|
|
|
|
|
|
|
|
|
|
|
|
|
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
Commission file number 000-22611
Compu-DAWN, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-3344575
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
77 Spruce Street, Cedarhurst, New York, 11516
(Address of principal executive offices)
Registrant's telephone number, including area code (516) 374-6700
Indicate by check mark whether the registrant (1) has filed all 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 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
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 10, 1997
- ----------------------------- ------------------------------------
(Common stock, $.01 par value) 2,829,889
<PAGE>
Compu-DAWN, Inc.
- INDEX -
<TABLE>
Page(s)
<CAPTION>
<S> <C> <C>
PART I Financial Information
Condensed Balance Sheets - September 30, 1997 and December 31, 1996 3
Condensed Statements of Operations - Nine Months and Three Months
Ended September 30, 1997 and 1996 4
Condensed Statements of Cash Flows - Nine Months Ended September 30,
1997 and 1996 5
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis of Financial Condition and Results
of Operations 9
PART II Other Information 11
Item 1 - Legal Proceedings 11
Item 2 - Changes in Securities and Use of Proceeds 11
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of Securities Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 13
Exhibit 11 14
Exhibit 27 15
2
</TABLE>
<PAGE>
PART I. Financial Information
ITEM 1. Financial Statements
Compu-DAWN, Inc.
BALANCE SHEETS
<TABLE>
<CAPTION>
- ASSETS -
September 30, December 31,
1997 1996
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $3,524,209 $ 286,497
Accounts receivable, net of allowances for doubtful accounts of $3,635
and $30,000 for 1997 and 1996, respectively 78,424 100,010
Prepaid expenses 219,675 19,281
Loan receivable from officer - 69,247
Income tax refund receivable 36,004 36,004
------------- -------------
TOTAL CURRENT ASSETS 3,858,312 511,039
----------- ------------
FIXED ASSETS 299,943 138,814
------------ ------------
OTHER ASSETS:
Deferred offering costs (Note 2) - 139,326
Deferred compensation 181,182 34,056
Financing costs - 1,588,400
Security deposits 21,525 21,525
------------ -------------
202,707 1,783,307
------------ -----------
$4,360,962 $2,433,160
========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 91,975 $ 260,134
Deferred revenue 46,656 28,100
Due to former shareholders - 34,710
Current portion of note payable - officer 100,000 -
Capitalized lease payable - current 8,488 7,859
------------ --------------
TOTAL CURRENT LIABILITIES 247,119 330,803
------------ ------------
NON-CURRENT LIABILITIES:
Note payable - officer 75,000 -
Capitalized lease payable 19,891 29,541
Deferred rent liability 29,325 23,115
Promissory notes payable (Note 2) - 770,000
------------ ------------
124,216 822,656
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (Note 2):
Preferred stock, $.01 par value; 1,000,000 shares authorized, none issued
or outstanding - -
Common stock, $.01 par value, 20,000,000 shares authorized,
2,819,650 and 986,700 shares issued for 1997 and 1996, respectively 28,197 9,867
Additional paid-in capital 8,017,231 1,670,258
Retained earnings (deficit) (4,008,716) (400,424)
----------- ------------
4,036,712 1,279,701
Less: Treasury stock-8561 shares at cost (47,085) -
------------ -----------
3,989,627 1,279, 701
----------- -----------
$4,360,962 $2,433,160
========== ==========
</TABLE>
See notes to financial statements.
3
<PAGE>
Compu-DAWN, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<S> <C> <C>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
REVENUES:
Software sales $ 46,303 $ 90,345 $ 187,392 $198,639
Maintenance income 76,650 75,110 236,247 280,075
------------ --------- ------------- ---------
122,953 165,455 423,639 478,714
----------- -------- ------------- ---------
COSTS AND EXPENSES:
Programming costs and expenses 187,053 33,811 389,078 142,679
General and administrative expenses 420,479 92,850 1,667,933 257,742
Research and development 301,173 49,554 447,817 111,382
----------- --------- ------------- ---------
908,705 176,215 2,504,828 511,803
----------- -------- ------------ ---------
(LOSS) FROM OPERATIONS (785,752) (10,760) (2,081,189) (33,089)
---------- --------- ------------ ----------
OTHER INCOME (EXPENSES):
Interest and other income 62,028 302 107,059 1,728
Interest expense (4,941) (638) (77,112) (814)
Loss on abandonment of leasehold improvements - - - (10,342)
Non-recurring financing charge (Note 2) - - (1,557,050) -
------------------------- ------------ -----------
57,087 (336) (1,527,103) (9,428)
------------ ------------ ------------ -----------
(LOSS) BEFORE PROVISION (CREDIT)
FOR INCOME TAXES (728,665) (11,096) (3,608,292) (42,517)
Provision (credit) for income taxes - (2,777) - (10,277)
---------------- ----------- ------------------- -----------
NET (LOSS) $(728,665) $ (8,319) $(3,608,292) $ (32,240)
========= ========== =========== =========
(LOSS) PER COMMON SHARE (Note 3) $(.23) $ - $(1.72) $(.02)
===== ======== ======= =====
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING (Note 3) 3,183,016 1,829,483 2,098,955 1,829,483
========= ========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
Compu-DAWN, Inc.
CONDENSED STATEMENTS OF CASH FLOWS Page 1 of 2
----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 490,146 $ 510,826
Cash paid to suppliers and employees (2,373,310) (506,061)
Interest paid (4,941) (814)
Interest and other income received 45,369 1,728
Income taxes paid - (3,429)
------------ -----------
Net cash (utilized) provided by operating activities (1,842,736) 2,250
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments of officer's loan 69,247 -
Purchase of fixed assets (210,842) -
----------- -----------
Net cash (utilized) by investing activities (141,595) -
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan received from officer - net of repayments 375,000 -
Repayment of promissory notes (770,000) -
Payments for common stock and options acquired (34,710) (17,833)
Payments of capital lease obligations (9,021) (7,747)
Net proceeds from initial public offering 5,590,874 -
Payment of expenses in connection with debt and equity offerings - (25,460)
Proceeds from exercise of stock options 69,900 -
-------------- ------------
Net cash provided (utilized) by financing activities 5,222,043 (51,040)
------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,237,712 (48,790)
Cash and cash equivalents, at beginning of year 286,497 105,962
------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,524,209 $ 57,172
=========== ============
</TABLE>
See notes to financial statements.
5
<PAGE>
Compu-DAWN, Inc.
CONDENSED STATEMENTS OF CASH FLOWS Page 2 of 2
----------------------------------
(Unaudited)
<TABLE>
For the Nine Months Ended
September 30,
1997 1996
------------------ --------
<S> <C> <C>
RECONCILIATION OF NET (LOSS) TO NET CASH (UTILIZED)
PROVIDED BY OPERATING ACTIVITIES:
Net (loss) $(3,608,292) $ (32,240)
Adjustments to reconcile net (loss) to net cash (utilized) provided by
operating activities:
Allowance for doubtful accounts 9,000 3,000
Depreciation and amortization 81,063 9,891
Deferred rent 6,210 (9,149)
Compensatory stock 372,144 -
Loss on disposal of fixed assets - 5,378
Financing charge 1,557,050 -
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 12,586 (116,983)
(Increase) decrease in prepaid expenses (200,394) 2,567
(Decrease) increase in accounts payable and accrued expenses (90,659) 4,396
(Decrease) in income taxes payable - (13,706)
Increase in deferred revenue 18,556 149,096
------------- ----------
NET CASH (UTILIZED) PROVIDED BY OPERATING ACTIVITIES $(1,842,736) $ 2,250
=========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
During 1997, the Company issued (i) 40,000 shares of common stock in lieu of
payment of a note for $200,000, and (ii) 23,000 shares of common stock in
payment of accrued compensation of $115,000.
During the current quarter, an officer exercised options to purchase 156,950
shares of Common Stock at $.30 per share, and paid for these shares by
delivering 8,561 shares of Company Common Stock, valued at market value, back
to the Company.
See notes to financial statements.
6
<PAGE>
Compu-DAWN, Inc.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF COMPANY:
Compu-DAWN, Inc., the Company, was incorporated under the name
of Coastal Computer Systems, Inc., in New York on March 31,
1983, and was reincorporated in Delaware under its present name
on October 18, 1996. The Company is engaged in the business of
designing, developing, licensing, installing and servicing
computer software products and systems predominantly for public
safety and law enforcement agencies. The Company's customers,
to date, are primarily located in New York State.
The accounting policies followed by the Company are set forth
in Note 2 to the Company's financial statements included in its
registration statement on Form SB-2 which was filed with the
Securities and Exchange Commission and which is incorporated
herein by reference. Specific reference is made to this report
for a description of the Company's securities and the notes to
the financial statements included therein.
In the opinion of management, the accompanying unaudited
interim condensed financial statements of Compu-DAWN, Inc.
contain all adjustments necessary to present fairly the
Company's financial position as of September 30, 1997 and the
results of its operations for the three and nine month periods
ended September 30, 1997 and 1996 and its cash flows for the
nine month periods ended September 30, 1997 and 1996.
The results of operations for the three and nine month periods
ended September 30, 1997 and 1996 are not necessarily
indicative of the results to be expected for the full year.
NOTE 2 - INITIAL PUBLIC OFFERING:
In September 1997, the Company, through its underwriter,
successfully completed an initial public offering of its common
stock. The Company sold 1,380,000 shares of common stock
(including 180,000 shares in the Underwriter's over allotment
option) at a price of $5.00 per share for aggregate net
proceeds of $5,590,874. A portion of the proceeds realized from
this offering was used to repay promissory notes aggregating
$770,000. In connection with this repayment, the Company has
fully amortized deferred financing costs originally capitalized
in connection with the notes. This amount has been reflected as
a non-recurring charge on the statement of operations.
NOTE 3 - EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share has been computed on the basis of the
weighted average number of common shares and common equivalent
shares outstanding during each period presented. In accordance
with the rules of the Securities and Exchange Commission, all
shares and "cheap" options and warrants issued prior to the
Company's initial public offering (see Note 2) are being
treated as outstanding for all periods presented.
7
<PAGE>
Compu-DAWN, Inc.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - EARNINGS (LOSS) PER SHARE (Continued):
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128 - Earnings Per Share, which changes the
method of calculating earnings per share. SFAS No. 128 requires
presentation of "basic" and "diluted" earnings per share as
opposed to "primary" and "fully diluted" earnings per share and
is effective for periods ending after December 15, 1997. Early
adoption is not permitted. Management does not believe that
earnings per share reported in accordance with SFAS No. 128
will differ materially from earnings per share as currently
reported.
NOTE 4 - SHAREHOLDERS' EQUITY:
During the current period, an officer of the Company exercised
options to acquire 156,950 Shares of common stock at an
exercise price of $.30 per share. In payment for these shares,
the officer delivered 8,561 shares of Company common stock,
valued at its market value of $5.50 per share, to the Company.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company was incorporated in the State of New York on March
31, 1983 under the name of Coastal Computer Systems, Inc. The
Company was reincorporated in the State of Delaware under its
present name Compu-DAWN, Inc. on October 18, 1996. The Company
is engaged in the business of designing, licensing and
servicing computer software products and systems for the law
enforcement and public safety industry. Historically, the
Company's products were marketed primarily in the State of New
York.
The Company generates revenues from the granting of
nonexclusive, non-transferable and non- assignable licenses to
use software it has developed, through fixed price contracts.
Revenues from such fixed price contracts are recognized using
the percentage of completion method of accounting. The Company
retains title to the software and warrants that it will provide
technical support and repair any defects in the software at no
charge. The warranty period for each contract is negotiated
individually, with the periods ranging from 90 days to three
years. To date, repair costs have been minimal and, therefore,
the Company has not had to establish a reserve for warranty
costs.
The Company also provides post-contract, customer support to
licensees of its software. Revenues from such services are
recognized ratably over the period of performance. Fees billed
and/or received prior to performance of services are reflected
as deferred revenues.
The financial information presented herein includes: (i)
condensed balance sheets as of September 30, 1997 and December
31, 1996; (ii) condensed statements of operations for the three
and nine month periods ended September 30, 1997 and 1996 and
(iii) condensed statements of cash flows for the nine month
periods ended September 30, 1997 and 1996.
Results of Operations
Revenues
Revenues for the three and nine months ended September 30, 1997
were $122,953 and $423,639, respectively as compared to
$165,455 and $478,714 for the same periods of the prior year.
To date the Company has not generated significant revenues.
However, management believes that through the funds obtained in
its initial public offering (see discussion below) for product
enhancement, marketing and the introduction of new products,
the Company will be able to increase revenues over the
long-term.
Costs and Expenses
Total costs and expenses for the three and nine month periods
ended September 30, 1996 were $176,215 and $511,803,
respectively. Total costs for the current three and nine month
periods ended September 30, 1997 increased significantly to
$908,705 and $2,504,828, respectively. These increases were
primarily related to the hiring of new sales and marketing
personnel, the costs related to enhancing current products,
rent expense for the Company's new premises and research and
development costs incurred to establish new products.
In addition, during the nine-month period, the Company has
fully amortized approximately $1,500,000 of deferred financing
charges which were capitalized in connection with certain debt
incurred prior to the Company's initial public offering. The
debt was fully repaid during this period.
9
<PAGE>
Income (Loss)
For the three months ended September 30, 1997, the Company
reflected a net loss of $728,665 ($.23 per share) as compared
to net loss of $8,319 ($.00 per share) for the corresponding
period of the prior year. For the nine months ended September
30, 1997 the Company reflected a net loss of $3,608,292 ($1.72
per share) as compared to a loss of $32,240 ($.02 per share)
for the nine months ended September 30, 1996. These losses are
principally due to the fact that the Company has yet to produce
significant revenues as mentioned above.
Liquidity and Capital Resources
In June 1997, the Company successfully completed an initial
public offering of its common stock. The Company sold 1,380,000
shares of its common stock at a price of $5.00 per share and
realized net proceeds of approximately $5,591,000.
At September 30, 1997, the Company had working capital of
$3,611,193, a current ratio of 15.6:1 and a debt to net worth
ratio of .1:1. At its year ended December 31, 1996 the Company
had working capital of $180,236, a current ratio of 1.5:1 and a
debt to net worth ratio of .9:1. This significant improvement
in liquidity is due to the successful IPO as described above.
During the current quarterly period, an officer of the Company
exercised options to acquire 156,950 shares of common stock at
$.30 per share. The officer paid for these shares by delivering
8,561 shares of Company common stock, valued at market value,
back to the Company.
Cash Flows
For the nine months ended September 30, 1997 the Company
utilized cash for operating activities of $1,842,736 primarily
to pay suppliers and employees. For the corresponding period of
the prior year the Company generated cash from operating
activities of $2,250.
The Company utilized cash of approximately $142,000 during the
nine months ended September 30, 1997 for investing activities
primarily to acquire needed fixed assets, net of repayments
received against a loan to an officer.
For the nine months ended September 30, 1997 the Company
provided approximately $5,222,000 from financing activities
which resulted primarily from the Company's successful initial
public offering.
Other
The Company believes that the net proceeds from the Offering
and funds expected to be generated from operations, will be
sufficient for at least the ensuing 12 month period.
Forward Looking Statements
Except for historical information contained herein, the matters
set forth above may contain forward looking statements that
involve certain risks and uncertainties that could cause actual
results to differ from those in the forward looking statements.
Potential risks and uncertainties include such factors as the
level of spending by law enforcement and public safety agencies
for computer application software and hardware, the competitive
environment within the industry, the ability of the Company to
expand its operations, the competency required, and experience,
of management to effectuate the Company's business plan, the
level of costs incurred in connection with the Company's
planned expansion efforts, economic conditions in the industry
and the financial strength of the Company's customers and
suppliers.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings.
None.
ITEM 2 - Changes in Securities and Use of Proceeds.
(a) not applicable
(b) not applicable
(c) On August 22, 1997 Dong Lew exercised options granted to him
under the Company's 1996 Stock Option Plan to purchase
156,950 Common Shares of the Company. Mr. Lew delivered to
the Company 8,561 Company Common Shares, with a market value
on August 22, 1997 of $5.50 per share, in payment of the
option exercise price of $.30 per share, or an aggregate of
$47,085.50. Pursuant to the terms of the option, the Company
granted Mr. Lew a reload option to purchase 8,561 Common
Shares at $5.50 per share. The foregoing transaction was a
private transaction not including a public offering and was
exempt from the registration provisions of the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to
Section 4(2) thereof. The sale of these Common Shares was
without the use of an underwriter and the certificates
representing such Common Shares bear a restrictive legend
permitting the transfer thereof only upon registration of
such securities or an exemption under the Securities Act.
The Company's Registration Statement of Form SB-2
(Registration No. 333-18667), covering the issuance of
1,380,000 Common Shares, $.01 par value per share,
(including 180,000 Common Shares covering overallotments at
$5.00 per share, or an aggregate of $6,900,000 (including
overallotment proceeds), was declared effective on June 10,
1997. The offering, which was underwritten on a firm
commitment basis, and the overallotment, closed on June 16
and June 24, 1997 respectively. The managing underwriter of
the offering was E.C. Capital Ltd.
The following is a breakdown of the Company's use of the
proceeds from, and expenses incurred in connection with, the
offering, through September 30, 1997:
Offering:
Gross proceeds (including over-allotment) $6,900,000
Underwriting discounts and commissions (1) (690,000)
Expenses paid directly to underwriter (322,500)
Other expenses (1) (231,311)
-----------
Net proceeds $5,656,189
==========
Use of Proceeds Through September 30, 1997:
Product enhancement and development (1)(3) $ 900,000
Repayment of indebtedness (2) 770,000
Marketing and advertising (1)(3) 300,000
Hiring/training personnel (1)(3) 60,000
Equipment purchases (1)(3) 200,000
Unused proceeds (4) 3,426,189
-----------
$5,656,189
============
(1) Paid directly to persons other than directors or officers of
the Company or their associates, or persons owning 10
percent or more of any class of equity securities of the
Company, or affiliates of the Company.
11
<PAGE>
(2) Represents the repayment of a bridge loan. $130,000 was paid
to affiliates of the Company who participated in the bridge
loan. $640,000 was paid directly to persons other than
directors or officers of the Company or their associates, or
persons owning 10 percent or more of any class of equity
securities of the Company, or affiliates of the Company.
(3) Approximate
(4) Unused proceeds are invested in government securities and
certificates of deposit.
To date, the use of proceeds does not represent any material
changes from the use of proceeds described in the prospectus.
ITEM 3 - Defaults Upon Senior Securities.
None.
ITEM 4 - Submission of Matters to a Vote of Security Holders.
None.
ITEM 5 - Other Information.
None.
ITEM 6 - Exhibits or Reports on Form 8-K:
No reports on Form 8-K during the current period
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused the Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 10, 1997 Compu-DAWN, Inc.
By: /s/ Mark Honigsfeld
Chief Executive Officer and
Principal Accounting Officer
13
<PAGE>
Compu-DAWN, Inc.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------ -----------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
------------ ---------- ----------- ---------
NET (LOSS) $(728,665) $ (8,319) $(3,608,292) $ (32,240)
========= ========== =========== =========
WEIGHTED AVERAGE SHARES:
Common shares outstanding 2,725,604 986,700 1,715,627 986,700
Assumed conversion of cheap options and warrants 457,412 842,783 383,328 842,783
---------- ----------- ----------- ---------
3,183,016 1,829,483 2,098,955 1,829,483
========= ========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE: $(.23) $ - $(1.72) $(.02)
===== ====== ====== =====
</TABLE>
- Exhibit 11 -
14
<PAGE>
<TABLE>
<CAPTION>
Compu-DAWN, Inc.
EXHIBIT 27
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
The schedule contains summary financial information extracted from the
consolidated financial statements for the nine months ended September 30, 1997
and is qualified in its entirety by reference to such statements.
<S> <C>
Period type 9 Mos.
Fiscal year end Dec 31, 1997
Period start Jan 01, 1997
Period end September 30, 1997
Cash 3,524,209
Securities 0
Receivables 82,059
Allowances 3,635
Inventory 0
Current assets 3,858,312
PP&E 466,683
Depreciation 166,740
Total assets 4,360,962
Current liabilities 247,119
Bonds 124,216
Common 28,197
Preferred mandatory 0
Preferred 0
Other SE 3,961,430
Total liabilities and equity 4,360,962
Sales 423,639
Total revenues 423,639
CGS 0
Total costs 2,504,828
Other expenses 0
Loss provision 0
Interest expense 77,112
Income pretax (3,608,292)
Income tax 0
Income continuing (3,608,292)
Discontinued 0
Extraordinary 0
Changes 0
Net income (3,608,292)
EPS primary (1.72)
EPS diluted (1.72)
- Exhibit 27 -
</TABLE>
15
<PAGE>
|
|