SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the quarterly period ended September 30, 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 incorporation (I.R.S. Employer Identification
or organization) No.)
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 October 26, 1998: 2,839,404
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
Compu-DAWN, Inc.
- INDEX -
<TABLE>
Page
<CAPTION>
PART I Financial Information
<S> <C>
Condensed Balance Sheets - September 30, 1998 and December 31, 1997 3
Condensed Statements of Operations - Three and Nine Months Ended
September 30, 1998 and 1997 4
Condensed Statements of Cash Flows - Nine Months Ended September 30,
1998 and 1997 5
Notes to Condensed Financial Statements 7
Management's Discussion and Analysis of Financial Condition and Results
of Operations 10
PART II Other Information
Item 2 - Changes in Securities and Use of Proceeds 14
Item 5 - Other Information 14
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE>
PART I. Financial Information
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
Compu-DAWN, Inc.
CONDENSED BALANCE SHEETS
- ASSETS -
September 30, December 31,
1998 1997
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 6,407,365 $3,081,253
Accounts receivable, net of allowances for doubtful accounts of $13,635
for 1998 and 1997 117,725 72,454
Prepaid expenses 104,268 121,802
Income tax refund receivable - 29,868
-------------------- -------------
TOTAL CURRENT ASSETS 6,629,358 3,305,377
------------- -----------
FIXED ASSETS - NET 237,424 278,737
-------------- ------------
OTHER ASSETS:
Deferred compensation - 98,270
Security deposits 21,525 21,525
--------------- -------------
21,525 119,795
--------------- ------------
$ 6,888,307 $3,703,909
============ ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 31,936 $ 278,722
Deferred revenue 27,898 12,000
Current portion of note payable - officer 75,000 100,000
Capitalized lease payable - current 6,427 5,771
---------------- --------------
TOTAL CURRENT LIABILITIES 141,261 396,493
-------------- ------------
NON-CURRENT LIABILITIES:
Note payable - officer - 50,000
Capitalized lease payable 17,565 22,440
Deferred rent liability 29,644 29,402
--------------- -------------
47,209 101,842
--------------- ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (Notes 2 and 4):
Preferred stock, $.01 par value; 1,000,000 shares authorized:
Series A Convertible Preferred; 3,250 shares issued and outstanding for 1998 33 -
Series B Convertible Preferred; 1,750 shares issued and outstanding for 1998 17 -
Common stock, $.01 par value, 20,000,000 shares authorized, 3,179,448
and 2,838,450 shares issued for 1998 and 1997, respectively 31,795 28,385
Additional paid-in capital 13,397,783 8,061,443
Retained earnings (deficit) (6,104,079) (4,837,169)
------------ -----------
7,325,549 3,252,659
Less: treasury stock, 340,044 and 8,561 shares at cost, for 1998 and
1997, respectively (625,712) (47,085)
-------------- -------------
6,699,837 3,205,574
------------- -----------
$ 6,888,307 $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 For the Nine Months
Ended September 30, Ended September 30,
----------------------------- -------------------------
1998 1997 1998 1997
-------------- -------------- -------------- ---------------
REVENUES:
<S> <C> <C> <C> <C>
Software sales $ 320,964 $ 46,303 $ 711,174 $ 187,392
Maintenance income 59,275 76,650 204,955 236,247
------------- ------------- ------------- -------------
380,239 122,953 916,129 423,639
------------ ------------ ------------- -------------
COSTS AND EXPENSES:
Programming costs and expenses 111,877 187,053 395,523 389,078
General and administrative expenses 256,382 420,479 1,212,144 1,667,933
Research and development 130,789 301,173 381,726 447,817
------------ ------------- ------------ -------------
499,048 908,705 1,989,393 2,504,828
------------ ------------ ----------- ------------
(LOSS) FROM OPERATIONS (118,809) (785,752) (1,073,264) (2,081,189)
------------ ------------ ----------- -----------
OTHER INCOME (EXPENSES):
Interest and other income 55,124 62,028 121,246 107,059
Interest expense (7,235) (4,941) (17,940) (77,112)
Loss due to terminated investment transaction (Note 3) (296,952) - (296,952) -
Non-recurring financing charge (Note 2) - - - (1,557,050)
------------------------------------------------------ -----------
(249,063) 57,087 (193,646) (1,527,103)
------------ ------------- ------------ -----------
(LOSS) BEFORE PROVISION FOR INCOME
TAXES (367,872) (728,665) (1,266,910) (3,608,292)
Provision for income taxes - - - -
-------------------------------------------------------------------------
NET (LOSS) $ (367,872) $ (728,665) $(1,266,910) $(3,608,292)
=========== =========== =========== ===========
BASIC (LOSS) PER COMMON SHARE $(.12) $(.23) $(.42) $(1.74)
===== ===== ====== ======
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 3,148,730 3,120,112 2,988,978 2,077,757
========= ========= ========= =========
</TABLE>
See notes to financial statements.
4
<PAGE>
Compu-DAWN, Inc.
<TABLE>
<CAPTION>
Page 1 of 2 CONDENSED STATEMENTS OF CASH FLOWS
----------------------------------
(Unaudited)
For the Nine Months Ended
September 30,
1998 1997
--------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Cash received from customers $ 886,786 $ 490,146
Cash paid to suppliers and employees (2,321,943) (2,373,310)
Interest paid (17,940) (4,941)
Interest and other income received 121,216 45,369
Income taxes paid (2,775) -
----------------------------------
Net cash (utilized) by operating activities (1,334,656) (1,842,736)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments of officer's loan - 69,247
Purchase of fixed assets (21,186) (210,842)
--------------- ---------------
Net cash (utilized) by investing activities (21,186) (141,595)
-------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan (repaid to) received from officer (75,000) 375,000
Repayment of promissory notes - (770,000)
Payments for common stock and options acquired - (34,710)
Payments of capital lease obligations (4,219) (9,021)
Net proceeds from initial public offering - 5,625,874
Net proceeds from private placement 4,741,837 -
Proceeds from exercise of stock options 19,336 69,900
-------------- --------------
Net cash provided by financing activities 4,681,954 5,257,043
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,326,112 3,237,712
Cash and cash equivalents, at beginning of year 3,081,253 286,497
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,407,365 $ 3,524,209
=========== ===========
</TABLE>
See notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Compu-DAWN, Inc.
CONDENSED STATEMENTS OF CASH FLOWS Page 2 of 2
----------------------------------
(Unaudited)
For the Nine Months
Ended September 30,
1998 1997
RECONCILIATION OF NET (LOSS) TO NET CASH (UTILIZED)
<S> <C> <C>
BY OPERATING ACTIVITIES:
Net (loss) $(1,266,910) $(3,608,292)
Adjustments to reconcile net (loss) to net cash (utilized) by operating activities:
Allowance for doubtful accounts - 9,000
Depreciation and amortization 62,499 81,063
Deferred rent liability 242 6,210
Compensatory stock - 372,144
Deferred compensation 98,270 -
Financing charge - 1,557,050
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (45,271) 12,586
Decrease (increase) in prepaid expenses 47,403 (235,394)
(Decrease) in accounts payable and accrued expenses (246,787) (90,659)
Increase in deferred revenue 15,898 18,556
-------------- --------------
NET CASH (UTILIZED) BY OPERATING ACTIVITIES $(1,334,656) $(1,842,736)
=========== ===========
</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.
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 annual report filed on Form 10-KSB
for the year ended December 31, 1997. Specific reference is
made to that report for a description of certain 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, 1998 and the
results of its operations for the three and nine month periods
ended September 30, 1998 and 1997 and its cash flows for the
nine month periods ended September 30, 1998 and 1997.
The results of operations for the three and nine month periods
ended September 30, 1998 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 $5,625,874. 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 - TERMINATION OF INVESTMENT TRANSACTION:
On April 22, 1998, the Company entered into an agreement to
acquire an indirect 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 of
Russia (the "Union"). The agreement provided that, at the
closing, 40% of Press- Loto was to be owned by the Union and
its charity with a private group holding a minority interest.
7
<PAGE>
Compu-DAWN, Inc.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - TERMINATION OF INVESTMENT TRANSACTION (Continued):
On September 1, 1998, the Company issued a press release
announcing that it had terminated the aforementioned agreement
after conditions to close, which were required by the Company,
were not satisfied by August 31, 1998, the date by which those
conditions had to be fulfilled under the agreement.
In accordance with the termination of the agreement, the
Company has written off all costs incurred regarding this
transaction during the current period, aggregating
approximately $297,000.
NOTE 4 - PRIVATE PLACEMENT:
On June 5, 1998, the Company completed a private offering of
its securities, whereby it sold to the purchasers the
following:
(a) 3,250 shares of the Company's series A convertible preferred
stock, par value $.01 per share (the "Series A Preferred
Stock"), which shares are convertible into Common Shares of the
Company (maximum of 650,000 shares, subject to adjustment under
certain circumstances);
(b) 327,103 Common Shares of the Company; and
(c) warrants to acquire an aggregate of 90,207 Common Shares at an
exercise price of $8.025 per share, subject to adjustment under
certain circumstances.
The aggregate purchase price for the foregoing securities was
$5,000,000; net proceeds from this private placement aggregated
approximately $4,742,000.
On September 25, 1998, pursuant to a Securities Exchange
Agreement between the Company and the purchasers, the Company
issued to the purchasers 1,750 shares of Series B convertible
preferred stock, par value $.01 per share (the "series B
preferred shares"), in exchange for the 327,103 shares of
common stock previously issued. Subject to certain adjustments,
the Series B preferred shares (1,750) are convertible into
327,103 common shares.
NOTE 5 - SUBSEQUENT EVENT:
In October 1998, the Company loaned an aggregate of $1,000,000
to LocalNet Communications, Inc. ("LocalNet"), an unaffiliated
Florida corporation in the telecommunications and internet
services marketing business. LocalNet signed 12%, one (1) year
secured promissory notes due in October 1999, at which time all
interest and principal is payable. The notes are secured by a
collateral interest in all of LocalNet's tangible and
intangible assets and a pledge of the common stock owned by its
Chief Executive Officer and the Chairman of its Board, which
represents a 63.1% ownership interest in LocalNet, in the
aggregate.
Concurrently, LocalNet and its Chief Executive Officer and
Chairman (having an aggregate ownership interest of 63.1%) have
each granted the Company a right of first refusal to acquire
LocalNet, or their equity interests in LocalNet, as the case
may be, for a term expiring 90 days after the loan is repaid.
8
<PAGE>
Compu-DAWN, Inc.
NOTES TO INTERIM CONDENSED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 - SUBSEQUENT EVENT(Continued):
The Company and LocalNet also entered into a five (5) year
consulting agreement which provides for Compu-DAWN to perform
certain management consulting services for LocalNet. Under the
Consulting Agreement, the Company will, among other things, act
as LocalNet's exclusive agent to find and negotiate
telecommunication services and reseller agency arrangements for
LocalNet.
9
<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,
nontransferable 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.
During the current quarter the Company terminated a contract to
acquire an indirect 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. See more detailed
discussion below ("Termination of Potential Investment
Transaction") for a further description.
The financial information presented herein includes: (i)
condensed balance sheets as of September 30, 1998 and December
31, 1997; (ii) condensed statements of operations for the three
and nine month periods ended September 30, 1998 and 1997; and
(iii) condensed statements of cash flows for the nine month
periods ended September 30, 1998 and 1997.
RESULTS OF OPERATIONS:
Revenues
Revenues for the nine months ended September 30, 1998 were
$916,129 compared to $423,639 for the nine months ended September
30, 1997, an increase of approximately 116%. Revenues for the
three months ended September 30, 1998 were $380,239 as compared
to $122,953 for the comparable period of the prior year, an
increase of approximately 209%. These increases were primarily a
result of increases in sales of software which was offset by a
decrease in maintenance income when comparing the nine and three
month periods.
10
<PAGE>
Despite the aforementioned increases, to date the Company has not
generated significant revenues.
However, management believes that through the funds obtained in
its initial offering and recent private placement (see discussion
below) for product enhancement, marketing, the introduction of
new products and working capital, 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
computer-aided dispatching (V-CAD) which provides for visual
graphic interface and wireless mobile technology. Backlog at
September 30, 1998 aggregated approximately $474,000.
Costs and Expenses
Total costs and expenses for the nine-month period ended
September 30, 1998 aggregated $1,989,393 as compared to
$2,504,828 for the corresponding period of the prior year, a
decrease of approximately 20.6%. For the comparable three month
periods ended September 30, 1998 and 1997, total costs decreased
to $499,048 from $908,705, a decrease of approximately 45%. 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.
For the nine and three month periods ended September 30, 1998,
total costs and expenses included approximately $297,000 which
were written off upon the termination of the investment
transaction with Press-Loto as described below.
Income (Loss):
For the nine months ended September 30, 1998, the Company had a
net loss of $1,266,910 ($.42 per share) as compared to a net loss
of $3,608,292 ($1.74 per share) for the nine months ended
September 30, 1997. For the three months ended September 30,
1998, the Company had a net loss of $367,872 ($.12 per share) as
compared to a net loss of $728,665 ($.23 per share) for the
corresponding period of the prior year.
The losses for all periods are principally due to the fact that
the Company has yet to produce significant revenues as mentioned
above. The losses for 1997 were also increased by the
non-recurring financing charge of $1,557,050 which is related to
the promissory notes described in Note 2 of notes to the
condensed financial statements.
LIQUIDITY AND CAPITAL RESOURCES:
In June 1997, the Company completed an initial public offering of
its Common Shares. The Company sold 1,380,000 of its Common
Shares at a price of $5.00 per share and realized net proceeds of
approximately $5,626,000.
In June 1998, the Company completed a private placement of
securities. The Company sold 3,250 Preferred Units (consisting,
in the aggregate, of 3,250 shares of Series A Preferred Stock and
warrants to acquire 57,497 Common Shares) at a price of $1,000
per unit and 1,750 Common Units (consisting, in the aggregate, of
327,103 Common Shares and warrants to acquire 32,710 Common
Shares) also at a price of $1,000 per unit. From this private
placement, the Company realized net proceeds of approximately
$4,742,000.
11
<PAGE>
On September 25, 1998, pursuant to a securities exchange
agreement between the Company and the purchasers, the Company
issued 1,750 shares of Series B convertible preferred stock in
exchange for the 327,103 common shares previously issued. Subject
to certain adjustments, the Series B Preferred Shares are
convertible into an aggregate of 327,103 common shares.
At September 30, 1998, the Company had working capital of
$6,488,097, a current ratio of 46.9:1 and a debt to net worth
ratio of less than .1:1. 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. The improvement in
the Company's liquidity and capital resources was primarily due
to the successful private placement of securities mentioned
above.
CASH FLOWS:
For the nine months ended September 30, 1998, the Company
utilized cash for operating activities of approximately
$1,335,000 primarily to pay suppliers and employees. For the
corresponding period of the prior year, the Company used cash for
operating activities of approximately $1,843,000.
The Company utilized cash of approximately $21,000 and $142,000
during the nine months ended September 30, 1998 and 1997,
respectively, for investing activities primarily to acquire fixed
assets.
For the nine months ended September 30, 1998, the Company's
financing activities provided cash of approximately $4,682,000
primarily due to the aforementioned private placement. For the
corresponding period of the prior year, the Company generated
cash from financing activities of approximately $5,257,000
primarily due to its initial public offering.
TERMINATION OF POTENTIAL INVESTMENT TRANSACTION:
On April 22, 1998, the Company entered into an agreement (the
"Merger Agreement") to acquire an indirect 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 (the "Lottery License") from the Russian Ministry of
Finance to the Union of Journalists of Russia (the "Union"). The
Merger Agreement provided that, at the time of the closing, 40%
of Press-Loto was to be owned by the Union and its charity with a
private group holding a minority interest. The transaction was
structured as a merger (the "Merger"), pursuant to which Rugby
Acquisition Corp. , a wholly-owned subsidiary of the Company, was
to merge into Rugby National Corp. ("Rugby") with Rugby as the
surviving entity and a wholly-owned subsidiary of the Company. At
the time of closing, Rugby was to directly own 50% of Press-Loto.
On September 1, 1998, the Company issued a press release
announcing that it had terminated the aforementioned agreement
after conditions to close, which were required by the Company,
were not satisfied by August 31, 1998, the date by which those
conditions had to be fulfilled under the agreement.
12
<PAGE>
SUBSEQUENT EVENT:
In October 1998, the Company loaned an aggregate of $1,000,000 to
LocalNet Communications, Inc. ("LocalNet"), an unaffiliated
Florida corporation in the telecommunications and internet
services marketing business. LocalNet signed 12%, one (1) year
secured promissory notes due in October 1999, at which time all
interest and principal is payable. The notes are secured by a
collateral interest in all of LocalNet's tangible and intangible
assets and a pledge of the common stock owned by its Chief
Executive Officer and the Chairman of its Board, which represent
a 63.1% ownership interest, in the aggregate.
Concurrently, LocalNet and its Chief Executive Officer and
Chairman (having an aggregate ownership interest of 63.1%) have
each granted the Company a right of first refusal to acquire
LocalNet, or their equity interests in LocalNet, as the case may
be, for a term expiring 90 days after the loan is repaid.
The Company and LocalNet also entered into a five (5) year
consulting agreement which provides for Compu-DAWN to perform
certain management consulting services for LocalNet. Under the
Consulting Agreement, the Company will, among other things, act
as LocalNet's exclusive agent to find and negotiate
telecommunication services and reseller agency arrangements for
LocalNet.
YEAR 2000 ISSUE:
The Year 2000("Y2K") issue is the result of computer programs
being written using a two-digit format rather than four to define
the applicable year. Any of the Company's computer programs that
have date sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could potentially
result in a system failure or miscalculations causing disruptions
of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in
other similar normal business activities.
The Company's accounting software was purchased "off-the-shelf"
and the Company intends to timely update such software by
purchasing Year 2000 complaint software and hardware from retail
vendors at reasonable cost. Software developed and marketed by
the Company is already Y2K compliant. Other companies upon whose
services the Company depends have not yet been contacted to
determine whether such companies' systems are Year 2000
compliant. If the systems of such companies are not Year 2000
complaint, there could be a material adverse effect on the
Company's financial condition or results of operations.
OTHER:
The Company believes that the net proceeds from the initial
public offering, the private placement 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.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 2 - Changes in Securities and Use of Proceeds.
Use of Proceeds from Initial Public Offering.
The Company's Registration Statement of Form SB-2 (Registration
No. 333-18667), covering the issuance of 1,380,000 Common Shares,
(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, 1998:
<TABLE>
<CAPTION>
Offering:
<S> <C>
Gross proceeds (including overallotment) $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 September 30, 1998:
Product enhancement and development (1)(3) $ 1,585,000
Repayment of indebtedness (2) 770,000
Marketing and advertising (1)(3) 410,000
Hiring/training personnel (1)(3) 135,000
Equipment purchases (1)(3) 225,000
Working capital (3)(4) 865,000
Unused proceeds 1,635,874
-----------
$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) Used for general operating activities.
To date, the use of proceeds does not represent any material
changes from the use of proceeds described in the prospectus.
ITEM 5 - Other Information
Reference is made to Part I, Item 2 "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Subsequent Event" for a discussion of a $1,000,000 loan by the
Company to LocalNet and a consulting arrangement between the
Company and LocalNet.
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ITEM 6 - Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit 3.1 - Articles of Incorporation of the Company*
Exhibit 3.2 - Certificate of Designations, Preferences and
Rights of Series A Convertible Preferred Stock,
filed with the Secretary of State of the State
of Delaware on September 5, 1998**
Exhibit 3.3 - Certificate of Designations, preferences
and rights of Series B preferred stock, filed
with the Secretary of Sate of Delaware on
September 24, 1998 ***
Exhibit 3.4 - By-Laws of the Company*
Exhibit 10.1 - Securities Exchange Agreement between the
Company and JNC Strategic Fund Ltd. dated
September 25, 1998***
Exhibit 10.2 - Registration Rights Agreement Amendment dated
as of September 25, 1998 between the Company
and JNC Opportunity Fund Ltd. and JNC Strategic
Fund Ltd.***
Exhibit 11 - Computation of Earnings Per Share ***
Exhibit 27 - Financial Data Schedule ***
(b) Reports on Form 8-K
(a) Event dated September 1, 1998 - Items 5 and 7.
(b) Event dated September 25, 1998 - Item 5.
- ----------------
* Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2, Registration No. 333-18667.
** Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the period ended June 30, 1998.
*** Previously filed as an exhibit to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Compu-DAWN, Inc.
Dated: February 18, 1999 By: /s/ Mark Honigsfeld
--------------------------------------
Chairman of the Board,
Chief Executive Officer and
Chief Accounting Officer
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