SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended March 31, 1998
Commission file number 000-22611
Compu-DAWN, Inc.
(Exact name of Small Business Issuer 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
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 equity, as of May 8, 1997: 2,835,223
Transitional Small Business Disclosure Format (check one):
Yes X No
<PAGE>
Compu-DAWN, Inc.
- INDEX -
<TABLE>
Page(s)
PART I Financial Information
<S> <C>
Condensed Balance Sheets - March 31, 1998 and December 31, 1997 3
Condensed Statements of Operations - Three Months Ended March 31,
1998 and 1997 4
Condensed Statements of Cash Flows - Three Months Ended March 31,
1998 and 1997 5
Notes to Condensed Financial Statements 6
Management's Discussion and Analysis of Financial Condition and Results
of Operations 8
PART II Other Information 11
Item 2 - Changes in Securities and Use of Proceeds
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 14
</TABLE>
2
<PAGE>
PART I. Financial Information
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
Compu-DAWN, Inc.
BALANCE SHEETS
- ASSETS -
March 31, December 31,
1998 1997
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $2,642,224 $3,081,253
Accounts receivable, net of allowances for doubtful accounts of $13,635
for 1998 and 1997 148,406 72,454
Prepaid expenses 94,044 121,802
Income tax refund receivable 29,868 29,868
------------- -------------
TOTAL CURRENT ASSETS 2,914,542 3,305,377
----------- -----------
FIXED ASSETS - NET 270,533 278,737
------------ ------------
OTHER ASSETS:
Deferred compensation 57,422 98,270
Security deposits 21,525 21,525
------------- -------------
78,947 119,795
------------- ------------
$3,264,022 $3,703,909
========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 157,867 $ 278,722
Deferred revenue 185,336 12,000
Current portion of note payable - officer 100,000 100,000
Capitalized lease payable - current 6,120 5,771
-------------- --------------
TOTAL CURRENT LIABILITIES 449,323 396,493
------------ ------------
NON-CURRENT LIABILITIES:
Note payable - officer 25,000 50,000
Capitalized lease payable 19,633 22,440
Deferred rent liability 29,484 29,402
------------- -------------
74,117 101,842
------------- ------------
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,
2,842,784 and 2,838,450 shares issued for 1998 and 1997, respectively 28,428 28,385
Additional paid-in capital 8,072,735 8,061,443
Retained earnings (deficit) (5,313,496) (4,837,169)
----------- -----------
2,787,667 3,252,659
Less: treasury stock, 8,561 shares at cost (47,085) (47,085)
------------- -------------
2,740,582 3,205,574
------------ -----------
$3,264,022 $3,703,909
========== ==========
</TABLE>
See notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Compu-DAWN, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31,
1998 1997
REVENUES:
<S> <C> <C>
Software sales $ 101,873 $ 98,484
Maintenance income 65,086 87,317
----------- -----------
166,959 185,801
COSTS AND EXPENSES:
Programming costs and expenses 123,538 76,837
General and administrative expenses 425,396 514,948
Research and development 111,702 47,913
---------- -----------
660,636 639,698
(LOSS) FROM OPERATIONS (493,677) (453,897)
---------- ----------
OTHER INCOME (EXPENSES):
Interest and other income 20,787 1,342
Interest expense (3,437) (60,501)
----------- -----------
17,350 (59,159)
(LOSS) BEFORE PROVISION (CREDIT) FOR INCOME TAXES (476,327) (513,056)
Provision (credit) for income taxes - -
----------------------------
NET (LOSS) $(476,327) $(513,056)
========= =========
BASIC (LOSS) PER COMMON SHARE $(.17) $(.31)
====== =====
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 2,839,907 1,678,913
========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Compu-DAWN, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31,
1998 1997
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers $ 264,343 $ 87,982
Cash paid to suppliers and employees (691,885) (447,827)
Interest paid (3,750) (1,395)
Interest and other income received 20,787 1,342
------------- -------------
Net cash (utilized) by operating activities (410,505) (359,898)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments of officer's loan - 69,247
Purchase of fixed assets (12,401) (56,630)
------------- -----------
Net cash (utilized) provided by investing activities (12,401) 12,617
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from officer (repayment) (25,000) 200,000
Payments for common stock and options acquired - (34,710)
Payments of capital lease obligations (2,458) (1,448)
Payment of expenses in connection with debt and equity offerings - (73,042)
Proceeds from exercise of stock options 11,335 -
------------- -----------
Net cash (utilized) provided by financing activities (16,123) 90,800
------------- -----------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (439,029) (256,481)
Cash and cash equivalents, at beginning of year 3,081,253 286,497
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,642,224 $ 30,016
========== ===========
RECONCILIATION OF NET (LOSS) TO NET CASH (UTILIZED)
BY OPERATING ACTIVITIES:
Net (loss) $(476,327) $(513,056)
Adjustments to reconcile net (loss) to net cash (utilized) by operating activities:
Allowance for doubtful accounts - 5,000
Depreciation and amortization 20,605 44,196
Deferred rent 82 3,522
Compensatory stock 40,848 68,596
Changes in assets and liabilities:
(Increase) in accounts receivable (75,952) (102,000)
Decrease (increase) in prepaid expenses 27,758 (3,000)
(Decrease) increase in accounts payable and accrued expenses (120,855) 132,662
Increase in deferred revenue 173,336 4,182
----------- ----------
NET CASH (UTILIZED) BY OPERATING ACTIVITIES $(410,505) $(359,898)
========= =========
</TABLE>
See notes to financial statements.
5
<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 annual report filed on Form 10-KSB
for the year ended December 31, 1997. 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 March 31, 1998 and the
results of its operations for the three month periods ended
March 31, 1998 and 1997 and its cash flows for the three month
periods ended March 31, 1998 and 1997.
The results of operations for the three month periods ended
March 31, 1998 and 1997 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 $5,625,874. 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 fully
amortized deferred financing costs originally capitalized in
connection with the notes. This amount was reflected as a
non-recurring charge on the statement of operations for the
year ended December 31, 1997.
NOTE 3 - POTENTIAL INVESTMENT:
On April 22, 1998, the Company entered into a definitive
agreement to acquire a 50% beneficial interest in Press-Loto, a
Russian company which has the right to operate the first
national on-line lottery in Russia pursuant to a license from
the Russian Ministry of Finance to the Union of Journalists in
Russia (the "Union"). At the time the acquisition is closed,
the remaining 50% of Press-Loto will be owned by the Union and
its charity with a private group holding a minority interest.
6
<PAGE>
Compu-DAWN, Inc.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - POTENTIAL INVESTMENTS (Continued):
Pursuant to the transaction, at the closing, the Company will
issue (i) 3,662,880 Common Shares (ii) Convertible Redeemable
Preferred Shares (the "Preferred Shares"), (iii) warrants (the
"Warrants") to purchase 1,331,956 Common Shares at $10.00 per
share and (iv) the right to receive 332,989 Common Shares (the
"Performance Shares") based upon the attainment of performance
thresholds.
The Preferred Shares will be convertible into an aggregate
maximum of 6,659,780 Common Shares, provided that income from
the lottery business meets certain pre-tax levels of up to an
aggregate of approximately $36 million over a period of not
more than five years commencing on January 1, 1999 and ending
on December 31, 2003. If such thresholds are not met within
such period, the Company may redeem the unconverted Preferred
Shares at $.01 per share.
If the Warrants are exercised and the Performance Shares are
issued, the current shareholders of the acquired company will
control approximately 80% of the voting stock of the Company
(assuming the Preferred Shares are not redeemed) based upon the
number of shares of voting stock currently outstanding and
issuable under options exercisable currently or within 60 days.
Additionally, if all of the Warrants issued in the acquisition
are exercised, the Company will receive $13,319,560 in cash
proceeds. The closing of the transaction is subject to, among
other things, (i) a fairness opinion from an investment banking
firm that the transaction is fair, from a financial viewpoint,
to the Company's stockholders, (ii) stockholder approval (iii)
Nasdaq approval, and (iv) completion of additional due
diligence satisfactory to the Company.
Contemporaneously with the signing of the agreement, the
Company agreed to make secured loans, aggregating up to
$1,000,000, from time-to-time for the continued development of
the lottery operations. Advances under the loan agreement will
be made on budgets provided that are acceptable to the Company.
7
<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, developing, licensing,
installing and servicing computer software products and systems
for the law enforcement and public safety industry.
Historically, the Company's products have been marketed and
sold predominantly 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 Company's revenues, expenses and operating results have
varied considerably in the past and are likely to vary in the
future. Fluctuations in revenues depend on a number of factors,
some of which are beyond the Company's control. These factors
include, among other things, the timing of contracts, delays in
customer acceptance of the Company's software products and
competition.
The Company has also entered into a contract to acquire a 50%
beneficial interest in Press-Loto, a Russian limited liability
company which has the right to operate the first national
on-line lottery in Russia. The lottery has not begun operations
and the Company cannot predict the performance of the lottery.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Cash Flows."
The financial information presented herein includes: (i)
condensed balance sheets as of March 31, 1998 and December 31,
1997; (ii) condensed statements of operations for the three
month periods ended March 31, 1998 and 1997 and (iii) condensed
statements of cash flows for the three month periods ended
March 31, 1998 and 1997.
Results of Operations
Revenues
Revenues for the three months ended March 31, 1998 were
$166,959 as compared to $185,801 for the same period of the
prior year. This increase was a result of an approximately 3.4%
increase in software sales offset by an approximately 25%
decrease in maintenance income. Maintenance income decreased as
a result of certain maintenance contracts expiring since the
first quarter of 1987. 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 from software sales and maintenance over the
long-term. Such projects include, among other things, the
revising of computer-aided dispatching (CAD) and visual
8
<PAGE>
computer-aided dispatching (V-CAD) which provides for visual
graphic interface and wireless mobile computing technology.
Backlog at March 31, 1998, aggregated approximately $700,000.
As discussed above, the lottery has not commenced operations
and although the Company expects that the lottery will generate
revenues after operations are commenced and after the
acquisition is closed, of which it can give no assurance, it
cannot predict the timing or amount of such revenues, if any.
Costs and Expenses
Total costs and expenses for the three-month period ended March
31, 1998 were $660,636. Total costs for the three-month period
ended March 31, 1997 were $639,698. The costs, for both
periods, were primarily related to personnel, the costs related
to enhancing current products, rent expense for the Company's
premises and research and development costs incurred to
establish new products.
Income (Loss)
For the three months ended March 31, 1998, the Company
reflected a net loss of $476,327 ($.17 per share) as compared
to a net loss of $513,056 ($.31 per share) for the
corresponding period of the prior year. 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 $5,626,000.
At March 31, 1998, the Company had working capital of
$2,465,219, a current ratio of 6.5:1 and a debt to net worth
ratio of .2:1. At its year ended December 31, 1997 the Company
had working capital of $2,908,884, a current ratio of 8.3:1 and
a debt to net worth ratio of .1:1.
Cash Flows
For the three months ended March 31, 1998 the Company utilized
cash for operating activities of $410,505 primarily to pay
suppliers and employees. For the corresponding period of the
prior year the Company used cash for operating activities of
$359,898.
The Company utilized cash of approximately $12,000 during the
three months ended March 31, 1998 for investing activities
primarily to acquire fixed assets.
For the three months ended March 31, 1998 the Company used cash
for financing activities primarily for the repayment of
officer's loans.
On April 22, 1998, the Company entered into a definitive
agreement to acquire a 50% beneficial interest in Press-Loto, a
Russian company which has the right to operate the first
national on-line lottery in Russia pursuant to a license from
the Russian Ministry of Finance to the Union of Journalists in
Russia. At the time of the closing, the remaining 50% will be
owned by the Union and its charity with a private group holding
a minority interest.
Pursuant to the transaction, at the closing, the Company will
issue (i) 3,662,880 Common Shares (ii) Convertible Redeemable
Preferred Shares (the "Preferred Shares"), (iii) warrants (the
9
<PAGE>
"Warrants") to purchase 1,331,956 Common Shares at $10.00 per
share and (iv) the right to receive 332,989 Common Shares (the
"Performance Shares") based upon the attainment of performance
thresholds.
The Preferred Shares will be convertible into an aggregate
maximum of 6,659,780 Common Shares, provided that income from
the lottery business meets certain pre-tax levels of up to an
aggregate of approximately $36 million over a period of not
more than five years commencing on January 1, 1999 and ending
on December 31, 2003. If such thresholds are not met within
such period, the Company may redeem the unconverted Preferred
Shares at $.01 per share.
If the Warrants are exercised and the Performance Shares are
issued, the current shareholders of the acquired company will
control approximately 80% of the voting stock of the Company
(assuming the Preferred Shares are not redeemed) based upon the
number of shares of voting stock currently outstanding and
issuable under options exercisable currently or within 60 days.
Additionally, if all of the Warrants issued in the acquisition
are exercised, the Company will receive $13,319,560 in cash
proceeds.
The Closing of the transaction is subject to, among other
things, (i) fairness opinion from an investment banking firm
that the transaction is fair, from a financial viewpoint, to
the Company's Stockholders, (ii) stockholder approval (iii)
Nasdaq approval, and (iv) completion of additional due
diligence satisfactory to the Company.
Contemporaneously with the signing of the agreement, the
Company agreed to make secured loans, aggregating up to
$1,000,000, from time-to-time for the continued development of
the lottery operations. Advances under the loan agreement will
be made on budgets provided that are acceptable to the Company.
There can be no assurance that this investment transaction will
be successfully completed.
In order to fund the aforementioned proposed lottery business
investment, the Company is contemplating raising funds through
either a private or public offering which could include equity,
debt or both.
Other
The Company believes that the net proceeds from the Offering
and funds expected to be generated from operations and new
financings (if required - see discussion above), 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, the closing of the acquisition of the 50% beneficial
interest in Press-Loto and the securing of additional
financing.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 2 - Changes in Securities and Use of Proceeds.
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 December 31, 1997:
<TABLE>
Offering:
<S> <C>
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) (261,626)
------------
Net proceeds $5,625,874
==========
Use of Proceeds Through December 31, 1997:
Product enhancement and development (1)(3) $ 1,585,000
Repayment of indebtedness (2) 770,000
Marketing and advertising (1)(3) 400,000
Hiring/training personnel (1)(3) 65,000
Equipment purchases (1)(3) 215,000
Unused proceeds (4) 2,590,874
-----------
$5,625,874
==========
</TABLE>
----------
(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.
(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
11
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proceeds described in the prospectus.
ITEM 6 - Exhibits or Reports on Form 8-K:
Reports
Current Report on Form 8-K for an event dated April 22, 1998, regarding
the Company entering into a definitive agreement to acquire a 50% beneficial
interest in Press-Loto, a Russian company that has the right to operate the
first on-line lottery in Russia
Current Report on Form 8-K for an event dated April 23, 1998, regarding
an agreement to terminate the employment agreement with Dong Lew who has
resigned as an officer and director of the Company
Exhibits
Exhibit 3.1 - Articles of Incorporation of the Company*
Exhibit 3.2 - By-Laws of the Company*
Exhibit 4.1 - Specimen Common Share Certificate*
Exhibit 4.2 - Form of Underwriters Common Shares Purchase Warrant*
Exhibit 10.1- Termination Agreement dated March 17, 1998 between the
Company and Dong Lew.
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
- ----------------
* Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2, Registration No. 333- 18667.
12
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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: May 15, 1998 Compu-DAWN, Inc.
By: /s/ Mark Honigsfeld
Chief Executive Officer and
Principal Accounting Officer
13
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Exhibit 10.1
TERMINATION AGREEMENT
TERMINATION AGREEMENT dated as of March 17, 1998 between DONG LEW
(hereinafter "Lew"), residing at 1350 Grand Summit Drive, Apt. 234, Reno, Nevada
89523, and COMPU-DAWN, INC., a Delaware corporation (hereinafter the "Company"),
having its principal place of business at 77 Spruce Street, Cedarhurst, New
York.
BACKGROUND
A. Lew is employed by the Company as its President and Chief Operating
Officer in accordance with a Restated and Amended Employment Agreement dated as
of October 28, 1996 (hereinafter called the "Employment Agreement"). Mr. Lew is
also the Treasurer and a Director of the Company.
B. Lew wishes to retire and has made Reno, Nevada his primary residence.
Therefore, Lew and the Company desire to terminate the Employment Agreement on
the basis herein provided.
NOW, THEREFORE, the parties hereto agree as follows:
1. Effective on the closing date (the "Termination Date") of that certain
Stock Purchase Agreement dated March 17, 1998 between Mark Honigsfeld and/or his
designee, as Purchaser, and Dong Lew, as Seller, the Company shall pay to Lew
the sum of $216,000.00 (the "Termination Payment"). The Employment Agreement
shall be in all respects terminated effective on the Termination Date. Except as
specifically set forth to the contrary herein, Lew's right to participate in any
present or future bonus, pension, profit-sharing or insurance program or any
other fringe benefit program of the Company shall be in all respects terminated
as of the Termination Date, except that the protective covenants set forth in
Section 1.8 of the Employment Agreement shall remain in full force and effect in
accordance with the terms thereof. Notwithstanding the foregoing, Lew's salary
and reimbursement of expenses provided for by the Employment Agreement shall be
paid to Lew by the Company until the Termination Date.
2. On the Termination Date, Lew hereby resigns as a Director of the Board
of Directors of the Company and resigns from his positions as President,
Treasurer and Chief Operating Officer of the Company.
3. The Termination Payment shall be reported by the Company to the Internal
Revenue Service on Form W-2 for 1998.
4. Lew presently has an option to acquire 8,561 shares of common stock of
the Company at an option exercise price of $5.50 per share. On the Termination
Date, if directed to do so by Mark Honigsfeld, Mr. Lew will execute an Option
Exercise Form and make full payment for such option shares by the surrender of
the appropriate number of shares of Company common stock owned by Mr. Lew (the
"Surrendered Shares"), based upon the current market value per share for the
Company's common stock on the date thereof. The Company hereby acknowledges and
consents to the exercise of the aforementioned option by Mr. Lew. Mr. Lew shall
not be granted a reload option for the Surrendered Shares.
5. The parties hereto recognize and agree that, except as expressly
provided in, or contemplated by, this Termination Agreement, and except for any
rights of indemnification to which Lew, as a former employee, officer, and
director of the Company may be entitled by law, or by corporate resolutions or
under the by-laws or articles of incorporation of the Company, there are no
outstanding unfulfilled contracts, commitments, or other obligations of
whatsoever nature as between Lew and the Company or any outstanding indebtedness
owed by either party to the other; and the parties hereto hereby further agree
that any and all disputes, claims, open accounts and other unresolved matters
with respect to any of the foregoing which may exist on the date hereof, shall
be, and hereby are, in all respects resolved, satisfied and settled as between
the parties, without any other or further liability of either party to the
other. The parties shall deliver to each other on the Termination Date a
certificate reaffirming the agreement set forth in this paragraph 5 as of the
Termination Date.
6. The obligations of Lew and the Company hereunder, are contingent upon
the simultaneous closing of the transactions provided for in a Stock Purchase
Agreement between Lew and Mark Honigsfeld, Chairman of the Board of Directors
and Chief Executive Officer of the Company, or his assignee or designee,
pursuant to which Mark Honigsfeld or his assignee or designee shall acquire on
the Termination Date certain shares of Company common stock from Lew, as fully
enumerated therein.
7. This Termination Agreement has been approved by the Board of Directors
of the Company and shall be binding and effective upon the Company and its
successors and assigns, and upon Lew, his heirs and representatives.
8. If any provision contained in this Termination Agreement is determined
to be void, illegal or unenforceable, in whole or in part, then the other
provisions contained herein shall remain in full force and effect as if the
provision which was determined to be void, illegal, or unenforceable had not
been contained herein.
9. The parties agree that this Termination Agreement is made and entered
into in Nassau County, New York and shall be governed by and construed in
accordance with the laws of the State of New York, and that any litigation,
special proceeding or other proceeding as between the parties that may be
brought, or arise out of, in connection with or by reason of this Termination
Agreement, shall be brought in the applicable state court in and for Nassau
County, New York, which Courts shall be the exclusive courts of jurisdiction and
venue.
10. This instrument contains the entire agreement of the parties concerning
termination of Lew's employment with the Company and supersedes all prior and
contemporaneous representations, understandings and agreements, either oral or
in writing, between the parties hereto with respect to the termination of Lew's
employment by the Company and all such prior or contemporaneous representations,
understandings and agreements, both oral and written, are hereby terminated. The
terms of this Termination Agreement may not be modified, altered or amended
except by written agreement of Lew and the Company, subject to the prior
approval of the Board of Directors of the Company.
ll. The Company has been represented by the firm of Certilman, Balin, Adler
& Hyman, LLP. Lew has been represented by the firm of Bart and Schwartz. Each
has made its own determination with respect to counsel without coercion from the
other. Each has thoroughly reviewed the provisions of this Termination Agreement
and all matters concerning such provisions with the benefit of independent
counsel.
12. Any controversy or claim arising out of or relating to this Termination
Agreement shall be settled by binding arbitration in Nassau County, New York
under the rules of the American Arbitration Association. Judgment upon the award
may be entered in any court having jurisdiction and the arbitrator(s) are
specifically authorized to award the prevailing party in such arbitration all
reasonable attorney's fees, expenses and costs of arbitration.
13. Any notice, request, instruction, consent or other communication to be
given to either party hereunder shall be in writing and shall be deemed to have
been delivered on the date personally delivered or on the date deposited in a
receptacle maintained by the United States Postal Service for such purposes,
postage prepaid, by certified mail, return receipt requested, addressed to the
respective parties as follows:
If to the Company: Compu-Dawn, Inc.
77 Spruce Street
Cedarhurst, NY 11526
Attention: Mark Honigsfeld, Chairman
With a copy to: Certilman, Balin, Adler & Hyman, LLP
The Financial Center at Mitchel Field
90 Merrick Avenue
East Meadow, NY 11554
Attention: Gavin C. Grusd, Esq.
If to Lew: Mr. Dong Lew
1350 Grand Summit Drive, Apt. 234
Reno, Nevada 89523
With a copy to: Bart and Schwartz
One Huntington Quadrangle
Suite 2S12
Melville, NY 11747
Attention: Lawrence J. Schwartz, Esq.
14. This Termination Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of Which together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Termination Agreement as
of the day and year first above written.
COMPU-DAWN, INC.
Attest:
/s/ Louis Libin By:/s/ Mark Honigsfeld
Assistant Secretary MARK HONIGSFELD, Chairman of the
Board and Chief Executive Officer
/s/ Dong Lew
DONG LEW
Compu-DAWN, Inc.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
For the Three Months
Ended March 31,
1998 1997
<S> <C> <C>
NET (LOSS) $(476,327) $(513,056)
========= =========
WEIGHTED AVERAGE SHARES:
Common shares outstanding 2,839,907 986,700
Assumed conversion of cheap options and warrants - 692,213
------------- ----------
2,839,907 1,678,913
========= =========
BASIC (LOSS) PER COMMON SHARE: $(.17) $(.31)
===== =====
</TABLE>
14
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
Compu-DAWN, Inc.
EXHIBIT 27
FINANCIAL DATA SCHEDULE
The schedule contains summary financial information extracted from the
consolidated financial statements for the three months ended March 31, 1998 and
is qualified in its entirety by reference to such statements.
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001028079
<NAME> Compu-DAWN
<MULTIPLIER> 1
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,642,224
<SECURITIES> 0
<RECEIVABLES> 162,041
<ALLOWANCES> 13,635
<INVENTORY> 0
<CURRENT-ASSETS> 2,914,542
<PP&E> 472,693
<DEPRECIATION> 202,160
<TOTAL-ASSETS> 3,264,022
<CURRENT-LIABILITIES> 449,323
<BONDS> 74,117
0
0
<COMMON> 28,428
<OTHER-SE> 2,712,154
<TOTAL-LIABILITY-AND-EQUITY> 3,264,022
<SALES> 166,959
<TOTAL-REVENUES> 166,959
<CGS> 0
<TOTAL-COSTS> 660,636
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,437
<INCOME-PRETAX> (476,327)
<INCOME-TAX> 0
<INCOME-CONTINUING> (476,327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (476,327)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
