10-Q 1 d10q.txt FORM 10-Q 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 June 30, 2001 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 (I.R.S. Employer Identification No.) incorporation or organization) 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 August 8, 2001, 62,666,127 shares of the registrant's common stock, $.001 par value, was issued and outstanding. DAUPHIN TECHNOLOGY, INC. Table of Contents ----------------- Page PART I FINANCIAL INFORMATION Item 1. Financial Statements CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2001 and December 31, 2000 3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Six Months and Three Months Ended June 30, 2001 and 2000 4 CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Year Ended December 31, 2000 and Six Months Ended June 30, 2001 5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2001 and 2000 6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7 Item 2. Management's Discussion and Analysis of Financial Condition and the Results of Operations 10 PART II OTHER INFORMATION 13 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 2 Dauphin Technology, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS June 30, 2001 and December 31, 2000 (Unaudited) ===============================================================================
June 30, 2001 December 31, 2000 ------------- ----------------- CURRENT ASSETS: Cash $ 756,925 $ 2,683,480 Accounts receivable- Trade, net of allowance for bad debt of $50,621 at June 30, 2001 and December 31, 2000 275,687 321,377 Employee receivables 18,248 21,590 Inventory, net of reserve for obsolescence of $2,491,216 at June 30, 2001 and December 31, 2000 527,241 505,749 Prepaid expenses 84,206 20,794 ------------- ------------- Total current assets 1,662,307 3,552,990 INVESTMENT IN RELATED PARTY 290,000 290,000 PROPERTY AND EQUIPMENT, net of accumulated depreciation of $1,324,774 at June 30, 2001 and $1,127,040 at December 31, 2000 1,341,394 1,477,787 ESCROW DEPOSIT 611,491 752,500 GOODWILL, net of accumulated amortization of $962,500 at June 30, 2001 and $412,500 at December 31, 2000 4,537,500 5,087,500 ------------- ------------- Total assets $ 8,442,692 $ 11,160,777 ============= ============= CURRENT LIABILITIES: Accounts payable $ 230,612 $ 290,474 Accrued expenses 79,979 80,433 Current portion of long-term debt 96,254 113,629 Customer Deposits 50,488 53,244 ------------- ------------- Total current liabilities 457,333 537,780 LONG-TERM DEBT 72,856 102,133 ------------- ------------- Total liabilities 530,189 639,913 COMMITMENTS AND CONTINGENCIES - - SHAREHOLDERS' EQUITY: Preferred stock, $0.01 par value, 10,000,000 shares authorized but unissued - - Common stock, $0.001 par value, 100,000,000 shares authorized; 61,900,069 and 61,652,069 issued and outstanding at June 30, 2001 and at December 31, 2000 61,901 61,653 Warrants 3,358,700 3,321,810 Paid-in capital 54,980,011 54,781,499 Accumulated deficit (50,488,109) (47,644,098) ------------- ------------- Total shareholders' equity 7,912,503 10,520,864 ------------- ------------- Total liabilities and shareholders' equity $ 8,442,692 $ 11,160,777 ============= =============
The accompanying notes are an integral part of these statements. 3 Dauphin Technology, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS Six months and three months ended June 30, 2001 and 2000 (Unaudited) ===============================================================================
Six Months Three Months Ended June 30, Ended June 30, -------------- -------------- 2001 2000 2001 2000 ------------- ------------- ------------ ------------- NET REVENUE $ 827,241 $ 16,041 $ 382,087 $ 11,305 COST OF REVENUE 643,400 123,411 314,815 357,561 ------------- ------------- ------------ -------------- Gross Profit (Loss) 183,841 (107,370) 67,272 (346,256) SELLING, GENERAL AND ADMINISTRATIVE EXPENSE 1,888,869 1,820,049 1,137,885 726,865 RESEARCH AND DEVELOPMENT EXPENSE 1,240,896 250,858 778,374 166,144 ------------- ------------- ------------ -------------- Loss from Operations (2,945,924) (2,178,277) (1,848,987) (1,239,265) INTEREST EXPENSE 11,780 1,817,141 4,895 24,176 INTEREST INCOME 113,693 13,810 25,033 13,810 ------------- ------------- ------------ -------------- Loss before Income Taxes (2,844,011) (3,981,608) (1,828,849) (1,249,631) INCOME TAXES - - - - ------------- ------------- ------------ -------------- NET LOSS $ (2,844,011) $ (3,981,608) $ (1,828,849) $ (1,249,631) ============= ============= ============ ============== BASIC AND DILUTED LOSS PER SHARE $ (0.05) $ (0.07) $ (0.03) $ (0.02) ============= ============= ============ ============== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 61,848,402 57,005,361 61,898,736 57,734,598 ============= ============= ============ ==============
The accompanying notes are an integral part of these statements. 4 Dauphin Technology, Inc. CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Year ended December 31, 2000 and six months ended June 30, 2001 (Unaudited)
Common Stock Treasury Stock ------------ Paid-in ---------------- Accumulated Shares Amount Capital Warrants Shares Amount Deficit Total ------ ------ ------- -------- ------ ------ ------- ----- BALANCE, December 31, 1999 51,671,582 $ 51,671 $38,089,320 $ 1,238,089 - $ - $(38,826,736) $ 552,344 Issuance of common stock in connection with: Private placement 4,654,613 4,656 8,180,022 419,556 - - - 8,604,234 Stock purchase agreement 2,136,616 2,137 5,854,991 1,142,872 - - - 7,000,000 Warrant exercise 1,999,602 1,999 1,234,715 (620,641) - - - 616,073 Consulting fees 500,000 500 312,000 1,103,669 - - - 1,416,169 Employee stock compensation - - 70,622 - - - - 70,622 Settlement of trade payables 480,000 480 299,520 - - - - 300,000 Stock options exercised 2,000 2 998 - - - - 1,000 Vendor payments 207,656 208 739,311 38,265 - - - 777,784 Net loss - - - - - - (8,817,362) (8,817,362) ---------- --------- ----------- ----------- ------- ------ ------------ ----------- BALANCE, December 31, 2000 61,652,069 61,653 54,781,499 3,321,810 - - (47,644,098) 10,520,864 Issuance of common stock in connection with: Warrant exercise 210,000 210 153,750 (51,660) - - - 102,300 Stock options exercised 8,000 8 3,992 - - - - 4,000 Vendor payments 30,000 30 40,770 88,550 - - - 129,350 Net loss - - - - - - (2,844,011) (2,844,011) ---------- --------- ----------- ----------- ------- ------ ------------ ----------- BALANCE, June 30, 2001 61,900,069 $ 61,901 $54,980,011 $ 3,358,700 - $ - $(50,488,109) $ 7,912,503 ========== ========= =========== =========== ======= ====== ============ ===========
The accompanying notes are an integral part of these statements. 5 Dauphin Technology, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended June 30, 2001 and 2000 (Unaudited) ===============================================================================
2001 2000 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES - Net loss $ (2,844,011) $ (3,981,608) Non-cash items included in net loss: Depreciation and amortization 197,734 200,584 Amortization of goodwill 550,000 - Warrants issued in lieu of consulting fees 88,550 503,833 Common stock issued to vendors 40,800 - Interest expense on capital raised - 1,762,939 Settlement of trade payables - (431,776) Decrease in accounts receivable - trade 45,690 20,049 Decrease in accounts receivable from employees 3,342 - (Increase) decrease in inventory (21,492) 20,354 Increase in prepaid expenses (63,412) (63,055) Decrease in escrow deposits 141,009 - (Decrease) in accounts payable (59,862) (1,257,601) (Decrease) increase in accrued expenses (454) 95,023 (Decrease) increase in customer deposits (2,756) - -------------- ------------ Net cash used in operating activities (1,924,862) (3,131,258) CASH FLOWS FROM INVESTING ACTIVITIES - Purchase of equipment (61,341) (2,195) -------------- ------------ Net cash used in investing activities (61,341) (2,195) CASH FLOWS FROM FINANCING ACTIVITIES - Proceeds from issuance of shares 106,300 7,200,671 Proceeds from issuance of warrants - 230,882 Repayment of long-term leases and other obligations (46,652) (28,372) (Decrease) increase in short-term borrowing - (286,000) -------------- ------------ Net cash provided by financing activities 59,648 7,117,181 -------------- ------------ Net (decrease) increase in cash (1,926,555) 3,983,728 CASH BEGINNING OF PERIOD 2,683,480 31,087 -------------- ------------ CASH END OF PERIOD $ 756,925 $ 4,014,815 ============== ============ SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $ 11,780 $ 54,202 NON-CASH TRANSACTIONS: Common stock issued in connection with: Settlement of customer deposits and payables $ - $ 300,000
The accompanying notes are an integral part of these statements. 6 Dauphin Technology, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION ------------------------------------------------- Description of Business Dauphin Technology, Inc. ("Dauphin" or the "Company") and its subsidiaries design, manufacture and market mobile hand-held, pen-based computers, broadband set-top boxes, as well as other electronic devices for home and business use and perform design services, process methodology consulting and intellectual property development, out of its three locations in northern Illinois. The Company, an Illinois corporation, was formed on June 6, 1988 and became a public entity in 1991. Basis of Presentation The consolidated financial statements include the accounts of Dauphin and its wholly owned subsidiaries, R.M. Schultz & Associates, Inc. ("RMS"), and Advanced Digital Designs, Inc ("ADD"). All significant intercompany transactions and balances have been eliminated in consolidation. 2. SUMMARY OF MAJOR ACCOUNTING POLICIES ------------------------------------ Earnings (Loss) Per Common Share Basic earnings per common share are calculated on income available to common stockholders divided by the weighted-average number of shares outstanding during the period, which were 61,848,402 for the six-month period June 30, 2001 and 57,005,361 for the six-month period June 30, 2000. Diluted earnings per common share are adjusted for the assumed conversion exercise of stock options and warrants unless such adjustment would have an anti-dilutive effect. Approximately 12.5 million additional shares would be outstanding if all warrants and all stock options were exercised as of June 30, 2001. Unaudited Financial Statements The accompanying statements are unaudited, but have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements as provided at year-end. For further information, refer to the consolidated financial statements and footnotes thereto included in the registrant's annual report on Form 10-K for the year ended December 31, 2000. The reader is reminded that the results of operations for the interim period are not necessarily indicative of the results for the complete year. Use of Estimates The presentation of the Company's consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 7 Dauphin Technology, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) Restatement of prior period Interest expense, net loss and per share amounts have been adjusted from previously reported amounts to offset certain beneficial interest expense against additional paid in capital rather than interest expense amounting to $419,556 ($0.01 per share) for the six-months ended June 30, 2000. 3. RISKS AND UNCERTAINTIES ----------------------- The Company has incurred a net operating loss in each year since its founding and as of June 30, 2001 has an accumulated deficit of $50,488,109. The Company expects to incur operating losses over the near term. The Company's ability to achieve profitability will depend on many factors including the Company's ability to design and develop and market commercially acceptable products, including its set-top box. Financial success will also depend on amending contract terms to result in net revenue in excess of costs of manufacture and selling, general and administrative costs. There can be no assurance that the Company will ever achieve a profitable level of operations or if profitability is achieved, that it can be sustained. 4. BUSINESS SEGMENTS The Company has two reportable segments: Dauphin Technology, Inc. and RMS (Dauphin) and Advanced Digital Designs, Inc. (ADD). Dauphin is involved in design, manufacturing and distribution of hand-held pen-based computer systems and accessories and smartbox set-top boxes. ADD performs design services, process methodology consulting and intellectual property development. June 30, 2001 June 30, 2000 ------------- ------------- Revenue Dauphin $ 10,435 $ 16,041 ADD 1,265,743 - Inter-company elimination (448,937) - ------------- ------------- Total $ 827,241 $ 16,041 ============= ============= Operating (Loss) Dauphin $ (2,808,242) $ (3,981,608) ADD (137,682) - Inter-company elimination - - ------------- ------------- Total $ (2,945,924) $ (3,981,608) ============= ============= June 30, 2001 December 31, 2000 ------------- ----------------- Assets Dauphin $ 16,540,216 $ 18,393,220 ADD 6,786,346 6,735,372 Inter-company elimination (14,883,870) (13,967,815) ------------- ------------- Total $ 8,442,692 $ 11,160,777 ============= ============= 5. COMMITMENTS AND CONTINGENCIES ----------------------------- The Company is an operating entity and in the normal course of business, from time to time, may be involved in litigation. In management's opinion, any current or pending litigation is not material to the overall financial position of the Company. 8 Dauphin Technology, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (Unaudited) 6. EQUITY TRANSACTIONS ------------------- 2001 Events In April 2001, the Company issued 30,000 shares of common stock and warrants to purchase 70,000 shares of common stock at an exercise price of $1.36 per share, as payment for certain promotional and consulting services. During the second quarter of 2001, employees exercised 4,000 stock options at a price of $.50 per share. On April 3, 2001, the Company and Estel Telecommunications S.A. cancelled the performance bond issued on October 26, 2000 and the 1,550,000 shares of restricted stock held by Best S.A. were returned to the Company. In connection with the cancellation of the shares, Best S.A. executed the personal guarantee of Mr. Andrew J. Kandalepas, which he had granted to secure the performance of the Company's obligation to register the 1,550,000 shares issued in connection with the performance bond. During the first quarter of 2001, the Company received proceeds in the amount of $102,300 for the exercise of 210,000 warrants. Additionally, employees exercised 4,000 stock options at a price of $.50 per share. Subsequent Events Effective July 1, 2001, the Company completed the acquisition of substantially all of the assets of Suncoast Automation, Inc., a wholly owned subsidiary of ProtoSource Corporation, pursuant to an Asset Purchase Agreement. The purchase price was 766,058 shares of the Company's common stock valued at $1.1 million based on the closing bid price of $1.47 per share on June 29, 2001. The shares issued were restricted stock. The Company plans to file a registration statement prior to the 30th day following the filing of its Form 10 Q for the period ended June 30, 2001. 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000 ------------------------------------------------------------------------------- Revenues for the three months ended June 30, 2001 and 2000 were approximately $382,000 and $11,000, respectively. Revenues in the second quarter of 2001 were $376,000 of consulting fees from the Company's design engineering subsidiary and $6,000 from the sale of the Orasis(R) hand-held computer and accessories. Revenues in the second quarter of 2000 were comprised of $11,000 from the sale of the Orasis(R) hand-held computer and accessories. Cost of revenues decreased from $358,000 in the second quarter of 2000 to $315,000 for the three months ended June 30, 2001. Included in the cost of revenue for 2000 are charges related to the settlement of trade payables. Cost of revenues for 2001 consists primarily of design services payroll and related costs. Gross profit margins are not comparable for the period due to the mix in revenues and the charges related to the settlement in trade payables in 2000. Selling, general and administrative expenses increased to approximately $1,138,000 in 2001 from $727,000 in 2000. The increase from 2000 to 2001 was due to the amortization of goodwill and other expenses of the design engineering subsidiary and costs associated with the Company's 2000 Annual Report and Shareholders Meeting, which were partially offset by the reduction in expenses incurred in finalizing the common stock purchase agreement. Research and Development costs increased to approximately $778,000 during the three-month period ended June 30, 2001 from $166,000 over the corresponding period in 2000. Research and Development costs primarily consist of costs related to the development of the set-top box, with a small portion related to the further development of the Orasis(R). Interest expense decreased to approximately $5,000 for the second quarter of 2001 from $24,000 as of the corresponding period in 2000. This decrease is primarily attributed to the fact that the Company has paid off substantially all of its debt during the first quarter of 2000. In 2001, the interest is primarily related to certain capital leases on various equipment. Net loss The consolidated loss after tax increased for the three-month period ended June 30, 2001 to approximately ($1,829,000) or ($0.03) per share from ($1,250,000) or ($0.02) per share in 2000. The increase in net loss for 2001 was primarily attributed to the amortization of goodwill associated with the acquisition of Advanced Digital Designs, Inc., and the increase in research and development costs regarding the set-top box. Loss per common share is calculated based on the monthly weighted average number of common shares outstanding which were 61,898,736 for the three-month period ended June 30, 2001, and 57,734,598 for the three-month period ended June 30, 2000. SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000 --------------------------------------------------------------------------- Revenue for the Company increased from approximately $16,000 in the first six months of 2000 to $827,000 in the first six months of 2001. Revenues in the first six months of 2001 were $817,000 of consulting fees from the Company's design engineering subsidiary and $10,000 from the sale of the Orasis(R) hand-held computer and accessories. Revenues in the first six months of 2000 were comprised of $16,000 from the sale of the Orasis(R) hand-held computer and accessories. Cost of revenues increased to $643,000 in the first six months of 2001 from $123,000 for the six months ended June 30, 2000. Included in the cost of revenue for 2000 are charges related to the settlement of trade payables. Cost of revenues for 2001 consists primarily of design services payroll and related costs. Gross profit margins are not comparable for the period due to the mix in revenues and the charges related to the settlement in trade payables in 2000. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS RESULTS OF OPERATIONS (Continued) -------------------------------- Selling, general and administrative expenses increased to approximately $1,889,000 for the six months ended June 30, 2001 as compared to $1,820,000 for 2000. Selling, general and administrative expenses during the six months ended June 30, 2000 consisted of professional fees and financial services expenses related to the private placement and common stock purchase agreement. For the six months ended June 30, 2001, these costs were partially offset by the amortization of goodwill in connection with the acquisition of Advanced Digital Designs, Inc. and other increases in expenses for the design engineering operations. Research and Development costs increased to approximately $1,241,000 for the first six months of 2001 as compared to $251,000 for the first six months of 2000. Research and Development costs primarily consist of costs related to the development of the set-top box, with a small portion related to the further development of the Orasis(R). Interest expense decreased to approximately $12,000 for the six months ended June 30, 2001 from $1,817,000 for the six months ended June 30, 2000. Interest expense in 2000 was primarily generated from the issuance of common stock at a price below market value and the issuance of warrants during the private placement. Interest expense in 2001 is primarily related to certain capital leases on various equipment. Net loss The consolidated loss after income tax was approximately ($2,844,000) or ($0.05) per share for the six months ended June 30, 2001. The consolidated loss after income tax for the six months ended June 30, 2000 was ($3,982,000) or ($0.07) per share. The loss for 2001 was primarily attributed to the amortization of goodwill associated with the acquisition of Advanced Digital Designs, Inc., Research and Development costs regarding the set-top box and general and administrative expenses, whereas the loss for 2000 consisted primarily of costs associated with the private placement, common stock purchase agreement and interest expense. Loss per common share is calculated based on the monthly weighted average number of shares outstanding which were 61,848,402 for the six-month period ended June 30, 2001 and 57,005,361 for the six-month period ended June 30, 2000. Balance Sheet Total assets for the Company were approximately $8,443,000 at June 30, 2001, a decrease of approximately $2,718,000 from December 31, 2000. The decrease was primarily attributable to the net cash used in operations of approximately $1,925,000, the purchase of approximately $61,000 of equipment, payment of capital leases of $47,000, offset by the proceeds from the exercise of stock warrants and options of $106,000. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- The Company has incurred a net operating loss in each year since its founding and as of June 30, 2001 has an accumulated deficit of approximately $50,488,000. The Company expects to incur operating losses over the near term. The Company's ability to achieve profitability will depend on many factors including the Company's ability to manufacture and market commercially acceptable products including its set-top box. Financial success will also depend on amending contract terms to result in net revenue in excess of costs of manufacture and selling, general and administrative costs. There can be no assurance that the Company will ever achieve a profitable level of operations or if profitability is achieved, that it can be sustained. In the second quarter of 2000, the Company entered into a common stock purchase agreement, escrow agreement and registration rights agreement with an institutional investor. These agreements provide a $100,000,000 equity line of credit for use by the Company at its discretion. During the third quarter of 2000, the Company received $5,000,000 from the equity line in exchange for the issuance of 1,354,617 shares of common stock. In October, 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (Continued) ------------------------------------------ 2000, the Company received an additional $2,000,000 from a the equity line in exchange for 781,999 shares of common stock. The Company has available up to $93,000,000 under the equity line of credit, which expires December 31, 2001. RISK FACTORS ------------ We operate in a highly competitive and volatile industry. We are faced with aggressive pricing by competitors; competition for necessary parts, components and supplies; continually changing customer demands and rapid technological developments; and risks that buyers may encounter difficulties in obtaining governmental licenses or approvals, or in completing installation and construction of infrastructure, necessary to use our products or to offer them to end users. 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 fiscal year 2000 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. 12 PART II - OTHER INFORMATION --------------------------- Item 1. Legal Proceedings None ----------------- 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. -------------------- On July 16, 2001, the Company filed Form 8-K to report the acquisition of substantially all of the assets of Suncoast Automation, Inc., a wholly owned subsidiary of ProtoSource Corporation, pursuant to an Asset Purchase Agreement by and among the Company, its subsidiaries, ProtoSource Corporation and Suncoast Automation, Inc. The purchase price was 766,058 shares of the Company's $0.001 par value common stock and valued at $1.1 million based on the closing bid price of the Company's shares of $1.47 per share on June 29, 2001. The shares issued were restricted stock, which the Company plans to file a registration statement prior to the 30th day following the filing of this Form 10 Q. 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 thereunto duly authorized. DAUPHIN TECHNOLOGY, INC. (Registrant) Date: August 13, 2001 By: /s/ Andrew J. Kandalepas ------------------------- Andrew J. Kandalepas Chief Executive Officer Date: August 13, 2001 By: /s/ Harry L. Lukens, Jr. ------------------------ Harry L. Lukens, Jr. Chief Financial Officer 13