SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
AMENDMENT NO. 1
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934. For the fiscal year ended December 31, 1998 OR
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the transition period from _____________________ to
_____________________
Commission file number 000-22611
MyTurn.com, Inc.
----------------
(Name of Small Business Issuer in its Charter)
Delaware 11-3344575
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
333 North First Street, Jacksonville Beach 32250
------------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
(904)249-5756
-------------
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock ($.01 par value per share)
---------------------------------------
(Title of Class)
Compu-DAWN, Inc.
----------------
(former name)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
As of February 28, 1999, the aggregate market value of the shares held by
non-affiliates was approximately $13,875,345.
The issuer's revenues for the fiscal year ended December 31, 1998 were
$1,248,489.
APPLICABLE ONLY TO CORPORATE REGISTRANTS.
The number of shares outstanding of each of the issuer's classes of common
equity as of February 28, 1999 is 3,428,269 shares of Common Stock, $.01 par
value per share.
Transitional Small Business Disclosure Format (check one): Yes No X
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
INDEX Page No.
----- --------
Explanatory Note . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Forward Looking Statements . . . . . . . . . . . . . . . . . . . . . . 1
PART II
Item 6. Management's Discussion and Analysis or Plan of Operation . . 2
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . 4
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K . . . . . . . . . . . 5
<PAGE>
EXPLANATORY NOTE
MyTurn.com, Inc., a Delaware corporation ("MyTurn.com" or the "Company" or
"Compu- DAWN"), which was formerly known as Compu-DAWN, Inc., is amending its
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998 in
order to amend its audited financial statements for such year and to amend its
Management's Discussion and Analysis or Plan of Operation to reflect
discontinued operations in 1999.
The disclosure herein is as of March 31, 1999, the date the Annual Report
on Form 10-KSB for the fiscal year ended December 31, 1998 was filed.
FORWARD LOOKING STATEMENTS
Certain information contained in this Annual Report are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995, and is subject to the safe harbor created by that act. The Company
cautions readers that certain important factors may affect the Company's actual
results and could cause such results to differ materially from any
forward-looking statements which may be deemed to have been made in this Annual
Report or which are otherwise made by or on behalf of the Company. For this
purpose, any statements contained in this Annual Report that are not statements
of historical fact may be deemed to be forward-looking statements. Without
limiting the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate," "plan" or "continue" or
the negative variations thereof or comparable terminology are intended to
identify forward-looking statements. Factors which may affect the Company's
results include, but are not limited to, the risks and uncertainties associated
with the Internet and Internet-related technology and products, new technology
developments, developments and regulation in the telecommunications industry,
the competitive environment within the Internet and telecommunications
industries, the ability to enter into agreements with mass merchandise retailers
and develop other sales outlets for its products, the ability of the Company to
partner with a hardware manufacturer to produce the GlobalPC personal computing
device, the ability of the Company to secure agreements with content providers
for its Internet portal, the ability of the Company to finalize a network
services agreement with a national Internet Service Provider (ISP) to provide
network access, the ability of the Company to expand its operations, the level
of costs incurred in connection with the Company's planned expansion efforts,
unascertainable risks related to possible unspecified acquisitions, the
competence required and experience of management, the risk of loss of management
and personnel, economic conditions, and the ability of the Company to raise
additional capital which will be required within the next six months to continue
to develop and sustain its business at current levels and to implement the
Company's business plan and generate revenue. The Company is also subject to
other risks detailed herein or detailed from time to time in the Company's
Securities and Exchange Commission ("SEC") filings. Readers are also urged to
carefully review and consider the various disclosures made by the Company which
attempt to advise interested parties of the factors which affect the Company's
business, including, without limitation, the disclosures made under the caption
"Management's Discussion and Analysis or Plan of Operation" in Item 6 of this
Annual Report. All references to a fiscal year are to the Company's fiscal year
which ends December 31.
<PAGE>
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company changed its name from Compu-DAWN, Inc. to MyTurn.com, Inc. on
January 21, 2000. Accordingly, references to Compu-DAWN, Inc. in this Annual
Report on Form 10KSB/A, Amendment No. 1 is to the Company.
The amendments to Item 6. "Management's Discussion and Analysis of
Financial Conditions and Results of Operations" are to reflect amendments to the
financial statements contained in this Annual Report on Form 10-KSB/A Amendment
No. 1, which amendments reflect discontinued operations in 1999. The disclosure
herein is as of March 31, 1999, the date the Company's Annual Report on Form
10-KSB for the fiscal year ended December 1998 was filed.
Results of Operations:
The Company discontinued its subsidiary e.TV Commerce, Inc. and divested
itself of its public safety software business in June and July, 1999
respectively. Accordingly, the Results of Operations discussed below represent
only the continuing operations of the Company.
Revenues:
Revenues for the twelve months ended December 31, 1999, from continuing
operations, were $336,955 as compared to $111,156 for the twelve months ended
December 31, 1997. The revenue was primarily comprised of Internet subscription
fees and interest income.
Costs and Expenses:
The total costs and expenses for the twelve-month period ended December 31,
1998 were $314,411 as compared to $1,610,505 for the comparative period of the
prior year.
The Company's consolidated operating income from continuing operations for
1998 was $22,544 as compared to a loss of $1,499,349 for the same period in
1997. The variance is largely attributable to the subsequent write-off and of an
impaired loan (see Note 3 of the Financial Statements).
The Company's consolidated loss from discontinued continuing operations for
1998 was $2,806,096 as compared to $2,937,396 for the same period in 1997. The
losses were largely attributable to the subsequent decision of the Company to
discontinue its public safety software business (see Note 13 of the Financial
Statements).
Income (Loss)
For the twelve months ended December 31, 1998 the Company reflected a net
loss of $2,783,552 ($.95 per share) as compared to a loss of $4,436,745 ($1.95
per share) for the corresponding period of the previous year.
2
<PAGE>
These losses were primarily a result of the operating losses sustained by
the discontinued businesses which reflected aggregate loss $1,656,096 for the
twelve month period ended December 31, 1998.
Liquidity and Capital Resources
In January 1997, the Company entered into a secured credit facility loan
agreement (the "Credit Agreement") with Mark Honingsfeld, Chief Executive
Officer and then Chairman of the Board of the Company, pursuant to which the
Company borrowed $200,000. The Company and Mr. Honingsfeld agreed to convert
this loan into 40,000 Common Shares (an effective conversion price of $5.00 per
share) upon the closing of the Company's initial public offering which occurred
in June, 1997. In April 1997, the Company and Mr. Honingsfeld amended the Credit
Agreement to provide for a new line of credit of $500,000. In May 1997, the
Company borrowed an additional $200,000 under the Credit Agreement of which
$50,000 was outstanding at December 31,1998 ($150,000 was outstanding at
December 31, 1997). The repayment of up to $200,000 under the Credit Agreement
was secured by a first priority security interest in all the assets owned by the
Company.
In June 1997, the Company successfully 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.
At December 31, 1998, the Company had cash and marketable securities of
$4,378,000, accounts receivable of $319,000, a current ratio of 13.8 to 1 and a
net worth of $5,298,000. At December 31, 1997, the Company had cash of
$3,081,000, accounts receivable of $72,000, a current ratio of 8.3 to 1 and net
worth of $3,206,000. The overall improvement from 1997 to 1998 is the result of
a private offering of preferred stock (which is described below), net of the
losses incurred during 1998 as described above.
In June 1998, the Company completed a private placement of securities. The
Company sold 3,250 units (consisting, in the aggregate, of 3,250 Series A
Preferred Shares and warrants to acquire 57,497 Common Shares) at a price of
$1,000 per unit and 1,750 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. The Common Shares were subsequently exchanged for 1,750 Series B
Preferred Shares. From this private placement, the Company realized net proceeds
of approximately $4,723,000.
Cash Flows
For the years ended December 31, 1998 and 1997, cash utilized by operating
activities was $1,278,214 and $2,311,314, respectively. The primary reasons for
the decrease in cash used for operating activities were an increase in cash
collected from customers and an increase in interest and other income mentioned
previously.
For the year ended December 31, 1997, $135,205 of cash was utilized by
investing activities, primarily for fixed asset purchases. For 1998, the Company
used $3,913,517 of cash in this category.
3
<PAGE>
In 1997, the Company generated cash from financing activities of
$5,241,275, principally as a result of the completion of the IPO offering. For
1998, the Company generated cash of $4,638,878 in this category, principally due
to the completion of the private offering.
Forward Looking Statements
Except for historical information contained herein, the matters set forth
above 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 set forth on page 1 of this Annual Report on Form 10-KSB/A under
"Forward Looking Statements."
Item 7. Financial Statements
The audited financial statements of the Company as at December 31, 1998 and
1997 and for the years then ended are included in this Annual Report on Form
10-KSB/A following Item 13 hereof.
4
<PAGE>
PART IV
Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits Description of Exhibit
-------- ----------------------
11 Computation of Earnings Per Common Share
23 Consent of Lazar, Levine & Felix LLP, independent auditors.
27 Financial Data Schedule.
5
<PAGE>
Compu-DAWN, Inc.
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- INDEX TO FINANCIAL STATEMENTS -
Page(s)
-------
<S> <C>
Independent Auditors' Report F - 2
Financial Statements:
Balance Sheets as of December 31, 1998 and 1997 F - 3
Statements of Operations for the Years Ended December 31, 1998 and 1997 F - 4
Statement of Shareholders' Equity for the Two Years in the Period Ended December 31, 1998 F - 5
Statements of Cash Flows for the Yeed December 31, 1998 and 1997 F - 6
Notes to Financial Statements F - 8
</TABLE>
F - 1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Compu-DAWN, Inc.
Cedarhurst, New York
We have audited the accompanying balance sheets of Compu-DAWN, Inc. as of
December 31, 1998 and 1997 and the statements of operations, shareholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Compu- DAWN, Inc. as of
December 31, 1998 and 1997 and the results of its operations and its cash flows
for the years ended December 31, 1998 and 1997, in conformity with generally
accepted accounting principles.
/s/ Lazar Levine & Felix LLP
LAZAR LEVINE & FELIX LLP
New York, New York
February 25, 1999
except for Note 12, the
date of which is
March 4, 1999 and Note 13
the date of which is
July 2, 1999
F - 2
<PAGE>
Compu-DAWN, Inc.
BALANCE SHEETS
- ASSETS (Note 6) -
<TABLE>
<CAPTION>
December 31,
1998 1997
-------- ------
<S> <C> <C>
CURRENT ASSETS:
Cash $2,528,400 $ 3,081,253
Marketable securities 1,850,000 -
Income tax refund receivable (Note 10) - 29,868
Net assets of discontinued operations (Note 13) 919,520 94,453
--------- ----------
TOTAL CURRENT ASSETS 5,297,920 3,205,574
========= =========
OTHER ASSETS - -
---------- -----------
$5,297,920 $ 3,205,574
========== ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES $ - $ -
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
SHAREHOLDERS' EQUITY (Notes 7 and 8):
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, 3,265,448 and 32,654 28,385
2,838,450 shares issued for 1998 and 1997, respectively
Additional paid-in capital 13,661,649 8,061,443
Retained earnings (deficit) (7,620,721) (4,837,169)
Accumulated other comprehensive income (loss) (150,000) -
---------- -----------
5,923,632 3,252,659
Less: treasury stock, 340,044 and 8,561 shares at cost, for 1998 and 1997, (625,712) (47,085)
---------- -----------
respectively
5,297,920 3,205,574
--------- ----------
$5,297,920 $ 3,205,574
========== =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F - 3
<PAGE>
Compu-DAWN, Inc.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1998 1997
-------- ------
INCOME:
<S> <C> <C>
Interest and other income $ 336,955 $ 111,156
-------- ----------
EXPENSES:
Interest expense and financing loss (Note 5) 17,459 1,610,505
Loss due to terminated investment transaction (Note 9) 296,952 -
314,411 1,610,505
INCOME/(LOSS) FROM CONTINUING OPERATIONS 22,544 (1,499,349)
(LOSS) FROM DISCONTINUED OPERATIONS (Note 13) (2,806,096) (2,937,396)
----------- ------------
(LOSS) BEFORE PROVISION (CREDIT) FOR INCOME TAXES (2,783,552 $(4,436,745)
NET LOSS $(2,783,552) (4,436,745)
============ ============
BASIC INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.01 $ (0.66)
Discontinued operations (0.96) (1.29)
-------- -----------
(0.95) $ (1.95)
========= ============
DILUTED INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.01 $ (0.66)
Discontinued operations (0.74) (1.29)
------- ----------
$ (0.73) $ (1.95)
======== ==========
WEIGHTED AVERAGE OF BASIC COMMON SHARES OUTSTANDING 2,937,724 2,270,047
========= =========
WEIGHTED AVERAGE OF DILUTED COMMON SHARES OUTSTANDING 3,814,259 2,270,047
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
Compu-DAWN, Inc.
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Additional Retained Other Total
Shares Common Stock Paid-in Earnings Comprehensive Treasury Shareholders'
Amount Shares Amount Capital (Deficit) Income (Loss) Stock Equity(Deficit)
------ ------------- ------- --------- ------------- ----- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 - $- 986,700 $ 9,867 $1,670,258 $ (400,424) $ - $ - $1,279,701
Options issued below fair value - - - - 374,500 - - - 374,500
Exercise of stock options - - 408,750 4,088 122,297 - - - 126,385
Treasury stock, 8,561 shares at cost - - - - - - - (47,085) (47,085)
Conversion of debt - - 40,000 400 199,600 - - - 200,000
Conversion of accrued compensation - - 23,000 230 114,770 - - - 115,000
Initial public offering - - 1,380,000 13,800 5,612,074 - - - 5,625,874
Cancellation of options - - - - (32,056) - - - (32,056)
Net loss - - - - - (4,436,745) - - (4,436,745)
--- --- --------- ------ --------- ----------- ----- -------- -----------
Balance at December 31, 1997 - - 2,838,450 28,385 8,061,443 (4,837,169) - (47,085) 3,205,574
Exercise of stock options - - 24,895 248 68,339 - - (47,085) 21,502
Private offering of shares - 3,250 33 327,103 3,271 4,719,842 - - - 4,723,146
Preferred Series A
Exchange of 327,103 common 1,750 17 - - 531,525 - - (531,542) -
shares for Preferred Series B
Shares issued for professional - - 75,000 750 280,500 - - - 281,250
fees
Unrealized loss on investment - - - - - - (150,000) - (150,000)
Net loss - - - - - (2,783,552) - - (2,783,552)
----- ---- --------- ------ ---------- ---------- --------- -------- ----------
BALANCE AT DECEMBER 31, 1998 5,000 $50 3,265,448 $32,654 $13,661,649 $(7,620,721) $(150,000) $(625,712) $ 5,297,920
===== ==== ========= ======= =========== =========== ========= ========= ===========
The accompanying notes are an integral part of these financial statements.
F - 5
</TABLE>
<PAGE>
Compu-DAWN, Inc.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Page 1 of 2
December 31,
1998 1997
-------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net cash used in discontinued operations $ (1,330,626) $ (2,406,501)
Payments in connection with terminated investment transaction (296,952) -
Interest paid (17,459) (22,105)
Interest and other income received 336,955 111,156
Income tax refund received 29,868 6,136
--------- ----------
Net cash (utilized) by operating activities (1,278,214) (2,311,314)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used by discontinued operations (1,913,517) (135,205)
Purchase of marketable securities (2,000,000) -
---------- --------
Net cash (utilized) by investing activities (3,913,517) (135,205)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash used by discontinued operations (105,770) (429,189)
Payments for common stock and options acquired - (34,710)
Net proceeds from sale of shares 4,723,146 5,625,874
Proceeds from exercise of stock options 21,502 79,300
---------
Net cash provided by financing activities 4,638,878 5,241,275
---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (552,853) 2,794,756
Cash and cash equivalents, at beginning of year 3,081,253 286,497
--------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,528,400 $ 3,081,253
============ ============
The accompanying notes are an integral part of these financial statements
</TABLE>
F - 6
<PAGE>
<TABLE>
<CAPTION>
Compu-DAWN, Inc.
STATEMENTS OF CASH FLOWS
Page 2 of 2
December 31,
1998 1997
-------- ------
RECONCILIATION OF NET LOSS TO NET CASH (UTILIZED) BY
OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (2,783,552) $ (4,436,745)
Adjustments to reconcile net loss to net cash (utilized) by
operating activities:
Loss from discontinued operations 1,656,096 2,937,396
Write-off of impaired loan 1,150,000 -
Financing charge - 1,588,400
Changes in assets and liabilities:
Decrease in tax refund receivable 29,868 6,136
--------- ----------
NET CASH FROM CONTINUING OPERATIONS 52,412 95,187
NET CASH UTILIZED BY DISCONTINUED OPERATIONS (1,330,626) (2,406,501)
---------- ----------
NET CASH UTILIZED BY OPERATING ACTIVITIES $(1,278,214) $ (2,311,314)
========== ==========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
(a) During 1997, an officer of the Company converted $200,000 of a loan
payable to him into 40,000 shares of common stock.
(b) During 1997, two officers of the Company converted $115,000 of accrued
compensation into 23,000 shares of common stock.
The accompanying notes are an integral part of these financial statements.
F - 7
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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. Until May 1999, the Company was 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 limited number of customers, to date, are
primarily located in New York State.
Subsequent to the year end, through a newly formed subsidiary,
e.TV Commerce, Inc., the Company began operations in the
internet, e-commerce and telecommunications business (see Note
3).
See Note 13 re: Subsequent Event - Discontinued Operations
regarding a transaction on July 2, 1999.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounting principles. Outlined below are
those policies which are considered particularly significant.
(a) Use of Estimates:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results
could differ from those estimates, management does not expect
such variances, if any, to have a material effect on the
financial statements.
(b) Concentration of Credit Risk /Fair Value:
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of cash
investments and accounts receivable.
The Company maintains, at times, deposits in federally insured
financial institutions in excess of federally insured limits.
Management monitors the soundness of these financial
institutions and feels the Company's risk is negligible.
(c) Marketable Securities:
At December 31, 1998, marketable securities have been
categorized as available for sale and, as a result, are stated
at fair value in accordance with AStatement of Financial
Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities". Unrealized gains and losses are
included in shareholders'equity as other comprehensive income
(loss).
F -8
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(d) Fixed Assets (see Note 13 re: Discontinued Operations):
Fixed assets are recorded at cost. Depreciation of fixed assets
is provided on a straight-line basis as follows:
Computer equipment 3 years
Furniture and fixtures 5 years
Motor vehicles 5 years
Maintenance and repairs are expensed as incurred. Leasehold
improvements are amortized over the useful life of the asset or
the lease, whichever is shorter. Capital leases are amortized
over the term of the respective leases or the useful lives of
the related assets, whichever is shorter.
Depreciation and amortization expense for the years ended
December 31, 1998 and 1997 aggregated $82,674 and $64,529,
respectively, and is included in the loss from discontinued
operations.
(e) Revenue Recognition (see Note 13 re: Discontinued Operations):
The Company generates revenues from the granting of
non-exclusive, 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 warranties 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, for periods ranging from 90 days to
three years. To date, repair costs have been minimal and
therefore the Company has not established a reserve for such
warranty costs.
In addition, the Company 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 revenue.
(f) Software Development Costs (see Note 13 re: Discontinued
Operations):
The Company reflects costs incurred in establishing the
technological feasibility of a computer software product to be
leased or sold, as research and development costs, and expenses
such costs in the period incurred. Research and development
costs for the years ended December 31, 1998 and 1997 aggregated
$515,788 and $935,804, respectively, and are included in the
loss from discontinued operations.
After technological feasibility has been established, all costs
incurred on the software product are to be capitalized and
amortized on a product by product basis. Capitalization of
computer software costs is discontinued when the product is
available to be sold or leased.
To date, the Company has only sold or leased software which has
been developed for specific customers. As such, all costs
incurred have been expensed as research and development costs.
Costs associated with post-contract customer support
(maintenance) are charged to expense when related revenue is
recognized or when those costs are incurred, whichever occurs
first.
F -9
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(g) Advertising Costs (see Note 13 re: Discontinued Operations):
Advertising costs, which are included in loss from discontinued
operations, are expensed as incurred. For the years ended
December 31, 1998 and 1997, advertising costs aggregated
$19,449 and $131,868, respectively.
(h) Income Taxes:
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, and to
net operating loss and tax credit carryforwards, measured by
enacted tax rates for years in which taxes are expected to be
paid or recovered.
Deferred taxes are provided for temporary differences between
financial and tax accounting, principally for differences in
the basis of fixed assets, allowance for doubtful accounts and
other nondeductible expenses, as well as for net operating loss
carryforwards.
See also Note 10.
(i) Earnings Per Share:
In 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 replaced the
previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share, respectively.
Unlike the previously reported primary earnings per share,
basic earnings per share excludes the dilutive effects of stock
options. Diluted earnings per share is similar to the
previously reported fully diluted earnings per share. Earnings
per share amounts for all periods presented have been
calculated in accordance with the requirements of SFAS No. 128.
(j) Statements of Cash Flows:
For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash
equivalents.
(k) Comprehensive Income:
Effective January 1, 1997, the Company adopted Statement of
Financing Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes new rules
for the reporting and display of comprehensive income and its
components. SFAS 130 requires unrealized gains or losses on the
Company"s available-for-sale securities to be included in other
comprehensive income.
The components of comprehensive income were as follows:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Net income (loss) $(2,783,552) $(4,436,745)
Unrealized holding losses on marketable securities (150,000) -
------------ ------------
Comprehensive income (loss) $(2,933,552) $(4,436,745)
=========== ===========
</TABLE>
F -10
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(l) Operating Segments (see Note 13 re: Discontinued Operations):
In June 1997, SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", was issued effective for
fiscal years ending after December 15, 1998. The statement
allows for early adoption. The Company does not believe that,
as of December 31, 1998, it operated in more than one
identifiable segment.
(m) Impact of the 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 A00" 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 Y2K compliant 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 Y2K compliant.
If the systems of such companies are not Y2K compliant, there
could be a material adverse effect on the Company's financial
condition or results of operations.
NOTE 3 - LOAN RECEIVABLE (see Note 13 re: Discontinued Operations):
Through December 1998, the Company loaned an aggregate of
$1,900,000 to LocalNet Communications, Inc. ("LocalNet"), an
unaffiliated Florida corporation in the telecommunications and
internet services marketing business. LocalNet signed 12%,
secured promissory notes due in one year, 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.
On January 7, 1999, subsequent to the balance sheet date, the
Company assigned its interest in this loan to e.TV Commerce,
Inc., a newly-formed subsidiary. On January 8, 1999, LocalNet
peacefully surrendered the assets representing the collateral
underlying this loan. The fair value of the assets at the time
of surrender was determined to be approximately $750,000.
Accordingly, the Company has written down the loan receivable
by $1,150,000, in order to reflect this receivable at its fair
value.
Through e.TV Commerce, Inc., the Company began operations in
various businesses similar to that of LocalNet in January 1999,
subsequent to the balance sheet date.
F -11
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - CAPITALIZED LEASE OBLIGATIONS (see Note 13 re: Discontinued
Operations):
The Company has entered into various capital leases for
furniture, fixtures and equipment which expire in years through
2001. The assets and liability under these capital leases are
recorded at the lower of the present value of the minimum lease
payments or the fair market value of the assets. The assets are
depreciated over their estimated useful lives. Depreciation of
assets under capital leases for the years ended December 31,
1998 and 1997 aggregated $9,349 for each year.
Minimum future lease payments under capital leases as of
December 31, 1998 are as follows:
1999 $ 9,474
2000 9,474
2001 8,684
---------
Total minimum lease payments 27,632
Less: amount representing interest 5,191
--------
$22,441
=======
NOTE 5 - DEBT OFFERING:
In October 1996, the Company successfully completed the sale of
77 units in a private offering, each unit consisting of a
$10,000 principal amount 12% promissory note ("bridge note")
and a redeemable stock purchase warrant to acquire 5,600 shares
of the Company's common stock for aggregate gross proceeds of
$770,000. The warrants were exercisable at a price of $.50 per
share only upon the successful completion of an Initial Public
Offering ("IPO"), of the Company's common stock.
The agreement stated that each of the bridge notes is due and
payable upon the closing of the IPO. In the event such closing
occurs on or before September 15, 1997, no interest will be
payable on these notes. In the event that the Company closes an
IPO after September 15, 1997 but before September 15, 1999, the
notes shall bear interest at a rate of 8% per annum and be
payable upon the closing of the IPO. In the event the Company
does not close an IPO by September 15, 1999, interest shall
accrue at a rate of 12% per annum through such date and the
notes shall be payable in 120 equal monthly installments with
interest at a rate of 8% per annum beginning September 16,
1999.
In accordance with APB No. 14, the proceeds of debt issued with
stock purchase warrants should be allocated based on the fair
values of the debt without the warrants and of the warrants
themselves when issued. Accordingly, the Company reflected
deferred financing costs and additional paid-in capital based
upon the difference between the deemed fair value of the
warrants ($4.00) and the warrant exercise price.
Financing costs, which represent costs incurred in connection
with this private offering, are to be charged to operations as
additional interest expense over the term of the bridge notes.
In April 1997, the holders of the bridge notes agreed to (i)
increase the exercise price of the five year warrants issued to
them from $.50 per warrant to $3.00 per warrant and (ii)
increase the holding period of these warrants from six months
to two years from the effective date of the IPO.
In June 1997, the Company successfully completed its IPO (see
Note 7) and repaid these promissory notes. In connection with
this repayment, the Company fully amortized deferred financing
costs originally capitalized in connection with the notes. This
amount has been reflected as a non-recurring charge in the
statement of operations.
F -12
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - NOTE PAYABLE - OFFICER (see Note 13 re:Discontinued Operations):
In April 1997, the Chairman of the Board of the Company agreed
to convert a $200,000 loan payable to him by the Company into
common shares at a conversion price of $5.00 per share (the IPO
price) upon the consummation of such IPO. In addition, this
officer agreed to provide a $500,000 credit line to the Company
for a period of two years, secured by all assets of the
Company. As of December 31, 1998 and 1997, the balance
outstanding under this credit line was $50,000 and $150,000,
respectively which amount is payable in quarterly installments
of $25,000 plus interest at 10% per annum. For the years ended
December 31, 1998 and 1997, the interest expense relating to
these loans aggregated $10,208 and $11,191.
NOTE 7 - CAPITAL STOCK AND EQUIVALENTS:
In October 1996, simultaneously with its reincorporation in the
State of Delaware, (see Note 1) the Company increased its
authorized capital to 20,000,000 shares of common stock, $.01
par value, and 1,000,000 shares of preferred stock, $.01 par
value. The Company also effected a stock split of its issued
and outstanding common stock on a 325 for 1 basis, resulting in
1,157,000 shares. This stock split was reflected retroactively
in the financial statements and accordingly, all references to
the number of common shares issued and outstanding were
restated.
During April 1997, options were exercised to purchase 408,750
shares of common stock for which the Company received $79,300
in cash proceeds and 8,561 shares of Company common stock with
a fair market value of $47,085.
In April 1997, two officers (the President and the Chairman of
the Board) agreed to convert $115,000 of accrued compensation
into common shares at a conversion price of $5.00 per share
(the IPO price), such conversion to occur upon the consummation
of the IPO.
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.
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 $4,723,000.
On September 26, 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.
F -13
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - CAPITAL STOCK AND EQUIVALENTS (Continued):
During 1998, options were exercised to acquire 24,895 shares of
common stock, for which the Company received $21,502 in cash
proceeds and 4,380 shares of Company common stock with a fair
market value of $47,085.
NOTE 8 - STOCK OPTIONS:
In October 1996, the Company established a Stock Option Plan
under which options (including non-statutory options) to
purchase up to 2,000,000 shares may be granted to eligible
persons. As of December 31, 1996, the Company had granted
options to purchase an aggregate of 491,950 shares of common
stock at prices ranging from $.30 to $4.00, aggregating
$221,485. In connection therewith the Company recorded deferred
compensation (measured as the excess of the fair value of the
underlying stock over the exercise price of the option at date
of grant) of $37,000. During 1997, prior to the consummation of
the IPO, the Company granted additional options to purchase an
aggregate of 187,250 shares of common stock at an exercise
price of $3.00 aggregating $561,750, and recorded additional
deferred compensation costs of $374,500. Deferred compensation
costs are being amortized over the vesting period of the
related options. Amortization of such costs for the years ended
December 31, 1998 and 1997, aggregated $98,270 and $278,230,
respectively.
The Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) and related interpretations in accounting for its employee
stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation" requires use of
option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, if the exercise
price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no
compensation expense is recognized.
Pro forma information regarding net income and earnings per
share is required by Statement 123, and has been determined as
if the Company had accounted for its employee stock options
under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a
Black- Scholes option pricing model with the following
weighted-average assumptions for 1998 and 1997, respectively:
risk-free interest rates of 5% and 6.1%; dividend yields of
1.5% and 2.6%; volatility factors of the expected market price
of the Company's common stock of 60% and 65%; and a
weighted-average expected life of the options of seven years.
The Black-Scholes option valuation model was developed for use
in estimating the fair value of traded options which have no
vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective
assumptions including the expected stock price volatility.
Because the Company's employee stock options have
characteristics significantly different from those of traded
options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its
employee stock options.
F -14
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - STOCK OPTIONS (Continued):
For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options vesting
period. The Company's pro forma information follows:
1998 1997
--------------- -----------
Net loss:
As reported $(2,783,552) $(4,436,745)
Pro forma (3,140,736) (4,883,470)
Basic loss per share:
As reported $(0.95) $(1.95)
Pro forma (1.07) (2.15)
A summary of stock option activity, and related information for
the two years in the period ended December 31, 1998 follows:
Weighted Average
Exercise
Options Price
Granted 491,950 $0.45
Exercised - -
Canceled - -
------------- -------
Outstanding, December 31, 1996 491,950 0.45
Granted 278,311 4.04
Exercised (410,417) 0.32
Canceled (55,000) 1.69
--------- ------
Outstanding, December 31, 1997 304,844 3.69
Granted 490,100 5.82
Exercised (24,895) 2.76
Canceled (265,083) 6.56
-------- ------
Outstanding, December 31, 1998 504,966 4.22
======== ======
Weighted average fair value of options granted during the
year ended:
December 31, 1996 $8.62
December 31, 1997 $7.67
December 31, 1998 $4.31
Options exercisable:
December 31, 1996 389,950
December 31, 1997 49,533
December 31, 1998 320,919
F -15
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - STOCK OPTIONS (Continued):
Exercise prices for options outstanding as of December 31, 1998
ranged from $.50 to $5.00 per share. The weighted-average
remaining contractual life of these options is seven years.
In 1997, the Company established the 1997 Qualified Employee
Stock Purchase Plan which provides for the grant of up to a total
of 250,000 options intended to qualify as employee incentive
stock options. The exercise price of options granted under this
plan shall be the lesser of 85% of fair market value of the
Company's common shares at date of grant or 85% of the fair
market value on the exercise date. In December 1997, this plan
was amended to commence on January 1, 1999.
Effective January 8, 1999, subsequent to the balance sheet date,
the Company adopted its 1999 Restricted Stock Rights Grant Plan
(the "Rights Plan"). The Rights Plan provides for the issuance of
up to 2,000,000 common shares to the Rights Plan participants
based on a formula which provides for the participants to share
up to 2,000,000 common shares (the "Performance Shares") if the
Company generates up to $10,000,000 in earnings before taxes by
December 31, 2001, including making up any losses during the
years 1999 through 2001, if any. If the Company earns less than
$10,000,000, the number of Performance Shares will be pro rated
based on one share for each $5.00 in earnings before taxes. The
Rights Plan participants include certain officers and employees
and any other person who is employed by or is providing services
to the Company or its subsidiaries and who is elected as a
participant. The participants will be issued the Performance
Shares based on their respective pro rata ownership of the
Company securities on the date the Rights Plan was adopted.
However, each participant must be employed by or providing
services to the Company or its subsidiaries in connection with
the e.TV business on December 31, 2001 in order to receive any
Performance Shares. In addition, the issuance of the Performance
Shares is subject to, among other things, any consent or approval
of any regulatory body or the stockholders of the Company, if
such consents or approvals are necessary.
NOTE 9 - 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.
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.
See also Note 12 re: Subsequent Litigation.
F -16
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - INCOME TAXES:
The Company has net operating loss carryforwards as of December
31, 1998, of approximately $7,100,000 ($4,400,000 at December 31,
1997), which may be applied against future taxable income, and
which expire in various years beginning after 2011. Since there
is no assurance that the Company will generate future taxable
income to utilize the deferred tax asset resulting from its net
operating loss carryforwards, the Company has not recognized this
asset.
NOTE 11 - COMMITMENTS (see Note 13 re: Discontinued Operations):
(a) In October 1996, the Company entered into a lease, for its
current executive offices, which provides for base annual rental
of $85,000. This lease, which is for an initial term of five
years, has scheduled annual increases, and can be renewed for an
additional five year period. The total amount of the base rent
payments is being charged to expenses using the straight-line
method over the term of the lease. The Company has recorded a
deferred credit to reflect the excess of rent expense over cash
payments since the inception of this lease. Previously, the
Company was occupying space pursuant to a lease which expired in
March 1997. Rent expense for the years ended December 31, 1998
and 1997 aggregated $78,354 and $99,770, respectively.
At December 31, 1998, future minimum rentals are as follows:
1999 $ 87,975
2000 93,075
2001 72,675
---------
Total $ 253,725
(b) The Company also leases certain types of equipment under
operating leases which expire at various dates through 1999.
Lease payments, which are charged to operations, aggregate
approximately $1,100 per month.
(c) Effective October 1, 1996, the Company entered into a
three-year employment agreement with the Chief Executive
Officer of the Company. This agreement provides for annual
compensation of $250,000 and a performance bonus based on a
fixed formula. Subsequent to the balance sheet date, this
officers' employment agreement was amended to terminate the
existing bonus compensation terms. This officer will be
entitled to a performance based bonus, the details of which
have not yet been determined. In addition to the above, this
officer was granted 200,000 common stock purchase warrants and
was included in the Company's new 1999 Stock Rights Grant Plan.
Effective October 1, 1996, the Company entered into a
three-year employment agreement with its President and Chief
Operating Officer. This agreement provided for annual
compensation of $125,000 and a signing bonus of $15,000. In
December 1997, the Company entered into negotiations with this
officer with regards to a proposed termination of his
employment agreement. Under the proposed termination agreement,
this officer would receive severance pay of approximately
$216,000 and would sell a substantial portion of his equity
share holdings in the Company pursuant to the Company's
Registration Statement on Form S-8 and Rule 144 promulgated
under the Securities Act of 1933, as amended and/or to the
current Chairman and Chief Executive Officer and/or his
designee. This termination agreement was executed on March 17,
1998.
F -17
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 11 - COMMITMENTS (Continued):
In January 1997, the Company entered into a three-year
employment agreement with an employee to serve as the Company's
Chief Technology Officer. Such agreement provides for an annual
base salary of $200,000, $225,000 and $250,000 in the first,
second and third years, respectively. For the 12 month period
beginning March 1, 1999, this officer waived his increase and
his salary will remain at the $225,000 level. Other terms of
this employment agreement conform in structure to the material
provisions of the employment agreement for the Chief Executive
Officer as described above, including the 1999 Stock Rights
Grant Plan.
Subsequent to the balance sheet date, and in connection with
e.TV Commerce, Inc. (see Note 3) the Company entered into three
year employment agreements with a new Chairman of the Board of
Directors of the Company and an individual who will serve as
the Company's Executive Vice President and President of e.TV
Commerce, Inc. Each of these agreements provide for a salary of
$208,000 per annum, an issuance of options for 200,000 and
650,000 common shares, respectively and bonuses all on terms
similar to those of the chief executive officer, as described
above. These two officers were also included in the 1999 Stock
Rights Grant Plan (see Note 8).
NOTE 12 - SUBSEQUENT LITIGATION:
In connection with the termination of a potential investment
transaction (see Note 9), on March 4, 1999 (subsequent to the
balance sheet date), the Company became aware of an action
brought in the Supreme Court of the State of New York, Nassau
County. The plaintiffs, Rugby National Corp., ("Rugby"), Harvey
Weinstein and Credomarka National Corp., have filed a complaint
against the Company and the Company's Chief Executive Officer,
alleging that the Company wilfully failed, without good cause,
to consummate a plan of merger agreement dated April 22, 1998.
The complaint states that Rugby's business was allegedly
damaged after the Company consummated a $5,000,000 private
placement and subsequently terminated the merger agreement, and
that the Company's chief executive officer falsely induced
Rugby and Weinstein to give their consent to the private
placement. The plaintiffs are claiming damages of $6,000,000.
Counsel to the Company has stated that no discovery has yet
been conducted and that due to the inherent uncertainties in
litigation in general, they cannot predict or guarantee the
outcome of this litigation at this time.
The Company believes it has meritorious defenses and intends to
vigorously defend this action.
NOTE 13 - SUBSEQUENT EVENT - DISCONTINUED OPERATIONS:
In May 1999, the Company decided to divest itself of its public
safety software business and on July 2, 1999 consummated the
sale of certain of the assets of this division to an
unaffiliated third party. The Company received $500,000 in
cash, and is entitled to receive software royalty payments for
five years ranging from 6.25% to 10% of future sales of
products containing the Company's technology or sales to former
customers of the public safety software business.
The accompanying financial statements have been reclassified to
reflect the effect of the discontinued operations.
F -18
<PAGE>
Compu-DAWN, Inc.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 13 - SUBSEQUENT EVENT - DISCONTINUED OPERATIONS (Continued):
Net sales for the public safety software business for 1998 and
1997 were $1,248,489 and $591,375, respectively. These amounts
are not included as revenues in the accompanying financial
statements.
Net assets of the discontinued operations have been separately
classified in the accompanying balance sheet at December 31,
1998. The 1997 balance sheet has been restated to conform with
the current year's presentation.
In addition to the above, the Company also decided to
discontinue the operations of its only other subsidiary (see
Note 3). Accordingly, all assets and liabilities relating to
both operating segments have been reclassified to discontinued
operations.
Net assets of the discontinued operations consisted of the
following at December 31,
<TABLE>
<CAPTION>
1998 1997
-------- ------
NET ASSETS TO BE DISPOSED OF:
<S> <C> <C>
Accounts receivable - net $ 319,392 $ 72,454
Less: Deferred revenue (173,953) (12,000)
-------- -------
145,439 60,454
Fixed assets - net 218,374 278,737
-------
ASSETS TO BE SOLD 363,813 339,191
-------
ASSETS:
Loan receivable (Note 3) 736,318 -
Prepaid expenses 68,272 121,802
Security deposits 21,525 21,525
Deferred compensation - 98,270
LIABILITIES:
Accounts payable and accrued expenses (169,519) (278,722)
Note payable - officer (50,000) (150,000)
Capitalized lease payable (22,441) (28,211)
Deferred rent liability (28,448) (29,402)
------- --------
555,707 (244,738)
--------- --------
NET ASSETS OF DISCONTINUED OPERATIONS $ 919,520 $ 94,453
========== ===========
</TABLE>
F - 19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COMPU-DAWN, INC.
February 11, 2000 By:/S/ Paul K. Danner
---------------------------------------
Paul K. Danner, Chief Executive Officer
<PAGE>
<TABLE>
<CAPTION>
Compu-DAWN, Inc.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
For the Year Ended
December 31,
1998 1997
---- ----
NET INCOME (LOSS):
<S> <C> <C>
Continuing operations $ 22,544 $(1,499,349)
Discontinued operations (2,806,096) (2,937,396)
------------ -----------
$(2,783,552) $ (4,436,745)
=========== ==========
BASIC INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.01 $ (0.66)
Discontinued operations (0.96) (1.29)
------- ------
$ (0.95) $ (1.95)
======= =========
DILUTED INCOME (LOSS) PER COMMON SHARE:
Continuing operations $ 0.01 $ (0.66)
Discontinued operations (0.74) (1.29)
-------- ---------
$ (0.73) $ (1.95)
========= =========
WEIGHTED AVERAGE OF BASIC COMMON SHARES OUTSTANDING 2,937,724 2,270,047
========= ==========
WEIGHTED AVERAGE OF DILUTED COMMON SHARES OUTSTANDING 3,814,259 2,270,047
========= ==========
</TABLE>
- Exhibit 11 -
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference, in the Registration
Statement #333-18667 on Amendment No. 1 to Form SB-2 on Form S-3, the
Registration Statement #333-39327 on Form S-8, the Registration Statement
#333-65303 on Form S-3, and the Registration Statement #333-82137 on Form S-8,
of our report dated February 25, 1999 (except as to Note 12 which is dated March
4, 1999 and Note 13 which is dated July 2, 1999) which appears on page F-2 of
the annual report on Form 10-KSB of MyTurn.com, Inc. (f/k/a Compu-DAWN, Inc.)
for the year ended December 31, 1998 and on page F-2 of the amendment to the
Annual Report on Form 10- KSB/A, Amendment No. 1 of MyTurn.com, Inc. for the
year ended December 31, 1998.
/s/ Lazar Levine & Felix LLP
LAZAR LEVINE & FELIX LLP
New York, New York
February 11, 2000
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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 year ended December 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. Dollars
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,528,400
<SECURITIES> 1,850,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,297,920
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,297,920
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
50
<COMMON> 32,654
<OTHER-SE> 5,265,216
<TOTAL-LIABILITY-AND-EQUITY> 5,297,920
<SALES> 0
<TOTAL-REVENUES> 336,955
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 296,952
<LOSS-PROVISION> 1,150,000
<INTEREST-EXPENSE> 17,459
<INCOME-PRETAX> (1,127,456)
<INCOME-TAX> 0
<INCOME-CONTINUING> 22,544
<DISCONTINUED> (2,806,096)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,783,552)
<EPS-BASIC> (0.95)
<EPS-DILUTED> (0.73)
</TABLE>
