrying value of $21,287 16,000 -------- --------- 791,734 428,948 Less current maturities 25,498 -------- --------- $ 791,734 $ 403,450 ======== ========= Prime was 8.25% at June 30, 1996. * This note is collateralized by substantially all of the Company's assets and the personal guarantee of the Company's president (the majority stockholder). The fair value of the related party debt is estimated at $315,000. Aggregate maturities on long-term debt at June 30, 1996, are as follows: Years ending June 30: 1997 $ 25,498 1998 26,379 1999 21,384 2000 9,045 2001 346,642 -------- $ 428,948 The Company is the guarantor of a note payable of the related party. The balance of that note at June 30, 1996 and 1995, was approximately $42,400 and $62,400, respectively. The agreement with the Bank restricts the Company from declaring or paying any dividend, whether in cash or stock. In addition, among other provisions the loan agreement contains various financial covenants including tangible net worth and total liability ratios, minimum net income after taxes and a minimum subordinated debt balance. The Company was in violation of these covenants as of June 30, 1996. The Company did not obtain a waiver from the bank. 5. Capital Lease At June 30, 1996, equipment is being acquired under capital leases which contain a purchase option under which the Company may purchase the assets for $1 on expiration of the leases. The capital lease liabilities are payable in monthly installments of $616, including interest to April 1997, and $1,250 including interest to June 1999. Total minimum lease payments under the capital lease are as follows: Years ending June 30: 1997 $ 20,543 1998 14,994 1999 14,994 --------- 50,531 Less amount representing interest 11,387 --------- 39,144 Less current maturities 14,340 --------- $ 24,804 6. Stock Bonus Plan The Company has adopted bonus plans for key employees whereby the employee can elect to receive common stock or stock appreciation rights which can be converted to common stock. During the years ended June 30, 1996, 1,000 stock appreciation rights were repurchased at their book value of $677. During the year ended June 30 1995 and 1994, no shares of common stock or stock appreciation rights were issued or repurchased. At June 30, 1996, 14,215 shares of stock appreciation rights are outstanding. The total value of these rights is $6,244. The stock appreciation rights give the holder the right to receive the value of the applicable stock in cash during their employment if the Company agrees to purchase them. However the shares must be exchanged for cash when the holder leaves the Company. The value is determined annually by the Board of Directors. Stock appreciation rights may be converted to common stock with one share of common stock issued for each appreciation right. The Company has the first option to purchase the shares of common stock issued under the plan in the event the employee wishes to sell the shares or upon termination of employment, death or disability. Stock appreciation rights and stock issued under the agreement vest 33-1/3% annually from the date of issuance. The increase in the vested value of the stock appreciation rights is treated as compensation expense each year. The value of the stock issued was amortized over a three-year period. 7. Leases The Company leases its facility and various equipment from Enclave Corporation, a corporation with similar ownership to the Company. The monthly rentals are $9,000 plus routine maintenance through June 1998 for the facility, and $1,443 through April 1999 for the equipment. Total rental expense under these agreements was $125,316 for each of the years ended June 30, 1996, 1995 and 1994. The Company also leased a van and equipment from unrelated parties under various operating leases which expired during the year ended June 30, 1995. Rental expense under these leases was $6,944 and $14,856 for the years ended June 30, 1995 and 1994, respectively. The total future minimum lease payments under the agreements are as follows: Years ending June 30: 1997 $ 125,316 1998 125,316 1999 14,430 -------- $ 265,062 8. Research and Development Costs Total research and development costs charged to cost of goods sold were $93,080, $65,601 and $197,930, for the years ended June 30, 1996, 1995 and 1994, respectively. 9. Gain on Sale of Investment During the year ended June 30, 1992, the Company accepted preferred stock in a newly formed customer in lieu of an accounts receivable balance. This stock was subsequently converted into 245,819 shares of common stock. During the year ended June 30, 1993, the Company determined that the shares were worthless. Consequently, the investment was written off. During the year ended June 30, 1994, the Company found a buyer for the shares and sold them for $187,426 resulting in a gain of that amount in 1994. 10. Gain from Litigation Settlement In September 1995, the Company received $325,000 in settlement of a lawsuit in which the Company was the plaintiff. At that time, the Company wrote off $166,000 in unusable inventory related to the lawsuit. 11. Income Tax Matters The deferred tax assets and liabilities consist of the following components as of June 30, 1996 and 1995: 1996 1995 Deferred tax assets: Receivables $ 15,125 $ 1,875 Inventory allowances 50,000 - Capitalized inventory costs 34,225 34,160 Accrued vacations 6,588 13,844 Stock appreciation rights 1,561 2,576 Net operating loss carryforward 500 - -------- -------- 107,999 52,455 Less valuation allowance 88,798 30,883 -------- -------- 19,201 21,572 Deferred tax liabilities: Equipment 13,719 14,185 Patent and advertising costs 2,282 7,387 Other 3,200 - -------- -------- 19,201 21,572 -------- -------- Net deferred income taxes $ - $ - -------- -------- Reconciliation of income tax (credits) computed at the statutory federal income tax rate to the Company's income tax expense for the years ended June 30, 1996, 1995 and 1994, is as follows: 1996 1995 1994 Computed "expected" tax (credits) $ (61,209) $ (14,316) $ (5,577) Increase (decrease) resulting from: Increase in valuation allowance 57,915 12,514 5,577 Effect of lower bracket rates used in computation of deferred income taxes 13,770 - - General business credits (8,156) - - Other (1,406) 1,802 1,759 -------- ------- ------- $ 914 $ - $ 1,759 -------- ------- ------- 12. Subsequent Event On June 6, 1997, R. M. Schultz & Associates, Inc. merged with Dauphin Technology, Inc. a public company, through a stock for stock exchange. Subsequent to the merger Dauphin infused $699,000 into the Company of which $326,000 was used to reduce bank debt and the balance was for working capital purposes. In conjunction with the merger, the note payable affiliate of approximately $373,000 at that time was contributed to equity. DAUPHIN TECHNOLOGY, INC. AND RICHARD M. SCHULTZ & ASSOCIATES, INC. PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS (UNAUDITED) Page Pro Forma Condensed Combining Balance Sheet of Dauphin Technology, Inc. and Richard M. Schultz and Associates, Inc. as of March 31, 1997 P-2 Pro Forma Condensed Combining Statement of Income of Dauphin Technology, Inc. and Richard M. Schultz and Associates, Inc.: For the Year Ended December 31, 1996 P-3 For the three month period ended March 31, 1997 P-4 Notes to Pro Forma Condensed Combining Financial Statements P-5 The unaudited pro forma condensed combining balance sheet as of March 31, 1997 gives effect to the acquisition of Richard M. Schultz & Associates, Inc. ("RMS") by Dauphin Technology, Inc. ("Dauphin") as if the transaction had been consummated on March 31, 1997. The following unaudited condensed combining statements of income for the three months ended March 31, 1997 and for the year ended December 31, 1996 set forth the consolidated operations of Dauphin combined with RMS for the period presented as if the acquisition had occurred on January 1, 1996 (the beginning of the earliest year presented). These pro forma condensed combining financial statements, which have been prepared by Dauphin management are based upon historical financial statements of Dauphin and RMS, should be read in conjunction with the accompanying notes to such pro forma condensed combining financial statements and the consolidated financial statements and related notes thereto of Dauphin, incorporated herein by reference, and RMS, included elsewhere herein. The historical interim financial information for the three months ended March 31, 1997, used as a basis for the pro forma combined consolidated financial statements, include all necessary adjustments, which in the opinion of management of Dauphin and RMS, are necessary to present the data fairly. These pro forma condensed combining financial statements may not be indicative of the results that actually would have occurred if the acquisition had been in effect on the dates indicated or the results of operations that may be obtained in the future. PRO FORMA CONDENSED COMBINING BALANCE SHEET OF DAUPHIN TECHNOLOGY, INC. AND RICHARD M. SCHULTZ & ASSOCIATES, INC. MARCH 31, 1997 (unaudited) Dauphin Richard M. Historical Pro Forma Pro Forma Technology, Inc. Schultz & Assc. Combined Adjustments Combined --------------- -------------- -------- ----------- --------- ASSETS Cash $ 144,383 $ 593 $ 144,976 $ 144,976 Trade receivables 2,719 776,151 778,870 778,870 Other receivables 9,187 36,519 45,706 1 (c)(9,627) 36,079 Inventories 2,693,796 983,960 3,677,756 3,677,756 Prepaid expenses and supplies 12,251 14,867 27,118 27,118 Excess cost over fair value of net assets acquired 1(c)399,243 399,243 Property and Equipment 108,586 156,863 265,449 265,449 Patent costs - 18,256 18,256 18,256 -------------- ----------- ---------- ----------- --------- TOTAL ASSETS $2,970,922 $1,987,209 $4,958,131 389,616 $5,347,747 ============== =========== ========== =========== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable - 953,457 953,457 953,457 Current maturities of long-term debt - 70,236 70,236 70,236 Current maturities of obligations under capital leases - 14,340 14,340 14,340 Accounts payable 35,684 851,621 887,305 887,305 Income taxes payable - 100 100 100 Accrued expenses 61,293 52,695 113,988 1(c) 168,717 282,705 -------------- ----------- ---------- ----------- --------- Total current liabilities 96,977 1,942,449 2,039,426 2,208,143 Long-Term Debt, less current maturities 40,951 389,331 430,282 1(c)(369,963) 60,319 Obligations under capital leases, less current maturities - 13,091 13,091 13,091 Intercompany Accounts - - - - -------------- ----------- ---------- ----------- --------- Total Liabilities 137,928 2,344,871 2,482,799 (201,246) 2,281,553 Stockholders' Equity Common stock 32,178 10,059 42,237 1(b) (9,839) 32,398 Treasury Stock (1,488,352) - (1,488,352) (1,488,352) Additional paid-in capital 24,016,657 68,500 24,085,157 1(b) 164,480 24,249,637 Retained earnings (deficit) (19,727,489) (436,221) (20,163,710)1(b) 436,221(19,727,489) -------------- ----------- ---------- ----------- --------- 2,832,994 (357,662) 2,475,332 590,862 3,066,194 -------------- ----------- ---------- ----------- --------- TOTAL LIABILITIES AND STOCKHOLDERS EQUITY 2,970,922 1,987,209 4,958,131 389,616 5,347,747 ============== =========== ========== =========== ========= PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME OF DAUPHIN TECHNOLOGY, INC. AND RICHARD M. SCHULTZ & ASSOCIATES, INC. FOR THE YEAR ENDED DECEMBER 31, 1996 (unaudited) Dauphin Richard M. Pro Forma Pro Forma Technology, Inc. Schultz Combined Adjustments Combined ------------- ----------- ---------- ----------- --------- Net sales $ 93,947 $ 5,196,543 $5,290,490 $5,290,490 Cost of goods sold 279,232 4,286,302 4,565,534 4,565,534 ------------- ----------- ---------- ----------- --------- Gross profit (185,285) 910,241 724,956 724,956 Selling, General and Administrative expenses 1,007,309 1,062,667 2,069,976 2(d) 19,962 2,089,938 Research and Development 76,711 - 76,711 76,711 ------------- ----------- ---------- ----------- --------- Operating (loss) (1,269,305) (152,426) (1,421,731) (1,441,693) Financial income (expense): Interest expense (2,310) (108,602) (110,912) (110,912) Interest income 9,997 849 10,846 10,846 ------------- ----------- ---------- ----------- --------- 7,687 (107,753) (100,066) (100,066) (Loss) from continuing operations before income taxes (1,261,618) (260,179) (1,521,797) (1,541,759) Federal and state income taxes - (722) (722) (722) ------------- ----------- ---------- ----------- --------- Net (loss) from continuing operations $(1,261,618) $ (259,457)$(1,521,075) $(1,541,037) ============= =========== ========== =========== ========= Pro Forma per Share Data: Weighted average number of shares outstanding 24,076,301 24,296,301 Net (loss) from continuing operations $ (0.06) $ (0.07) See accompanying notes to pro forma combining financial statements PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME OF DAUPHIN TECHNOLOGY, INC. AND RICHARD M. SCHULTZ & ASSOCIATES, INC. FOR THE THREE MONTH ENDED MARCH 31, 1997 (unaudited) Dauphin Richard M. Pro Forma Pro Forma Technology, Inc. Schultz Combined Adjustments Combined ---------------- -------------- ----------- ----------- ---------- Net sales $ 22,317 $ 1,312,156 $ 1,334,473 $ 1,334,473 Cost of goods sold 13,205 1,130,309 1,143,514 1,143,514 ---------------- -------------- ----------- ----------- ---------- Gross profit 9,112 181,847 190,959 190,959 Operating expenses 339,586 232,286 571,872 2(d) 4,991 576,863 Operating income (loss) (330,474) (50,439) (380,913) (385,904) Financial income (expense): Interest expense - (26,766) (26,766) (26,766) Interest income 3,843 3 3,846 3,846 ---------------- -------------- ----------- ----------- ---------- 3,843 (26,763) (22,920) (22,920) (Loss) from continuing operations before income taxes (326,631) (77,202) (403,833) (408,824) Federal and state income taxes - - - - ---------------- -------------- ----------- ----------- ---------- Net (loss) from continuing operations $ (326,631) $ (77,202) $ (403,833) $ (408,824) ================ ============== =========== =========== ========== Pro Forma per Share Data: Weighted average number of shares outstanding 29,547,111 29,767,111 Net (loss) from continuing operations $ (0.01) $ (0.02) See accompanying notes to pro forma combining financial statements NOTES TO PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS BACKGROUND Dauphin has acquired RMS through an exchange of stock for stock in accordance with the Exchange Agreement dated June 6, 1997. While subject to adjustments, the Exchange Agreement calls for RMS shareholders to received 220,000 shares of Dauphin common stock, with an additional 105,000 of such shares deposited into an escrow to be released equally over the next three years if certain financial goals of RMS are achieved, in exchange for all issued and outstanding shares RMS. Upon issuance of the contingent shares, there will be an additional element of cost related to the transaction that will be recorded as goodwill and amortized over the remaining life. RMS financial information presented elsewhere in the audited financial statements reflects a June 30 fiscal year-end. Pro forma information has been prepared using Dauphin and RMS information assuming December 31 year-end. This transaction is to be accounted for as a purchase and, accordingly, certain estimates were made in the presentation of pro forma financial statements. ASSUMPTIONS 1) The pro forma condensed combining balance sheet of Dauphin and RMS as of March 31, 1997, have been prepared with the following assumptions: a) The transaction referred to above occurred on March 31, 1997. b) The Exchange Agreement calls for the exchange of 220,000 shares of Dauphin for all issued and outstanding shares of RMS. c) The acquisition is accounted for using the purchase method of accounting and, accordingly, the net assets of RMS are adjusted to their fair market value. The components of the transaction are outlined as follows: Dauphin Consideration: Dauphin Common Stock (220,000 shares at $1.06 per share) $ 233,200 Liabilities Assumed 2,344,871 Less: Affiliated Debt Forgiven (360,336) Cost of the Transaction 168,717 --------- Total Consideration 2,386,452 Historical book value of RMS assets 1,987,209 --------- Excess of cost over fair value of net assets acquired 399,243 The price of Dauphin Common Stock of $1.06 was used in connection with the acquisition and is consistent with the closing price on the date the Exchange was publicly announced. 2) The pro forma condensed combining statement of income presented herein, have been prepared in accordance with the following financial assumptions: a) The pro forma condensed combining statement of income presented herein include the historical net income of Dauphin for the year ended December 31, 1996 and three months ended March 31, 1997. The historical financial income for Dauphin for the year ended December 31, 1996 does not include the extraordinary item related to emergence from bankruptcy, costs related to reorganization and related computations of income per share, as if such entries were present. b) The acquisition occurs January 1, 1996 and is accounted for by the purchase method of accounting. Accordingly, the operations of RMS are included in Dauphin's consolidated results of operations from January 1, 1996 forward. c) The effect of the pro forma purchase accounting adjustments outlined in 1(c) above on the individual balance sheet captions and in the total for each of the next five years and thereafter are as follows: Excess of cost over net assets acquired 1998 $ 19,962 1999 19,962 2000 19,962 2001 19,962 2002 19,962 After 5 years 299,433 ------- Total $399,243 d) The adjustments to reflect amortization of the purchase adjustments in the pro forma condensed combining financial statements of income included herein are as follows: Year ended Three months ended December 31, 1996 March 31, 1997 Increase in operating expense for amortization of excess of assets over fair value of net assets acquired $ 19,962 $ 4,991 The excess of cost over fair value of assets of RMS acquired by Dauphin is amortized on a straight line basis over 20 years. -----END PRIVACY-ENHANCED MESSAGE-----