<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from
__________ to _________
Commission file number 000-23327
DAYTON GENERAL SYSTEMS, INC.
Incorporated Under the Laws I.R.S. Employer
of the Commonwealth of Pennsylvania Identification No.
31-1551295
2492 Technical Drive
Miamisburg, Ohio 45342
(937) 847-7800
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 1,281,286 shares as of
March 31, 1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
--------- ------
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements..................................................3
ITEM 2. Management's Discussion and Analysis or Plan of Operations............7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.....................................................9
ITEM 2. Changes in Securities and Use of Proceeds.............................9
ITEM 3. Defaults Upon Senior Securities.......................................9
ITEM 4. Submission of Matters to a Vote of Security Holders...................9
ITEM 5. Other Information.....................................................9
ITEM 6. Exhibits and Reports on Form 8-K......................................9
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
PART I.
ITEM 1. - FINANCIAL STATEMENTS
BALANCE SHEETS
ASSETS MARCH 31, 1998 DECEMBER 31, 1997
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 13,093 $ 18,150
Accounts receivable 153,121 66,992
Note receivable - shareholder 3,226 12,023
Inventories 98,091 88,555
Prepaid expenses 4,952 6,752
--------- ---------
Total current assets 272,483 192,472
PROPERTY AND EQUIPMENT - NET 14,087 16,600
OTHER ASSETS
Deferred stock issuance costs 285,812 252,193
Capitalized software costs 82,182 89,631
Noncompete covenant -- --
Goodwill 1,333 1,396
Deposits 895 895
--------- ---------
Total other assets 370,222 344,115
--------- ---------
$ 656,792 $ 553,187
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Line of credit $ 74,000 $ 58,000
Notes payable 187,513 75,000
Accounts payable 205,945 135,515
Accrued expenses 27,250 21,404
Unearned revenue 148,752 104,810
Other current liabilities 14,501 14,501
--------- ---------
Total current liabilities 657,961 409,230
COMMITMENTS -- --
SHAREHOLDERS' EQUITY (DEFICIT)
Common stock at aggregate cost, no par value;
10,000,000 shares authorized; 1,281,286 issued at
March 31, 1998, and December 31, 1997 414,687 414,687
Preferred stock, 100,000 shares authorized; no shares
issued or outstanding -- --
Additional paid-in capital 36,168 36,168
Accumulated deficit (452,024) (306,898)
--------- ---------
Total shareholders' equity (deficit) (1,169) 143,957
--------- ---------
$ 656,792 $ 553,187
========= =========
</TABLE>
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<PAGE> 4
DAYTON GENERAL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
1998 1997
<S> <C> <C>
Revenues:
Systems and related software sales $ 23,336 $ 57,599
Service revenue 161,457 133,612
----------- -----------
184,793 191,211
Cost of revenues 56,434 60,517
----------- -----------
Gross margin 128,359 130,694
Operating expenses:
Selling, general and administrative 244,107 162,193
Research and development 28,171 11,719
----------- -----------
272,278 173,912
Loss from operations (143,919) (43,218)
Other income (expense):
Interest income 264 45
Miscellaneous income -- 301
Interest expense (1,471) (67)
----------- -----------
(1,207) 279
----------- -----------
Loss before income taxes (145,126) (42,939)
Income taxes -- --
----------- -----------
NET LOSS $ (145,126) $ (42,939)
=========== ===========
Weighted average common shares outstanding 1,281,286 1,094,178
----------- ===========
Net loss per common share - basic and diluted $ (.11) $ (.04)
----------- ===========
</TABLE>
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<PAGE> 5
DAYTON GENERAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $(145,126) $ (42,939)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 10,300 4,381
Changes in assets and liabilities:
Accounts receivable (86,129) (31,738)
Inventories (9,536) 1,118
Prepaid expenses and deposits 1,800 --
Accounts payable 70,430 26,640
Accrued expenses 5,846 (7,996)
Unearned revenue 43,942 (53,888)
Net cash used in operating activities (108,473) (104,422)
Cash flows from investing activities:
Payments received on note due from shareholder 8,797 --
Purchases of property and equipment (275) (665)
Capitalization of software development expenditures -- (8,500)
--------- ---------
Net cash provided by (used in) investing activities 8,522 (9,165)
Cash flows from financing activities:
Net borrowings under line of credit 16,000 --
Proceeds of notes payable 141,777 --
Payments on notes payable (29,264) --
Proceeds from issuance of common stock -- 131,250
Stock issuance costs (33,619) (30,673)
--------- ---------
Net cash provided by financing activities 94,894 100,577
Net decrease in cash and cash equivalents (5,057) (13,010)
Cash and cash equivalents at beginning of period 18,150 24,480
--------- ---------
Cash and cash equivalents at end of period $ 13,093 $ 11,470
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 3,541 $ 67
========= =========
Local income taxes $ -- $ --
========= =========
</TABLE>
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<PAGE> 6
DAYTON GENERAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1998
1. BASIS OF PRESENTATION
---------------------
The financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Although certain information and footnote disclosures,
normally included in financial statements prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to such
rules and regulations, the Company believes that the disclosures are adequate to
make the information presented not misleading. These financial statements should
be read in conjunction with the financial statements and the notes thereto
included in the Company's latest Annual Report on Form 10-KSB.
The information furnished in these financial statements reflects all estimates
and adjustments which are, in the opinion of management, necessary to present
fairly the results for the interim periods reported, and all adjustments and
estimates are of a normal recurring nature.
2. BUSINESS
--------
Dayton General Systems, Inc. (the "Company") has been primarily in the business
of designing, building, installing and servicing computerized building
automation systems for use in non-residential buildings, wastewater treatment
plants and educational institutions. In addition, in 1997, the Company changed
its focus to become a software technology solution provider to the building
control and industrial control and automation industries through its
commercialized software products.
3. BANK BORROWING
--------------
In April, 1998, the Company re-negotiated its note commitment with its bank. The
revised terms make $150,000 available to the Company at prime plus .75% with
interest to be paid monthly. The note is a revolving agreement which is reviewed
monthly. There were no changes to the collateral for the note and it continues
to be guaranteed by the majority shareholder.
4. PROPOSED INITIAL PUBLIC OFFERING
--------------------------------
The Company continues to seek permanent financing through its Initial Public
Offering (IPO) which was effective in February, 1998. The Company and its
underwriter agreed in May, 1998 to continue the IPO until August, 1998. As of
May 15, 1998, the Company has not issued any common shares to the public.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- -----------------------------------------------------------------
GENERAL
The Company has continued to execute its business plan under which its efforts
are focused on the VisualControl product line. Approximately 90% of revenues are
realized from the Company's pre-existing products and related service agreements
while its sales, marketing, and product development efforts are dedicated to the
VisualControl product line.
RESULTS OF OPERATIONS
The following table sets forth the items noted as a percentage of sales for the
period indicated:
<TABLE>
<CAPTION>
Quarter Ended March 31,
1998 1997
---- ----
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of Revenues 30.5 31.6
---- ----
Gross Profit 69.5 68.4
Selling, General & Administrative 132.2 84.9
Research and Development 15.2 6.1
Operating loss (77.9) (22.6)
Interest Expense (0.9) -
Other income 0.2 0.1
Loss before taxes (78.6) (22.5)
Income taxes - -
Net loss (78.6) (22.5)
</TABLE>
REVENUES - Total revenues decreased approximately 3.4% from 1997 to 1998. System
and hardware sales decreased by approximately $24,000 or 59.5% as the Company
reduced its focus on its sales of hardware and software related to its
pre-existing product line. Sales of VisualControl products were $17,875 and
$20,271 in 1998 and 1997, respectively. Service revenue increased in 1998 over
1997 by approximately $27,000 or 20.8% as the Company increased service billings
on certain projects.
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<PAGE> 8
GROSS PROFIT - Gross profit margin increased slightly from 68.4% in 1997 to
69.5% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Expenses have increased
approximately 50.5% in 1998 over 1997 or approximately $82,000. Of the increase,
approximately $65,000 is principally payroll and related costs associated with
sales, marketing, development and administrative personnel hired as part of the
Company's strategic business plan. An additional $6,000 is increased
amortization associated with the software development costs of VisualControl and
related products that were capitalized in 1997. The balance of the increase or
approximately $11,000 is from minor increases in a number of expense categories.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs increased by
$17,000 in 1998 over 1997 as the VisualControl product line was moved from the
development phase in 1997 to being a commercialized product in 1998.
INCOME TAXES - No income taxes have been recorded in 1998 and 1997 as a full
valuation allowance was recorded against the net deferred tax assets arising
from the Company's net operating losses.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997 and March 31, 1998, the Company had cash and cash
equivalents of approximately $18,150 and $13,093, respectively, and working
capital was ($216,758) and ($385,478). Cash used in operations for 1997 and the
quarter ended March 31, 1998 was ($104,422) and ($108,473), respectively, caused
principally by the net losses for those periods. Financing activities associated
principally with the sale of Common stock and bank borrowings have resulted in
cash inflows of $100,597 in 1997 and $94,894 in the quarter ended March 31,
1998. The Company has a $75,000 line of credit and $150,000 note agreement with
a commercial bank under which it has approximately $10,000 available. In
addition, the Company is making an initial public offering (the "Offering")
under which it intends to raise additional capital. The Offering began in
February, 1998 for a ninety day period and has been extended by mutual agreement
with the underwriter until August, 1998.
The Company believes that the proceeds of the Offering, together with
operations, and borrowings from banks and private sources will be sufficient to
meet the Company's liquidity needs. In the event the Offering is not
successfully completed the Company will seek other sources of financing such as
debt or private placement of equity to achieve its business plan.
- 8 -
<PAGE> 9
PART II.
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
There is no pending or, to the Company's knowledge, threatened legal proceeding
to which DGS is or would be a party.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- -------------------------------------------------
There have been no sales of unregistered securities during the quarter ending
March 31, 1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ---------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
- -------------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(A) EXHIBITS
=============================================================================
EXHIBIT
NO. DESCRIPTION
- -----------------------------------------------------------------------------
27 Financial Data Schedule
=============================================================================
(B) REPORTS ON FORM 8-K. None.
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<PAGE> 10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, as of the 15th day of May, 1998.
DAYTON GENERAL SYSTEMS, INC.
By: /s/ Thomas C. Haas
----------------------------------------------
Thomas C. Haas
President and Chief Executive, Accounting and
Financial Officer
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 191,211
<TOTAL-REVENUES> 191,211
<CGS> 60,517
<TOTAL-COSTS> 60,517
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67
<INCOME-PRETAX> (42,939)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42,939)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,939)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 13,093
<SECURITIES> 0
<RECEIVABLES> 153,121
<ALLOWANCES> 0
<INVENTORY> 98,091
<CURRENT-ASSETS> 272,483
<PP&E> 64,066
<DEPRECIATION> 49,979
<TOTAL-ASSETS> 656,742
<CURRENT-LIABILITIES> 657,961
<BONDS> 0
0
0
<COMMON> 414,687
<OTHER-SE> 36,168
<TOTAL-LIABILITY-AND-EQUITY> 656,792
<SALES> 184,793
<TOTAL-REVENUES> 184,793
<CGS> 56,434
<TOTAL-COSTS> 56,434
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,471
<INCOME-PRETAX> (145,128)
<INCOME-TAX> 0
<INCOME-CONTINUING> (145,128)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,128)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
