<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 JUNE 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, June 30, 1996 (Unaudited) and
December 31, 1995 3
Consolidated Statements of Income and Accumulated Deficit
Six Months and Three Months Ended June 30, 1996 4
and 1995 (Unaudited)
Consolidated Statements of Cash Flows
Six Months and Three Months Ended June 30, 1996 5
and 1995 (Unaudited)
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>
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 68,886 $ 96,005
Accounts receivable, less allowance for doubtful accounts
of $2,500 in 1996 and 1995 986,106 1,015,925
Inventories 637,753 827,735
Other current assets 10,310 24,865
----------- -----------
Total current assets 1,703,055 1,964,530
PROPERTY AND EQUIPMENT, less accumulated depreciation
and amortization of $756,505 in 1996 and $732,805 in 1995 636,134 656,749
----------- -----------
$ 2,339,189 $ 2,621,279
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank note payable $ 100,000 $ 100,000
Current portion of long-term debt 337,722 516,667
Current portion of capitalized lease obligation 18,383 17,798
Accounts payable and accrued expenses 957,977 963,481
Accrued payroll and related liabilities 196,803 301,314
Current portion of accrued cost of non-compete agreement 87,710 87,710
Income taxes payable 20,845 59,522
----------- -----------
Total current liabilities 1,719,440 2,046,492
----------- -----------
OTHER LIABILITIES:
Capitalized lease obligation, Less current portion 61,903 69,801
Accrued cost of non-compete agreement, less current portion 358,143 358,143
----------- -----------
Total other liabilities 420,046 427,944
----------- -----------
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 (1,937,251) (1,980,111)
----------- -----------
Total stockholders' equity 199,703 146,843
----------- -----------
$ 2,339,189 $ 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>
Six Months Ended Three Months Ended
June 30, June 30,
---------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SALES $ 3,246,461 $ 3,980,996 $ 1,392,456 $ 2,084,566
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 2,569,031 3,068,925 1,131,678 1,558,709
Selling,general and administrative expenses 558,537 674,752 315,463 349,313
Product development expenses 15,791 60,425 4,114 60,425
----------- ----------- ----------- -----------
Total costs and expenses 3,143,359 3,804,102 1,451,255 1,968,447
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 103,102 176,894 (58,799) 116,119
INTEREST EXPENSE 60,242 65,120 19,942 33,080
----------- ----------- ----------- -----------
NET INCOME (LOSS) 42,860 111,774 (78,741) 83,039
ACCUMULATED DEFICIT, beginning of period (1,980,111) (2,128,004) (1,858,510) (2,099,269)
----------- ----------- ----------- -----------
ACCUMULATED DEFICIT, end of period $(1,937,251) $(2,016,230) $(1,937,251) $(2,016,230)
=========== =========== =========== ===========
NET INCOME(LOSS) PER COMMON SHARE $ 0.005 $ 0.013 $ (0.009) $ 0.009
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,036,478 8,923,205 9,036,478 8,986,725
=========== =========== =========== ===========
</TABLE>
See the accompanying notes to consolidated financial statements
4
<PAGE> 5
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 42,860 $ 111,774
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 47,400 59,000
Allowance for doubtful accounts -- 4,000
Common stock issued for product development expenses -- 40,425
Expenses related to restricted common stock earned 10,000 26,381
Changes in assets and liabilities:
Accounts receivable 29,819 (213,099)
Inventories 189,982 (124,395)
Other current assets 14,555 8,294
Accounts payable and accrued expenses (5,504) 89,665
Accrued payroll and related liabilities (104,511) 30,258
Accrued cost of non-compete agreement -- (40,297)
Income taxes payable (38,677) (1,055)
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 185,924 (9,049)
--------- ---------
NET CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment (26,785) (101,662)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings -- 100,000
Repayments of long-term debt (186,258) (175,000)
--------- ---------
NET CASH (USED IN) FINANCING ACTIVITIES (186,258) (75,000)
--------- ---------
NET DECREASE IN CASH (27,119) (185,711)
CASH, beginning of period 96,005 221,944
--------- ---------
CASH, end of period $ 68,886 $ 36,233
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 11,145 $ 1,055
========= =========
Interest paid $ 60,242 $ 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 six
months ended June 30, 1996 and 1995 and $18,750 for each of the three months
ended June 30, 1996 and 1995 for consulting services.
NOTE 3 - MAJOR CUSTOMERS:
At June 30, 1996, accounts receivable included approximately $983,004 from three
major customers. Approximate sales to major customers are summarized below:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
International Business Machines Corp $ 761,920 $1,288,000 $ 381,920 $ 612,000
United States Defense Department 53,692 839,000 16,692 412,000
United States Postal Service 2,380,882 1,575,000 985,882 956,000
---------- ---------- ---------- ----------
$3,196,494 $3,702,000 $1,384,494 $1,980,000
========== ========== ========== ==========
</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>
Six Months Ended Three Months Ended
June 30, June 30,
----------------------- ------------------
1996 1995 1996 1995
------- -------- -- --------
<S> <C> <C> <C> <C>
Tax at Federal statutory rates $10,000 $ 38,000 $0 $ 28,000
Federal income tax expense (benefit) of :
Operating loss carryforwards (9,000) (34,000) 0 (25,000)
State income tax (1,000) (4,000) 0 (3,000)
------- -------- -- --------
Federal income tax expense $ 0 $ 0 $0 $ 0
======= ======== == ========
</TABLE>
NOTE 6 - CASUALTY LOSS:
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. The Company received an initial insurance proceeds advance of
$200,000 which has been offset by costs incurred to date. No additional accrual
reflecting costs(or potential gain) due to damaged/destroyed equipment,
writedown of building carrying costs or future anticipated construction costs
have been made to the June 30, 1996 financial statements. Management believes
all such costs will be recovered by future insurance proceeds. (See also Note 7)
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 repaid
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 (monthly payments of $10,417).
7
<PAGE> 8
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - SUBSEQUENT EVENTS:
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 facilities. The Blakely
plant will be used only for storage and limited production support.
In July, 1996 the Company received an additional insurance recovery check of
$409,941 representing settlement of damage claims to the building. Management is
pursuing claims for settlement of losses to inventory, equipment and personal
belongings.
Upon receipt of above mentioned insurance proceeds, the Company paid Andrew
D'Aloia $138,355 under settlement terms as detailed in Note 7.
In July, 1996 the Company relocated it's corporate headquarters from Tarrytown,
N.Y. to West Hartford, Ct..
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 SIX MONTHS ENDED JUNE 30, 1996 TO 1995
Sales decreased from $3,980,996 in 1995 to $3,246,461 in 1996, a decrease of
$734,535 (approximately 18% 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 77.6% in
1995 to 79.13% 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 $674,752 in 1995 to
$558,537 in 1996, a decrease of $116,215 which is approximately 17% of 1995
selling, general and administrative expenses. This decrease is primarily
attributable to lower levels of officers compensation in 1996.
In 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 of the factors discussed above, income from operations
decreased from $176,894 in 1995 to $103,102 in 1996.
Interest expense was $65,120 in 1995 and 60,242 in 1996, which is not a
significant variation.
As a result of all of the factors discussed above, net income decreased from
$111,774 in 1995 to $42,860 in 1996.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 1996 TO 1995
Sales decreased from $2,084,566 in 1995 to $1,392,456, a decrease of $692,110
(approximately 33% 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 States Defense Department.
Cost of sales increased from approximately 74.8% in 1995 to 81.3% in 1996. The
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.
9
<PAGE> 10
DAWN TECHNOLOGIES, INC.
Selling, general and administrative expenses decreased from $349,313 in 1995 to
$315,463 in 1996, a decrease of $33,850, which is approximately 10% of 1995
selling, general and administrative expenses. This decrease is primarily
attributed to lower levels of officers compensation in 1996.
In 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 of the factors discussed above, income from operations
decreased from $116,119 in 1995 to a loss of $58,799 in 1996.
Interest expense was $33,080 in 1995 and $19,942 in 1996.
As a result of all of the factors discussed above, net income decreased from
$83,039 in 1995 to a loss of $78,741 in 1996.
BACKLOG
As of June 30, 1996, the Company had a sales backlog of approximately
$3,957,803. Scheduled shipments of this backlog are approximately $3,146,854 in
1996 and $810,949 in 1997.
Management is aggressively pursuing efforts 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 $185,924 in 1996 while they used cash of
$9,049 in 1995. This was primarily due to lower operating costs (indirect
management labor and officers' salaries) in 1996. In addition, the Company used
cash of $26,785 in 1996 and $101,662 in 1995 to acquire property and equipment
and repaid long-term debt and capital lease obligations of $186,278 in 1996 and
$175,000 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 $27,119 and $185,711 in 1996 and 1995, respectively.
The Company had a working capital deficit of $16,385 at June 30, 1996 and
$81,962 at December 31, 1995. The ratio of current assets to current liabilities
was .99 to 1.00 at June 30, 1996 and .96 to 1.00 at December 31, 1995.
Management believes that the Company has sufficient liquidity, borrowing
capacity and other capital resources to meet its planned needs for the next
year.
10
<PAGE> 11
DAWN TECHNOLOGIES, INC.
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 7 to the Consolidated Financial Statements regarding settlement of
legal proceedings by 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:
Dawn Technologies, Inc. held its Annual Meeting of Stockholders on June 14,
1996.
At that meeting, the persons listed below were elected as the Board of Directors
of Dawn Technologies, Inc., and the votes of the number of shares of common
stock set forth below were cast as set forth below with respect to each of them.
There were no other nominees for director of Dawn Technologies, Inc. at that
meeting. In addition, there were no broker non-votes with respect to the
election of directors.
<TABLE>
<CAPTION>
Authority to Vote
For Withheld
--- --------
<S> <C> <C>
Warren K. Novick 5,161,194 21,415
Placido Saretto 5,161,194 21,415
Victor Winogrado 5,161,194 21,415
Murray Trachten 5,161,194 21,415
</TABLE>
At the meeting, the stockholders also ratified the appointment by the Board of
Directors of Dawn Technologies, Inc., of Arthur Andersen LLP as the Company's
independent auditors for the year 1996. The votes of 5,133,604 shares of common
stock were cast in favor of ratification of the appointment, the votes of 48,600
shares were cast against ratification, the votes of 400 shares abstained and
there were no broker non-votes with respect to the ratification of the
appointment of Arthur Anderson LLP as independent auditors for the year 1996.
ITEM 5 - OTHER INFORMATION:
See Note 8 to the Consolidated Financial Statements regarding leasing of new
production facility and move of Corporate offices.
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.
<TABLE>
<CAPTION>
Exhibit No Exhibit Description
---------- -------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
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.
DAVID SKLAR August 12, 1996
------------------------------ ---------------
By: David Sklar Date
President and Chief Executive Officer
(Principal Executive Officer)
JOHN SCANLON August 12, 1996
------------------------------- ---------------
By: John Scanlon Date
Chief Financial and Accounting Officer
(Principal Finance and Accounting Officer)
13
<PAGE> 14
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 68,886
<SECURITIES> 0
<RECEIVABLES> 988,606
<ALLOWANCES> 2,500
<INVENTORY> 986,106
<CURRENT-ASSETS> 1,703,055
<PP&E> 1,392,639
<DEPRECIATION> 758,505
<TOTAL-ASSETS> 2,339,189
<CURRENT-LIABILITIES> 1,719,440
<BONDS> 420,046
0
0
<COMMON> 9,036
<OTHER-SE> 190,667
<TOTAL-LIABILITY-AND-EQUITY> 2,339,189
<SALES> 3,246,461
<TOTAL-REVENUES> 3,246,461
<CGS> 2,569,031
<TOTAL-COSTS> 3,143,359
<OTHER-EXPENSES> 60,242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 42,860
<INCOME-TAX> 0
<INCOME-CONTINUING> 42,860
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,860
<EPS-PRIMARY> 0.005
<EPS-DILUTED> 0.005
</TABLE>
