<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from
COMMISSION FILE NUMBER: 0-17864
DAWN TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3493060
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
433 South Main St., West Hartford, CT 06410
(Address of principal executive offices)
(860) 561-3979
(Issuer's telephone number)
500 White Plains Road, Tarrytown, NY 10591
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the issuer's common stock, as of April 30,
1996, was:
Class of Stock Shares Outstanding
- ------------------------------------- ---------------------------------
Common Stock $.001 par value per share 9,036,478
The exhibit index is located at page 13 of this report.
1 of 14
<PAGE> 2
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Consolidated Balance Sheets, September 30, 1996 (Unaudited) and
December 31, 1995 3
Consolidated Statements of Income and Accumulated Deficit
Nine Months and Three Months Ended September 30, 1996 4
and 1995 (Unaudited)
Consolidated Statements of Cash Flows.
Nine Months Ended September 30,1996 and 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION 12
</TABLE>
2
<PAGE> 3
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 78,073 $ 96,005
Accounts receivable, less allowance for doubtful accounts
of $2,500 in 1996 and 1995 751,939 1,015,925
Inventories 702,753 827,735
Other current assets 1,200 24,865
------------------ ------------------
Total current assets 1,533,965 1,964,530
PROPERTY AND EQUIPMENT, less accumulated depreciation
and amortization of $740,680 in 1996 and $732,805 in 1995 624,740 656,749
------------------ ------------------
$ 2,158,705 $ 2,621,279
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank note payable $ 100,000 $ 100,000
Current portion of long-term debt 254,167 516,667
Current portion of capitalized lease obligation 19,598 17,798
Accounts payable and accrued expenses 669,213 963,481
Accrued payroll and related liabilities 105,684 301,314
Current portion of accrued cost of non-compete agreement 120,696 87,710
Income taxes payable 10,845 59,522
------------------ ------------------
Total current liabilities 1,280,203 2,046,492
------------------ ------------------
OTHER LIABILITIES:
Capitalized lease obligation, less current portion 51,726 69,801
Accrued cost of non-compete agreement, less current portion 303,125 358,143
------------------ ------------------
Total other liabilities 354,851 427,944
------------------ ------------------
STOCKHOLDERS' EQUITY:
Common stock, .001 par value, 15,000,000 shares
authorized, 9,036,478 and 9,108,978 shares issued
and outstanding in 1996 and 1995, respectively 9,036 9,109
Capital in excess of par value 2,314,484 2,341,911
Unearned restricted common stock issued (186,566) (224,066)
Accumulated deficit (1,613,303) (1,980,111)
------------------ ------------------
Total stockholders' equity 523,651 146,843
------------------ ------------------
$ 2,158,705 $ 2,621,279
================== ==================
</TABLE>
See the accompanying notes to consolidated financial statements
3
<PAGE> 4
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------ -----------------------
1996 1995 1996 1995
------------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
SALES $ 4,501,807 $ 5,197,966 $ 1,255,346 $ 1,216,970
---------------- --------------- --------------- ----------------
COSTS AND EXPENSES:
Cost of sales 3,533,662 4,058,622 964,631 989,697
Selling, general and
administrative expenses 727,416 1,051,886 168,879 377,134
Product development expenses 15,791 76,483 -- 16,058
---------------- --------------- --------------- ----------------
Total costs and expenses 4,276,869 5,186,991 1,133,510 1,382,889
---------------- --------------- --------------- ----------------
INCOME(LOSS) FROM OPERATIONS 224,938 10,975 121,836 (165,919)
---------------- --------------- --------------- ----------------
OTHER INCOME(EXPENSE):
Gain on disposition of Property -- 25,000 -- 25,000
Interest Expense (79,256) (100,564) (19,014) (35,444)
---------------- --------------- --------------- ----------------
(79,256) (75,564) (19,014) (10,444)
---------------- --------------- --------------- ----------------
NET INCOME(LOSS) BEFORE GAIN 145,682 (64,589) 102,822 (176,363)
GAIN FROM INSURANCE PROCEEDS 221,126 -- 221,126 --
---------------- --------------- --------------- ----------------
NET INCOME(LOSS) 366,808 (64,589) 323,948 (176,363)
ACCUMULATED DEFICIT. beginning of
period (1,980,111) (2,128,004) (1,937,251) (2,016,230)
---------------- --------------- --------------- ----------------
ACCUMULATED DEFICIT, end of period $ (1,613,303) $ (2,192,593) $ (1,613,303) $ (2,192,593)
================ =============== =============== ================
NET INCOME(LOSS) PER COMMON SHARE $ 0.041 $ (0.007) $ 0.036 $ (0.019)
================ =============== =============== ================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,036,478 8,985,810 9,036,478 9,108,978
================ =============== =============== ================
</TABLE>
See the accompanying notes to consolidated financial statements
4
<PAGE> 5
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(Loss) $ 366,808 $ (64,589)
Adjustments to reconcile net income(loss) to net cash provided
by operating activities:
Depreciation and amortization 64,800 88,000
Allowance for doubtful accounts -- 10,000
Common stock issued for product development expenses -- 40,425
Expenses related to restricted common stock earned 10,000 --
Gain on disposition of property -- (25,000)
Changes in assets and liabilities:
Accounts receivable 263,986 162,052
Inventories 124,982 (128,256)
Other current assets 23,665 23,418
Accounts payable and accrued expenses (295,468) 75,946
Accrued payroll and related liabilities (195,630) (52,816)
Accrued cost of non-compete agreement -- (61,152)
Income taxes payable (48,677) 4,945
---------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 314,466 72,973
---------------- --------------
NET CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Proceeds from sale of equipment -- 25,000
Purchases of property and equipment (31,591) (127,032)
---------------- --------------
(31,591) (102,032)
---------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for non-compete agreement (22,032) --
Proceeds from short-term borrowings -- 100,000
Repayments of long-term debt (278,775) (262,500)
---------------- --------------
NET CASH (USED IN) FINANCING ACTIVITIES (300,807) (162,500)
---------------- --------------
NET DECREASE IN CASH (17,932) (191,559)
CASH, beginning of period 96,005 221,944
---------------- --------------
CASH, end of period $ 78,073 $ 30,385
================ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 21,145 $ 1,055
================ ==============
Interest paid $ 78,295 $ 54,120
================ ==============
</TABLE>
See the accompanying notes to consolidated financial statements
5
<PAGE> 6
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Financial Statements - The accompanying unaudited consolidated financial
statements have been prepared in accordance with the instructions to Form
10-QSB and do not include all the information and footnotes required by
generally accepted accounting principles. All adjustments which are of a
normal recurring nature and, in the opinion of management, necessary for a fair
presentation have been included. These statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's annual report filed in its Form 10-KSB for the year ended December
31, 1995.
NOTE 2 - RELATED PARTY TRANSACTIONS:
One of the Company's directors charged the Company $37,500 for each of the nine
months ended September 30, 1996 and 1995.
NOTE 3 - MAJOR CUSTOMERS:
At September 30, 1996, accounts receivable included approximately $675,897 from
three major customers. Approximate sales to major customers are summarized
below:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- ------------------
1996 1995 1996 1995
--------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
International Business Machines Corp $ 1,000,948 $ 1,693,000 $ 239,028 $ 405,000
United States Defense Department 107,313 913,000 53,621 74,000
United States Postal Service 3,253,918 2,247,000 873,036 672,000
--------------- --------------- ---------------- -----------------
$ 4,362,179 $ 4,853,000 $ 1,165,685 $ 1,151,000
=============== =============== ================ =================
</TABLE>
NOTE 4 - STOCKHOLDERS' EQUITY:
In January 1996, the Company reacquired and retired 72,000 shares of unearned
restricted common stock which had been issued to an employee under the
Company's stock bonus plan. These shares were reacquired under the terms of
the plan as a result of the employee's retirement prior to the shares becoming
vested to his benefit.
6
<PAGE> 7
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES:
The following is a reconciliation of tax at federal statutory rates applied to
income from operations before income taxes to federal income tax expense:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------- -------------------
1996 1995 1996 1995
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Tax at Federal statutory rates $ 124,000 $ 38,000 $ 109,000 $ 28,000
Federal income tax expense (benefit) of :
Operating loss carryforwards (124,000) (38,000) (109,000) (28,000)
-------------- ----------------- ----------------- -----------------
Federal income tax expense $ 0 $ 0 $ 0 $ 0
============== ================= ================= =================
</TABLE>
NOTE 6 - GAIN FROM INSURANCE PROCEEDS:
On April 25 1996, a fire occurred at the Company's manufacturing facility.
Damage was extensive to the offices at the facility along with certain
production areas. Approximately 15% of the building was destroyed by the fire.
Gain from Insurance Proceeds as shown on the Consolidated Statements of Income
for the nine and three months ended September 30, 1996 represents insurance
recovery checks received net of related expenses incurred to date.
NOTE 7 - LITIGATION SETTLEMENT:
On or around April 26, 1996, Mr. Andrew D'Aloia, a former officer and director
of the Company and a holder of 23.17% of the Company's outstanding common stock
on April 17, 1996, commenced an action against the Company, in the Supreme
Court of the State of New York, Westchester County, to collect compensation
claimed due him for services rendered in 1994 of $197,000 and for all payments
under his noncompetition agreement in the amount of $541,667, of which $83,333
was claimed to be past due, and interest on these amounts of approximately
$40,000.
On June 4, 1996, a settlement was reached between the Company and Mr. D'Aloia.
The company is required to pay Mr. D'Aloia $300,000 in lieu of accrued
compensation and payments on the noncompetition accrued through June 1, 1996.
$100,000 was paid upon execution of the settlement. $200,000 is to be paid
based on 37.5% of insurance proceeds received with full payment to be made
prior to November 30, 1996. Once the aforementioned payments have been made ,
the Company must resume payments under the noncompetition agreement until an
additional $447,916 has been paid. In July, 1996, $138,355 was paid to Mr.
D'Aloia based on insurance proceeds received at that time.
7
<PAGE> 8
DAWN TECHNOLOGIES, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - SUBSEQUENT EVENTS:
On or around October 24, 1996, Mr. Dennis DiDonato, a former officer and
director of the Company, filed an action against the Company, it's Chairman of
the Board, and two subsidiaries, in the Supreme Court of the State of New
York,Westchester County, to collect compensation claimed due him for services
rendered in 1994 of $37,192, plus interest thereon of $3,300, and for
severance allegedly owed him in the sum of $150,000, plus interest, and for
the alleged breach of a three year employment contract that was never signed,
in the sum of $500,000 plus interest. The Company has not yet been formally
served with the litigation papers.
The Company and Mr. DiDonato are currently attempting to negotiate a mutually
acceptable settlement to Mr. DiDonato's claim..
8
<PAGE> 9
DAWN TECHNOLOGIES, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and results of
operations during the period included in the accompanying consolidated
financial statements.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO
1995
Sales decreased from $5,197,966 in 1995 to $4,501,807 in 1996, a decrease of
$696,159 (approximately 15% of 1995 sales). The decrease in sales is due to
reduced production because of the fire sustained at the plant as explained in
Note 6 and reduction of contracts received from the United State Defense
Department.
Cost of sales as a percentage of sales increased from approximately 78.1% in
1995 to 78.5% in 1996. This increase in the cost of sales percentage is
primarily the result of inefficiencies due to the fire at the plant and the
need to outsource more work.
Selling, general and administrative expenses decreased from $1,051,886 in 1995
to $727,416 in 1996, a decrease of $324,470 which is approximately 31% of 1995
selling, general and administrative expenses. This decrease is primarily
attributable to lower levels of officers compensation in 1996 and cost cutting
measures implemented by management.
In 1996 and 1995, the Company incurred product development expenses related to
the development of new products for potential sale to the United States Postal
Service.
As a result of all of the factors discussed above, income from operations
increased from $10,975 in 1995 to $224,938 in 1996.
Interest expense was $100,564 in 1995 and $79,256 in 1996. This decrease is due
to the corresponding reduction of debt.
As stated in Note 6 to the financial statements, the Company received insurance
proceeds in excess of related costs of $221,126 in 1996.
As a result of all of the factors discussed above, the Company had a net loss
of $64,589 in 1995 and net income of $366,808 in 1996.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
TO 1995
Sales increased from $1,216,970 in 1995 to $1,255,346, which is not a
significant variation.
Cost of sales decreased from approximately 81.3% in 1995 to 76.8% in 1996. The
decrease in the cost of sales percentage is primarily the result of cost
cutting measures and increased production efficiencies implemented by
management.
9
<PAGE> 10
DAWN TECHNOLOGIES, INC.
Selling, general and administrative expenses decreased from $377,134 in 1995 to
$168,879 in 1996, a decrease of $208,255, which is approximately 55% of 1995
selling, general and administrative expenses. This decrease is primarily
attributed to lower levels of officers compensation in 1996 and other cost
cutting measures.
In 1995 and 1996, the Company incurred product development expenses related to
the development of new products for potential sale to the United states Postal
Service.
As a result of all the factors discussed above, income from operations
increased from a loss of $165,919 in 1995 to income of $224,938 in 1996.
As stated in Note 6 to the financial statements, the Company received insurance
proceeds in excess of related costs of $221,126 in 1996.
Interest expense was $35,444 in 1995 and $19,014 in 1996. This decrease is due
to the corresponding reduction of debt.
As a result of all of the factors discussed above, the Company had a net loss
of $176,363 in 1995 and net income of $323,948 in 1996.
BACKLOG
As of September 30, 1996, the Company had a sales backlog of approximately
$2,535,808. Scheduled shipments of this backlog are approximately $1,497,992
in 1996 and $1,037,816 in 1997.
Management is aggressively pursuing to diversify its product line and attract
new customers, along with expanding services within its current customer base.
Future sales beyond the shipments of items in the Company's backlog cannot be
predicted.
All of the orders in the Company's backlog are subject to cancellation. In
certain cases the Company may be entitled to some compensation in the event of
cancellation.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided cash of $314,466 in 1996 and $72,973 in 1995.
This was primarily due to lower operating costs (indirect management labor and
officers' salaries) and net insurance proceeds received in 1996. In addition,
the Company used cash of $31,591 in 1996 and $127,032 in 1995 to acquire
property and equipment and repaid long-term debt and capital lease obligations
of $300,807 in 1996 and $162,500 in 1995. To help fund these cash needs, the
Company borrowed $100,000 under its short-term line of credit in 1995. The net
result was a decrease in cash of $17,932 and $191,559 in 1996 and 1995,
respectively.
10
<PAGE> 11
DAWN TECHNOLOGIES, INC.
The Company had a working capital surplus of $253,762 at September 30, 1996 and
a deficit of $81,962 at December 31, 1995. The ratio of current assets to
current liabilities was 1.20 to 1.00 at September 30, 1996 and .96 to 1.00 at
December 31, 1995.
See Note 7 to Consolidated Financial Statements concerning the litigation
settlement and the Companies' obligation with respect thereto and Note 8
concerning current litigation.
Management believes that the Company has sufficient liquidity, borrowing
capacity and other capital resources to meet its planned needs for the next
year
INFLATION
The Company does not believe that inflation would have a significant effect on
its operations because the Company factors in potential escalations in the
costs of material, labor and overhead when preparing its bids for contract
awards and when pricing its products.
11
<PAGE> 12
DAWN TECHNOLOGIES, INC.
PART II - Other Information
ITEM 1 - -LEGAL PROCEEDING:
See Note 8 to the Consolidated Financial Statements regarding an action filed
against the Company by Mr. Dennis DiDonato, a former officer and director.
See Note 7 to the Consolidated Financial Statements regarding settlement of
legal proceedings by Mr. Andrew D'Aloia against the Company.
ITEM 2 - CHANGES IN SECURITIES:
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
ITEM 5 - OTHER INFORMATION:
In July 1996, the Company entered into a sublease agreement leasing
approximately 50,000 square feet of manufacturing and office space in Scranton,
Pa. Substantially all production will be at the new facility. The Blakely plant
will be used for storage and limited production support.
In July 1996, the Company relocated it's corporate headquarters from Tarrytown,
N.Y. to West Hartford, Ct.
12
<PAGE> 13
DAWN TECHNOLOGIES, INC.
PART II - Other Information
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
a The following exhibits are filed as a part of this report.
Exhibit No Exhibit Description
---------- -------------------
27 Financial Data Schedule
b. Reports on Form 8-K.
No reports on Form 8-K were filed by the issuer during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
issuer duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dawn Technologies, Inc.
/s/ DAVID SKLAR 11/14/96
--------------------------------- -----------
By: David Sklar Date
President and Chief Executive Officer
(Principal Executive Officer)
/s/ JOHN SCANLON 11/14/96
--------------------------------- -----------
By: John Scanlon Date
Chief Financial and Accounting Officer
(Principal Finance and Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 78073
<SECURITIES> 0
<RECEIVABLES> 754439
<ALLOWANCES> 2500
<INVENTORY> 702753
<CURRENT-ASSETS> 1533965
<PP&E> 1365420
<DEPRECIATION> 740680
<TOTAL-ASSETS> 2158705
<CURRENT-LIABILITIES> 1280203
<BONDS> 354851
0
0
<COMMON> 9036
<OTHER-SE> 514615
<TOTAL-LIABILITY-AND-EQUITY> 2158705
<SALES> 4501807
<TOTAL-REVENUES> 4501807
<CGS> 3533662
<TOTAL-COSTS> 4276869
<OTHER-EXPENSES> 79256
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 145682
<INCOME-TAX> 0
<INCOME-CONTINUING> 145682
<DISCONTINUED> 0
<EXTRAORDINARY> 221126
<CHANGES> 0
<NET-INCOME> 366808
<EPS-PRIMARY> 0.041
<EPS-DILUTED> 0.041
</TABLE>
