<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17864
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DAWN TECHNOLOGIES, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 13-3493060
----------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
560 WHITE PLAINS ROAD, TARRYTOWN, NEW YORK 10591
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(Address of Principal Executive Office)
(914) 332 - 4505
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(Issuer's Telephone Number, Including Area Code)
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(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the issuer was 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:
<TABLE>
<CAPTION>
Class of Stock Shares Outstanding
<S> <C>
COMMON STOCK $.001 PAR VALUE PER SHARE 9,036,478
</TABLE>
The exhibit index is located at page 11 of this report.
1 of 11
<PAGE> 2
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Consolidated Balance Sheets, March 31, 1996 (Unaudited) and
December 31, 1995 3
Consolidated Statements of Income and Accumulated Deficit,
Three Months Ended March 31, 1996 and 1995 (Unaudited) 4
Consolidated Statements of Cash Flows, Three Months Ended
March 31, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6 - 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 8 - 9
PART II - OTHER INFORMATION 10
</TABLE>
2 of 11
<PAGE> 3
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 67,529 $ 96,005
Accounts receivable, less allowance for doubtful accounts
of $2,500 1,088,642 1,015,925
Inventories 821,993 827,735
Other current assets 6,998 24,865
----------- -----------
Total current assets 1,985,162 1,964,530
PROPERTY AND EQUIPMENT, less accumulated depreciation
and amortization of $756,505 in 1996 and $732,805 in 1995 654,591 656,749
----------- -----------
$ 2,639,753 $ 2,621,279
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank note payable $ 100,000 $ 100,000
Current portion of long-term debt 429,167 516,667
Current portion of capitalized lease obligation 18,383 17,798
Accounts payable and accrued expenses 956,980 963,481
Accrued payroll and related liabilities 304,801 301,314
Current portion of accrued cost of non-compete agreement 142,728 87,710
Income taxes payable 41,145 59,522
----------- -----------
Total current liabilities 1,993,204 2,046,492
----------- -----------
OTHER LIABILITIES:
Capitalized lease obligation, less current portion 64,980 69,801
Accrued cost of non-compete agreement, less current portion 303,125 358,143
----------- -----------
Total other liabilities 368,105 427,944
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STOCKHOLDERS' DEFICIT:
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 (1,858,510) (1,980,111)
----------- -----------
Total stockholders' equity 278,444 146,843
----------- -----------
$ 2,639,753 $ 2,621,279
=========== ===========
</TABLE>
See the accompanying notes to consolidated financial statements.
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<PAGE> 4
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND ACCUMULATED DEFICIT
Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
SALES $ 1,854,005 $ 1,896,430
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COSTS AND EXPENSES:
Cost of sales 1,437,353 1,510,216
Selling, general and administrative expenses 243,074 325,439
Product development expenses 11,677
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Total costs and expenses 1,692,104 1,835,655
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INCOME FROM OPERATIONS 161,901 60,775
INTEREST EXPENSE 40,300 32,040
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NET INCOME 121,601 28,735
ACCUMULATED DEFICIT, beginning of period (1,980,111) (2,128,004)
----------- -----------
ACCUMULATED DEFICIT, end of period $(1,858,510) $(2,099,269)
=========== ===========
NET INCOME PER COMMON SHARE $ 0.013 $ 0.003
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 9,036,478 8,858,978
=========== ===========
</TABLE>
See the accompanying notes to consolidated financial statements.
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<PAGE> 5
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 121,601 $ 28,735
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 23,700 26,000
Allowance for doubtful accounts 12,000
Expenses related to restricted common stock earned 10,000 9,049
Changes in assets and liabilities:
Accounts receivable (72,717) 106,111
Inventories 5,742 (106,027)
Other current assets 17,867 17,888
Accounts payable and accrued expenses (6,501) (184,528)
Accrued payroll and related liabilities 3,487 30,735
Accrued cost of non-compete agreement (14,708)
Income taxes payable (18,377) (1,055)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 84,802 (75,800)
--------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES, Payments for
purchases of property and equipment (21,542) (35,530)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 100,000
Repayment on capitalized lease obligations (4,236)
Repayments of long-term debt (87,500) (87,500)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (91,736) 12,500
--------- ---------
NET DECREASE IN CASH (28,476) (98,830)
CASH, beginning of period 96,005 221,944
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CASH, end of period $ 67,529 $ 123,114
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 18,377 $ 1,145
========= =========
Interest paid $ 22,022 $ 32,040
========= =========
</TABLE>
See the accompanying notes to consolidated financial statements.
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<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 approximately $18,750 during
the three months ended March 31, 1995 for consulting services.
NOTE 3 - MAJOR CUSTOMERS:
At March 31, 1996, accounts receivable includes approximately $1,081,000 from
three major customers. Approximate sales to major customers during the three
months ended March 31, 1996 are summarized below:
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
International Business Machines Corp. $ 380,000 $ 676,000
United States Defense Department 37,000 427,000
United States Postal Service 1,395,000 619,000
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$1,812,000 $1,722,000
========== ==========
</TABLE>
NOTE 4 - STOCKHOLDERS' EQUITY:
In January 1996, the Company reacquired and retired 72,500 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.
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 for the
three months ended March 31, 1996:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Tax at federal statutory rates $ 41,000 $ 10,000
Federal income tax expense (benefit) of:
Operating loss carryforwards (29,000) (9,000)
State income tax (12,000) (1,000)
-------- --------
Federal income tax expense $ -- $ --
======== ========
</TABLE>
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<PAGE> 7
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - SUBSEQUENT EVENTS:
On April 25, 1996 a fire occurred at the Company's manufacturing facility.
Damage from the fire was primarily to the Company's offices located at the
facility. Management does not anticipate that the fire will, after giving effect
to anticipated insurance recoveries, have a material adverse effect upon the
Company's financial condition or production capability.
On or around April 26, 1996, Mr. Andrew D'Aloia, a former employee 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 are claimed
to be past due, and interest on these amounts of approximately $40,000.
The Company and Mr. D'Aloia are currently attempting to negotiate a mutually
acceptable settlement of Mr. D'Aloia's claim
7 of 11
<PAGE> 8
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 periods included in the accompanying consolidated
financial statements.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 TO
1995
Sales decreased from $1,896,430 in 1995 to $1,854,005 in 1996, a decrease of
$42,425 (approximately 2% of 1995 sales) which is not a significant variation.
Future sales beyond the shipments of items in the Company's backlog cannot be
predicted.
Cost of sales as a percentage of sales decreased from approximately 79.6% in
1995 to 77.5% in 1996. This decrease in the cost of sales percentage is
primarily the result of decreases in the Company's indirect management labor
force.
Selling, general and administrative expenses decreased from $325,439 in 1995 to
$243,074 in 1996, a decrease of $82,365 which is approximately 25% 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 of $11,677. In 1995, the Company had no such expenses.
As a result of all of the factors discussed above, income from operations
increased from $60,775 in 1995 to $161,901 in 1996.
Interest expense increased from $32,040 in 1995 to $40,300 in 1996, which is an
increase of $8,260. This increase is attributable to interest being accrued on
amounts payable to former employees for compensation earned in previous years
and noncompetition agreements.
As a result of all of the factors discussed above, net income increased from
$28,735 in 1995 to $121,601 in 1996.
BACKLOG
As of May 5, 1996, the Company had a sales backlog of approximately $4,772,000.
Scheduled shipments of this backlog are approximately $3,997,000 in 1996 and
$775,000 in 1997.
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.
8 of 11
<PAGE> 9
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided cash of $84,802 in 1996 while they used cash of
$75,800 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 $21,542 in 1996 and $35,530 in 1995 to acquire property and equipment
and repaid long-term debt and capital lease obligations of $91,736 in 1996 and
$87,500 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 $28,476 and $98,830 in 1996 and 1995, respectively.
The Company had a working capital deficit of $8,042 at March 31, 1996 and
$81,962 at December 31, 1995. The ratio of current assets to current liabilities
was 1.00 to 1.00 at March 31, 1996 and 0.96 to 1.00 at December 31, 1995.
On April 25, 1996 a fire occurred at the Company's manufacturing facility.
Damage from the fire was primarily to the Company's offices located at the
facility. Management does not anticipate that the fire will, after giving effect
to anticipated insurance recoveries, have a material adverse effect upon the
Company's financial condition or production capability.
On or around April 26, 1996, Mr. Andrew D'Aloia, a former employee 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 are claimed
to be past due, and interest on these amounts of approximately $40,000. The
Company and Mr. D'Aloia are currently attempting to negotiate a mutually
acceptable settlement of Mr. D'Aloia's claim
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.
9 of 11
<PAGE> 10
DAWN TECHNOLOGIES, INC.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS:
On or around April 26, 1996, Mr. Andrew D'Aloia, a former employee 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 are
claimed to be past due, and interest on these amounts of approximately $40,000.
The Company and Mr. D'Aloia are currently attempting to negotiate a mutually
acceptable settlement to Mr. D'Aloia's claim.
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:
On April 25, 1996 a fire occurred at the Company's manufacturing facility.
Damage from the fire was primarily to the Company's offices located at the
facility. Management does not anticipate that the fire will, after giving effect
to anticipated insurance recoveries, have a material adverse effect upon the
Company's financial condition or production capability.
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.
10 of 11
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
issuer has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dawn Technologies, Inc.
/s/ David Sklar May 8, 1996
---------------------------------------------------- -------------
By: David Sklar Date
President and Chief Executive Officer
(Principal Executive Officer)
/s/ John Scanlon May 8, 1996
---------------------------------------------------- -------------
By: John Scanlon Date
Chief Financial and Accounting Officer
(Principal Finance and Accounting Officer)
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<PAGE> 12
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 67529
<SECURITIES> 0
<RECEIVABLES> 1091142
<ALLOWANCES> 2500
<INVENTORY> 821993
<CURRENT-ASSETS> 1985162
<PP&E> 1411096
<DEPRECIATION> 756505
<TOTAL-ASSETS> 2639753
<CURRENT-LIABILITIES> 1993204
<BONDS> 368105
0
0
<COMMON> 9036
<OTHER-SE> 269408
<TOTAL-LIABILITY-AND-EQUITY> 2639753
<SALES> 1854005
<TOTAL-REVENUES> 1854005
<CGS> 1437353
<TOTAL-COSTS> 1692104
<OTHER-EXPENSES> 40300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 121601
<INCOME-TAX> 0
<INCOME-CONTINUING> 121601
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121601
<EPS-PRIMARY> .013
<EPS-DILUTED> .013
</TABLE>
