-----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, WY3W0Kt7VJIfy+QQSP5Jw6i/3Bq7BwTiUMwakooShZ2crFkxXwp+QjwNhYibXuWN zfLIks9+ktn9Sc67Bqw6LA== 0000832489-98-000004.txt : 19980515 0000832489-98-000004.hdr.sgml : 19980515 ACCESSION NUMBER: 0000832489-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAUPHIN TECHNOLOGY INC CENTRAL INDEX KEY: 0000832489 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER & OFFICE EQUIPMENT [3570] IRS NUMBER: 870455038 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-21537-D FILM NUMBER: 98620147 BUSINESS ADDRESS: STREET 1: 800 E NORTHWEST STREET 2: STE 950 CITY: PALATINE STATE: IL ZIP: 60067 BUSINESS PHONE: 8473584406 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 1998 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ____________ to ____________. Commission File No. 33-21537-D DAUPHIN TECHNOLOGY, INC. (Exact name of registrant as specified in charter) Illinois 87-0455038 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 800 E. Northwest Hwy., Suite 950, Palatine, Illinois 60067 (Address of principal executive offices) (Zip Code) (847) 358-4406 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE PRECEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes X No _____ APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: As of May 14, 1998, 37,035,673 shares of the registrant's common stock, $.001 par value, was issued and 36,352,219 was outstanding, with 683,454 treasury shares. DAUPHIN TECHNOLOGY, INC. Table of Contents Page PART I FINANCIAL INFORMATION Item 1. Financial Statements BALANCE SHEETS March 31, 1998 and December 31, 1997 3 STATEMENTS OF OPERATIONS Three Months Ended March 31, 1998 and 1997 4 STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) Three Months Ended March 31, 1997, Nine Months Ended December 31, 1997 and Three Months Ended March 31, 1998 5 STATEMENTS OF CASH FLOWS Three Months Ended March 31, 1998 and 1997 6 NOTES TO FINANCIAL STATEMENTS 7 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 11 PART II OTHER INFORMATION 12 Item 1. Legal Proceedings Item 2. Changes in the Rights of the Company's Security Holders Item 3. Default by the Company on its Senior Securities Item 4. Submission of Matters to a Vote of Securities Holders Item 5. Other Information Item 6(a). Exhibits Item 6(b). Reports on Form 8-K SIGNATURE 13 DAUPHIN TECHNOLOGY, INC. BALANCE SHEETS MARCH 31, 1998 AND DECEMBER 31, 1997 March 31, December 31, 1998 1997 CURRENT ASSETS: Cash $ 1,918,182 $ 3,620,880 Accounts receivable Trade, net of allowance for bad debt of $7,500 319,019 462,821 Other receivables 3,500 20,195 Inventory, net of reserve for obsolescence of $2,130,041 at March 31, 1998 and $2,143,934 at December 31, 1997 1,797,364 1,531,464 Prepaid Expenses 74,882 39,201 ----------- ----------- Total Current Assets 4,112,947 5,674,561 PROPERTY AND EQUIPMENT, net of accumulated depreciation of $214,523 at March 31, 1998 and $176,318 at December 31, 1997 1,138,462 739,556 GOODWILL, net of amortization of $31,370 at March 31, 1998 and $20,427 at December 31, 1997 844,076 855,019 ----------- ----------- TOTAL ASSETS $ 6,095,485 $ 7,269,136 =========== =========== CURRENT LIABILITIES: Accounts payable $ 645,046 $ 790,784 Accrued expenses 119,882 285,837 Current portion of long-term debt 83,782 83,782 Short-term borrowing 1,973 87,394 ----------- ----------- Total current liabilities 850,684 1,247,797 LONG-TERM DEBT 385,782 345,744 COMMITMENTS AND CONTINGENCIES (Note 4) SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value, 10,000,000 shares authorized but none issued --- --- Common stock $0.001 par value, 100,000,000 shares authorized: 37,035,673 shares issued at March 31, 1998 and December 31, 1997, and 36,352,219 outstanding at March 31, 1998 and 36,305,096 outstanding at December 31, 1997 37,036 37,036 Paid in capital 29,325,238 29,283,136 Treasury shares (239,209) (255,702) Accumulated deficit (24,264,045) (23,388,875) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 4,859,020 5,675,595 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 6,095,485 $ 7,269,136 =========== =========== DAUPHIN TECHNOLOGY, INC. STATEMENTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 AND 1997 1998 1997 ----------- ----------- NET SALES $ 1,456,522 $ 22,317 COST OF SALES 1,235,709 13,205 ----------- ----------- Gross profit 220,843 9,112 SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 563,684 335,734 RESEARCH AND DEVELOPMENT EXPENSE 555,027 3,852 ----------- ----------- (Loss) before interest and income taxes (897,868) (330,474) INTEREST EXPENSE 20,543 --- INTEREST INCOME 43,241 3,843 ----------- ----------- (Loss) before income taxes (875,170) (326,631) INCOME TAXES --- --- ----------- ----------- NET (LOSS) $ (875,170) $ (326,631) =========== =========== BASIC AND DILUTED (LOSS) PER SHARE $ (0.03) $ (0.01) =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 36,339,137 29,547,111 DAUPHIN TECHNOLOGY, INC. STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) THREE MONTHS ENDED MARCH 31, 1997, NINE MONTHS ENDED DECEMBER 31, 1997 AND THREE MONTHS ENDED MARCH 31, 1998 Common Stock Paid-in Treasury Stock Accumulated BALANCE Shares Amount Capital Shares Amount Deficit Total ---------- -------- ------------ ---------- ------------ -------------- ------------ December 31, 1996 31,706,397 $ 31,706 $ 23,649,659 (2,159,286) $ (1,187,607) $ (19,400,858) $ 3,092,900 Issuance of common stock in connection with: Private placement 146,500 147 147,153 --- --- --- 147,300 Purchase of treasury shares --- --- --- (146,500) (80,575) --- (80,575) Net (loss) --- --- --- --- --- (326,631) (326,621) ---------- -------- ------------ ---------- ------------ -------------- ------------ March 31, 1997 31,852,897 31,853 23,796,812 (2,305,786) (1,268,182) (19,727,489) 2,832,994 Issuance of common stock in connection with: Private placement 4,726,020 4,726 4,435,141 --- --- --- 4,439,867 Commissions to broker/dealer 131,756 132 (132) --- --- --- --- Purchase of a subsidiary 220,000 220 232,980 --- --- --- 233,200 Escrow shares 105,000 105 --- --- --- --- 105 Purchase of treasury stock --- --- --- (745,126) (260,794) --- (260,794) Issuance of treasury stock --- --- 812,084 2,307,835 1,266,400 --- 2,078,484 Stock bonuses paid --- --- 6,251 12,500 6,874 --- 13,125 Net (loss) --- --- --- --- --- (3,661,386) (3,661,386) ---------- -------- ------------ ---------- ------------ -------------- ------------ December 31, 1997 37,035,673 37,036 29,283,136 (730,577) (255,702) (23,388,875) 5,675,595 Stock bonuses paid --- --- 42,102 47,123 16,493 --- 58,595 Net (loss) --- --- --- --- --- (875,170) (875,170) ---------- -------- ------------ ---------- ------------ -------------- ------------ March 31, 1998 37,035,673 $ 37,036 $ 29,325,238 (683,454) $ (239,209) $ (24,264,045) $ 4,859,020 ========== ======== ============ ========== ============ ============== ============
DAUPHIN TECHNOLOGY, INC. STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES - Net (loss) $ (875,170) $ (326,631) Non-cash items included in net (loss): Depreciation and amortization 49,148 10,452 Change in: Decrease/(increase) in accounts receivable - trade 143,802 (709) Decrease/(increase) in accounts receivable - other 16,695 (9,187) (Increase) in inventory (265,900) (41,334) (Increase) in prepaid expenses (35,681) --- (Decrease) in accounts payable (145,738) (168,766) (Decrease) in accrued expenses (165,954) (1,021) (Decrease) in short term notes (14,001) --- ----------- ----------- Net cash (used for) operating activities (1,292,799) (537,196) CASH FLOWS FROM INVESTING ACTIVITIES - Purchase of property and equipment (383,707) (3,500) ----------- ----------- Net cash (used for) investing activities (383,707) (3,500) CASH FLOWS FROM FINANCING ACTIVITIES - Long-term leases and other obligations, net --- (2,246) Proceeds from issuance of shares 58,595 66,725 (Decrease) in short term borrowing (84,787) --- ----------- ----------- Net cash provided by financing activities (26,192) 64,479 ----------- ----------- Net (decrease) in cash (1,702,698) (476,217) CASH BEGINNING OF PERIOD 3,620,880 620,600 ----------- ----------- CASH END OF PERIOD $ 1,918,182 $ 144,383 =========== =========== CASH PAID DURING THE PERIOD FOR - Interest $ 20,543 $ 793 Income Taxes --- --- =========== =========== NON-CASH ACTIVITY: Capital Lease Obligations $ 53,405 $ --- =========== ===========
DAUPHIN TECHNOLOGY, INC. NOTES TO FINANCIAL STATEMENTS (Unaudited) 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Description of Business Dauphin Technology, Inc. (the "Company") was founded to design, manufacture and market mobile computing systems, including laptop, notebook, hand-held and pen-based computers, components and accessories. Historically, the Company marketed directly and through other distribution channels to both the commercial and government market segments. On June 6, 1997, Dauphin acquired all issued and outstanding shares of R.M. Schultz & Associates, Inc. ("RMS"), an electronics contract manufacturing firm located in McHenry, Illinois. RMS is involved in electronics design, development and production of products for manufacturers located in Illinois and Wisconsin (see Note 3). Basis of Presentation The consolidated financial statements include the accounts of Dauphin Technology, Inc. and its wholly owned subsidiary, RMS (the "Company"). All significant intercompany transactions and accounts have been eliminated in consolidation. 2. SUMMARY OF MAJOR ACCOUNTING POLICIES: Accounting Pronouncements Earnings per share are calculated under guidelines of FASB No. 128 "Earnings per Share" wherein earnings per share are presented for basic and diluted shares on income from operations and net income. Basic earnings per share are calculated on income available to common stockholders divided by the weighted-average number of shares outstanding during the period, which were 36,339,137 for the three month period March 31, 1998 and 29,547,111 for the three month period March 31, 1997. Diluted earnings per share are calculated using earnings available to each share of common stock outstanding during the period and to each share that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during the reporting period. There is no difference between basic and diluted earnings per share as there are no potential dilutive common shares. The Company adopted FASB Statement No. 130, "Reporting Comprehensive Income", establishing standards for reporting and displaying comprehensive income in a full set of general-purpose financial statements. There is no difference between the net income reported and comprehensive net income for the three months ending March 31, 1998 and 1997. The Company also adopted a Statements of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities". The SOP requires that all start-up related costs, including organizational costs, be expensed as incurred and all previous capitalization costs be written off. The adoption of the SOP did not have a material impact on the financial statements. Unaudited Financial Statements This Form 10-Q updates the Company's Annual Report on Form 10-K for the year ended December 31, 1997, in accordance with the instructions on the Form 10-Q. It is presumed that the reader has read the Annual Report on Form 10-K. The accompanying statements are unaudited, but have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of results have been included. The interim financial statements contained herein do not include all of the footnotes and other information required by generally accepted accounting principles for complete financial statements as provided at year end. The reader is reminded that the results of operations for the interim period are not necessarily indicative of the results for the complete year. 3. BUSINESS DEVELOPMENT R. M. Schultz & Associates, Inc. On June 6, 1997, the Company acquired all outstanding common stock of RMS for $2,430,258, consisting of issuance of common stock for $233,200 and an assumption of $2,197,058 of liabilities. The transaction was accounted for as a purchase. The price was allocated to accounts receivable ($590,330), inventories ($772,658), other current assets ($43,716), property and equipment ($148,108), with the remaining amount ($875,446) being allocated to goodwill. The goodwill is being amortized over 20 years. Under the terms of the acquisition, RMS shareholders 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. Upon issuance of the 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. Results of the operations of RMS are included within the consolidated financial statements commencing June 6, 1997. Unaudited pro forma results as if the transaction occurred on January 1, 1997 are as follows (unaudited): Three Months Ended March 31, 1997 ------------- Revenues $ 1,334,473 Net (loss) (287,325) Basic and diluted earnings (loss) income per share $ (0.01) Weighted average shares outstanding 29,547,111 Such pro forma information is not necessarily indicative of the results of future operations. 4. COMMITMENTS AND CONTINGENCIES The Company has contracted with Family Tools, Inc. for the manufacturing of the industrial molds for the Orasis(. The total commitment was $521,250 of cash, before final modifications, of which $270,925 was paid in the first quarter, and 60,000 Company $.001 par common shares (see Note 6). The Company is involved in a lawsuit with an ex-employee/officer that has claimed that the Company wrongfully discharged him. The suit was filed on April 11, 1998. Management believes that the Company has several defenses to the claim and made adequate provisions in the financial statements for any expected liability that may result from the disposition of the lawsuit. It is the opinion of management that the ultimate liability, if any, will not be material to the Company's results of operations or financial position. 5. LIABILITIES During the first quarter of 1998, the Company financed a purchase of certain operating equipment, industrial molds and leasehold improvements. The Company financed approximately $52,000 of such purchases with a capital lease payable over the next three years. 6. EQUITY TRANSACTIONS 1998 Events On January 5, and then on March 5, 1998, under an employment contract relating to the RMS acquisition, the Company issued 12,500 shares on each date to Richard M. Schultz. Under the contract, Mr. Schultz is entitled to purchase 50,000 common shares per year for the duration of his employment contract at $1.00 below the market value on the date immediately preceding the date of exercise. The common shares issued in connection with this transaction were treasury shares. On March 6, 1998 Mr. Schultz returned 7,877 shares to treasury as repayment of his obligation to the Company. On March 3, 1998, for the services performed, the Company issued 30,000 shares to Mr. Mikolai Prociuk. On March 31, 1998 the Company registered with Securities and Exchange Commission 4,523,608 shares issued to accredited investors in a private placement that concluded in December 1997. In addition to shares issued in the private placement, the Company registered 2,964,327 shelf shares that will be used, if needed, for future acquisitions, to raise capital, if needed, to fund production of Orasis( hand-held computer and RMS contract manufacturing operations, and to expand the Company's employee benefits and product and service offerings. These shelf shares have not been issued and are not outstanding. Subsequent Events On May 8, 1998 the Company issued 60,000 treasury shares to Family Tools for the services provided in connection with the manufacturing of industrial molds for production of the Orasis( hand-held computer. The shares will be valued at $1.125, closing bid price on that day. The total amount of cash expended and shares issued will be capitalized and amortized over the number of units produced over the life of the molds. 7. CONVERTIBLE DEBT - SUBSEQUENT EVENT On May 13, the Company issued 8% Convertible Subordinated Debentures - 2001 to four accredited investors in an aggregate principal amount not to exceed $1,000,000, which is due and payable on May 13, 2001. Interest is computed at a simple rate and is due and payable on an annual basis. Both interest and principal can be paid in either cash or through issuance of the Company's $.001 par common stock and is due and payable in full in three years after the issuance. The holders of the Debentures have the right to convert 100% of principal and interest, at any time, into Company's $.001 par common stock, based on a formula. In addition to interest, debenture holders are entitled to purchase up to 150,000 shares of $.001 par common stock with exercise of detachable warrants. The warrants are priced at 115% of the closing bid on the day before the exercise date. In addition, the Company paid 8% of the principal amount of the debenture, and issued 50,000 warrants, as fee for placement of the debentures through a registered broker-dealer. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Note: This discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those set forth herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed herein, as well as those discussed in the Company's Securities and Exchange Commission filings and reports including, but not limited to, its fiscal year 1997 Annual Report on Form 10-K. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. The Company undertakes no obligation to publicly release the results of any revision to these forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. CHANGES IN FINANCIAL POSITION March 31,1998 Compared to December 31, 1997 During the first quarter of 1998, total assets decreased to $6,095,000 at March 31 from $7,269,000 at December 31, 1997. The decrease was primarily due to continued expenditures on Research and Development (R & D) of Dauphin's new flagship product, Orasis. In addition to R & D expenditures, the Company repaid approximately $400,000 of current liabilities and increased its workforce. Decrease in cash from $3,621,000 on December 31, 1997 to $1,918,000 on March 31, 1998, was due to all factors mentioned above as well as expenditures for industrial molds and Orasis( electronic component inventory. Accounts Receivable represent certain funds due to the Company as part of the normal operations of the Company, including RMS operations. Total liabilities decreased by approximately $357,000 as a result of payment of a portion of the current liabilities. The remaining debt represents normal obligations incurred in a day-to-day operation of the Company and long-term leases. Shareholders Equity - Common Stock, Paid- in-Capital and Treasury Shares reflect the issuance of additional shares as part of the employment contract between the Company and Richard M. Schultz and payment of obligations. RESULTS OF OPERATIONS March 31, 1998 compared to March 31, 1997 Revenues Total sales revenue in the first quarter of 1998 dramatically increased from the first quarter of 1997 due to operations of newly acquired RMS. Gross profit for the first quarter of 1998 was approximately 16%, which is consistent with RMS historical operating profits. Expenses Selling, general and administrative expenses increased from $336,000 in the first quarter of 1997 to $564,000 in the first quarter of 1998. The increase is primarily due to additional salaries for new employees and increased spending on trade shows to introduce Orasis. The Company now employs approximately one hundred people versus just twelve a year ago. R and D costs increased from $4,000 in the first quarter of 1997 to $555,000 in the first quarter of 1998. The increase was due to spending related to development of Orasis. Net Income(Loss) The (loss) after tax increased for the first quarter of 1998 to ($875,000) or ($0.03) per share from ($327,000) or ($0.01) per share in 1997. (Loss) per common share is calculated based on the monthly weighted average number of common shares outstanding which were 36,339,137 for the three month period March 31, 1998, and 29,547,111 for the period March 31, 1997. LIQUIDITY AND CAPITAL RESOURCES The Company had extensive cash requirements in the first quarter of 1998 due to the latter stages of development and pre-production phases for the Orasis. Costs associated with the Company's financial requirements in the first quarter of 1998 were met through cash generated from private placement of shares to accredited investors in 1997 and through issuance of Convertible Subordinated Debentures in the second quarter of 1998. The Company expects additional cash requirements in the second quarter of 1998 to fund the early steps of production of the Orasis. Sales of Orasis should begin late in the second quarter of 1998. Cash flow generated from the sales of Orasis, will be applied to current and future working capital needs, future research and development as well day-to-day operating needs of the Company. The Company will be pursuing avenues to raise additional operating capital, possibly through a credit facility. The Company believes that the funds it currently has on hand, including funds raised through issuance of Convertible Debentures, when coupled with its anticipated operating profits, and any additional funds it may borrow in the future, provide sufficient funds for the Company to finance its operations. PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is involved in a lawsuit with an ex-employee/officer that has claimed that the Company wrongfully discharged him. The suit was filed on April 11, 1998. Management believes that the Company has several defenses to the claim and made adequate provisions in the financial statements for any expected liability that may result from the disposition of the lawsuit. It is the opinion of management that the ultimate liability, if any, will not be material to the Company's results of operations or financial position. Item 2. Changes in the Rights of the Company's Security Holders. None. Item 3. Default by the Company on its Senior Securities. None. Item 4. Submission of Matters to a Vote of Securities Holders. None. Item 5. Other Information. None. Item 6(a). Exhibits. None. Item 6(b). Reports on Form 8-K. None. SIGNATURE 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, Registrant's Chief Financial Officer, thereunto duly authorized. Dated: May 14, 1998 DAUPHIN TECHNOLOGY, INC. (Registrant) By: /s/ Savely Burd Savely Burd (Chief Financial Officer)
EX-27 2
5 3-MOS DEC-31-1997 MAR-31-1998 1,918,182 0 330,019 (7,500) 1,797,364 4,112,947 1,352,985 214,523 6,095,485 850,684 0 0 0 37036 4,821,984 6,095,485 1,456,522 1,456,522 1,235,709 1,235,709 1,118,711 0 20,543 (875,170) 0 (875,170) 0 0 0 (875,170) (0.03) (0.03)
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