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 June 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 No X
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 June 30, 1997
(Common stock, $.01 par value) 2,662,700
<PAGE>
Compu-DAWN, Inc.
- INDEX -
Page(s)
PART I Financial Information
Condensed Balance Sheets - June 30, 1997 and December 31, 1996 3
Condensed Statements of Operations - Six Months and Three Months
Ended June 30, 1997 and 1996 4
Condensed Statements of Cash Flows - Six Months Ended June 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 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Exhibit 11 13
Exhibit 27 14
2
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PART I. Financial Information
ITEM 1. Financial Statements
Compu-DAWN, Inc.
BALANCE SHEETS
- ASSETS -
June 30, December 31,
1997 1996
(Unaudited)
CURRENT ASSETS:
Cash $ 4,447,532 $ 286,497
Accounts receivable, net of allowances for
doubtful accounts of $3,635
and $30,000 for 1997 and 1996, respectively 105,076 100,010
Prepaid expenses 173,483 19,281
Loan receivable from officer - 69,247
Income tax refund receivable 36,004 36,004
------------ -----------
TOTAL CURRENT ASSETS 4,762,095 511,039
------------ -----------
FIXED ASSETS 221,269 138,814
------------ -----------
OTHER ASSETS:
Deferred offering costs (Note 2) - 139,326
Deferred compensation 271,363 34,056
Financing costs - 1,588,400
Security deposits 22,106 21,525
------------ -----------
293,469 1,783,307
------------ -----------
$ 5,276,833 $2,433,160
============ ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 162,271 $ 260,134
Deferred revenue 66,833 28,100
Due to former shareholders - 34,710
Current portion of note payable - officer 100,000 -
Capitalized lease payable - current 8,188 7,859
------------ -----------
TOTAL CURRENT LIABILITIES 337,292 330,803
------------ -----------
NON-CURRENT LIABILITIES:
Note payable - officer 100,000 -
Capitalized lease payable 25,429 29,541
Deferred rent liability 30,159 23,115
Promissory notes payable (Note 2) - 770,000
------------ -----------
155,588 822,656
------------ -----------
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, 2,662,700 and 986,700 shares
issued for 1997 and 1996, respectively 26,627 9,867
Additional paid-in capital 6,480,327 1,670,258
Retained earnings (deficit) (1,723,001) (400,424)
------------ -----------
4,783,953 1,279,701
------------ -----------
$ 5,276,833 $2,433,160
============ ==========
See notes to financial statements.
3
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<TABLE>
Compu-DAWN, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ------------------------
1997 1996 1997 1996
------------ ----------- ------------ --------
REVENUES:
<S> <C> <C> <C> <C>
Software sales $ 42,605 $186,040 $ 141,089 $204,965
Maintenance income 72,280 35,700 159,597 108,294
------------ ---------- ------------ ---------
114,885 221,740 300,686 313,259
------------ ---------- ------------ ---------
COSTS AND EXPENSES:
Programming costs and expenses 125,188 56,966 202,025 108,868
General and administrative expenses 732,506 80,324 1,247,454 164,892
Research and development 98,731 30,914 146,644 61,828
------------ ---------- ----------- ---------
956,425 168,204 1,596,123 335,588
------------ ---------- ----------- ---------
INCOME (LOSS) FROM OPERATIONS (841,540) 53,536 (1,295,437) (22,329)
------------ ---------- ----------- ---------
OTHER INCOME (EXPENSES):
Interest and other income 43,689 646 45,031 1,426
Interest expense and financing costs (11,670) - (72,171) (176)
Loss on abandonment of leasehold improvements - (10,342) - (10,342)
---------- ---------- ----------- ---------
32,019 (9,696) (27,140) (9,092)
---------- ---------- ----------- ---------
INCOME (LOSS) BEFORE PROVISION
(CREDIT) FOR INCOME TAXES (809,521) 43,840 (1,322,577) (31,421)
Provision (credit) for income taxes - 10,500 - (7,500)
---------- ---------- ----------- ---------
NET INCOME (LOSS) $(809,521) $ 33,340 $(1,322,577) $(23,921)
========= ========== =========== ========
EARNINGS (LOSS) PER COMMON SHARE
(Note 3) $(.42) $.02 $(.74) $(.01)
===== ==== ====== =====
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING (Note 3) 1,920,671 1,678,913 1,792,973 1,678,913
========= ========= ========= =========
</TABLE>
See notes to financial statements.
4
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Compu-DAWN, Inc.
CONDENSED STATEMENTS OF CASH FLOWS Page 1 of 2
----------------------------------
(Unaudited)
For the Six Months Ended
June 30,
1997 1996
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 325,353 $ 390,129
Cash paid to suppliers and employees (1,547,326) (378,496)
Interest paid (3,411) -
Interest and other income received 5,229 1,250
Income taxes paid - (3,229)
----------- ----------
Net cash (utilized) provided by operating (1,220,155) 9,654
activities ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments of officer's loan 69,247 -
Purchase of fixed assets (112,688) -
Payment of security deposits (581) -
----------- ----------
Net cash (utilized) by investing activities (44,022) -
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan received from officer 400,000 -
Repayment of promissory notes (770,000) -
Payments for common stock and options acquired (34,710) (14,827)
Payments of capital lease obligations (3,783) (3,750)
Net proceeds from initial public offering 5,763,805 -
Proceeds from exercise of stock options 69,900 -
---------- ---------
Net cash provided (utilized) by financing 5,425,212 (18,577)
activities ---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,161,035 (8,923)
Cash and cash equivalents, at beginning of year 286,497 105,801
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,447,532 $ 96,878
=========== ==========
See notes to these financial statements.
5
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Compu-DAWN, Inc.
CONDENSED STATEMENTS OF CASH FLOWS Page 2 of 2
----------------------------------
(Unaudited)
For the Six Months Ended
June 30,
1997 1996
--------- --------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
(UTILIZED)PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $(1,322,577) $ (23,921)
Adjustments to reconcile net income (loss)
to net cash (utilized) provided
by operating activities:
Allowance for doubtful accounts 9,000 -
Depreciation and amortization 61,583 1,671
Deferred taxes - (7,500)
Deferred rent liability 7,044 (478)
Compensatory stock 174,693 -
Loss on disposal of fixed assets - 10,342
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (14,066) 133,049
(Increase) in prepaid expenses (154,202) -
(Decrease) in accounts payable and accrued (20,363) (103,509)
expenses
Increase in deferred revenue 38,733 -
----------- ----------
NET CASH (UTILIZED) PROVIDED BY OPERATING $(1,220,155) $ 9,654
ACTIVITIES =========== ===========
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.
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 June 30, 1997 and the
results of its operations for the three and six month periods
ended June 30, 1997 and 1996 and its cash flows for the six
month periods ended June 30, 1997 and 1996.
The results of operations for the three and six month periods
ended June 30, 1997 and 1996 are not necessarily indicative of
the results to be expected for the full year.
NOTE 2 - INITIAL PUBLIC OFFERING:
In June 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 $5,763,805. A portion of the proceeds realized from
this offering was used to repay promissory notes aggregating
$770,000.
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.
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 June 30, 1997 and December 31,
1996; (ii) condensed statements of operations for the three and
six month periods ended June 30, 1997 and 1996 and (iii)
condensed statements of cash flows for the six month periods
ended June 30, 1997 and 1996.
Results of Operations
Revenues
Revenues for the three and six months ended June 30, 1997 were
$114,885 and $300,686, respectively as compared to $221,740 and
$313,259 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 six month periods
ended June 30, 1996 were $168,204 and $335,588, respectively.
Total costs for the current three and six month periods ended
June 30, 1997 increased significantly to $956,425 and
$1,596,123, 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.
9
<PAGE>
Income (Loss)
For the three months ended June 30, 1997, the Company reflected
a net loss of $809,521 ($.42 per share) as compared to net
income of $33,340 ($.02 per share) for the corresponding period
of the prior year. For the six months ended June 30, 1997 the
Company reflected a net loss of $1,322,577 ($.74 per share) as
compared to a loss of $23,921 ($.01 per share) for the six
months ended June 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 $5,764,000.
At June 30, 1997 the Company had working capital of $4,424,803,
a current ratio of 14.1:1 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.
Cash Flows
For the six months ended June 30, 1997 the Company utilized
cash for operating activities of $1,220,155 primarily to pay
suppliers and employees. For the corresponding period of the
prior year the Company generated cash from operating activities
of $9,654.
The Company utilized cash of approximately $44,000 during the
six months ended June 30, 1997 for investing activities
primarily to acquire needed fixed assets, net of repayments
received against a loan to an officer.
For the six months ended June 30, 1997 the Company provided
approximately $5,425,000 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,
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.
None.
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.
Exhibit 3.1 - Certificate of Incorporation 1
Exhibit 3.2 - By-Laws 1
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
1 Denotes document filed as an exhibit to the Company's Registration Statement
on Form SB-2 (Reg. No. 333-18667) and incorporated herein by reference.
11
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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: August 12, 1997 Compu-DAWN, Inc.
By: /s/ Mark Honigsfeld
Chief Executive Officer and
Principal Accounting Officer
12
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Compu-DAWN, Inc.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------- ------------------
1997 1996 1997 1996
-------- -------- -------- -------
NET INCOME (LOSS) $(809,521) $ 33,340 $(1,322,577) $(23,921)
========= ======== =========== ========
WEIGHTED AVERAGE SHARES:
Common shares outstanding 1,415,469 986,700 1,202,269 986,700
Assumed conversion of cheap
options and warrants 505,202 692,213 590,704 692,213
---------- --------- --------- ---------
1,920,671 1,678,913 1,792,973 1,678,913
========= ========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE: $(.42) $.02 $(.74) $(.01)
===== ==== ===== =====
- Exhibit 11 -
13
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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 six months ended June 30, 1997 and is
qualified in its entirety by reference to such statements.
Period type 6 Mos.
Fiscal year end Dec 31, 1997
Period start Jan 01, 1997
Period end June 30, 1997
Cash 4,447,532
Securities 0
Receivables 108,711
Allowances 3,635
Inventory 0
Current assets 4,762,095
PP&E 368,529
Depreciation 147,260
Total assets 5,276,833
Current liabilities 337,292
Bonds 155,588
Common 26,627
Preferred mandatory 0
Preferred 0
Other SE 4,757,326
Total liabilities and equity 5,276,833
Sales 300,686
Total revenues 300,686
CGS 202,025
Total costs 202,025
Other expenses 146,644
Loss provision 9,000
Interest expense 72,171
Income pretax (1,322,577)
Income tax 0
Income continuing (1,322,577)
Discontinued 0
Extraordinary 0
Changes 0
Net income (1,322,577)
EPS primary (.74)
EPS diluted (.74)
- Exhibit 27 -
14
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