<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 EXCHANGE
- --- ACT OF 1934
For the quarterly period ended MARCH 31, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the transition period from _______ to _______
Commission file number 0-17864
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DAWN TECHNOLOGIES, INC.
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(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C>
DELAWARE 13-3493060
- ------------------------------------------------ ------------------------------------
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
433 SOUTH MAIN STREET, WEST HARTFORD, CONNECTICUT 06110
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(Address of Principal Executive Office) (Zip Code)
</TABLE>
(860) 561-3979
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(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(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 Securities Exchange Act during the past 12 months (or for
such shorter period that the registration 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,
1997, was:
Class of Stock Shares Outstanding
-------------------------------------- ------------------
COMMON STOCK $.001 PAR VALUE PER SHARE 9,419,478
The exhibit index is located at page 11 of this report.
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<PAGE> 2
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
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<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION:
Item I - Financial Statements:
Consolidated Balance Sheets, March 31, 1997 (Unaudited) and
December 31, 1996 3
Consolidated Statements of Income and Accumulated Deficit,
Three Months Ended March 31, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Cash Flows, Three Months Ended
March 31, 1997 and 1996 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2 - Management's Discussion of Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION 11
</TABLE>
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<PAGE> 3
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1997 and December 31, 1996
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1997 1996
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash $ 32,568 $ 92,089
Accounts receivable, less allowance for doubtful accounts of $2,500 640,742 637,368
Inventories 597,753 764,939
Insurance claim receivable -- 201,980
Other current assets -- 25,366
----------- -----------
Total current assets 1,271,063 1,721,742
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PROPERTY AND EQUIPMENT
Land 52,150 52,150
Building and improvements 349,536 349,536
Machinery and equipment 746,044 727,769
Office equipment 338,071 321,543
Leasehold improvements 57,701 42,765
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1,543,502 1,493,763
Less accumulated depreciation and amortization (814,917) (786,920)
----------- -----------
728,585 706,843
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$ 1,999,648 $ 2,428,585
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank note payable $ 100,000 $ 100,000
Current portion of long-term debt 91,683 166,667
Current portion of capitalized lease obligations 28,991 28,420
Accounts payable and accrued expenses 683,881 839,792
Accrued payroll and related liabilities 119,409 125,732
Current portion of accrued cost of non-compete agreement 95,428 94,700
Income taxes payable 8,243 12,210
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Total current liabilities 1,127,635 1,367,521
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OTHER LIABILITIES
Capitalized lease obligations, less current portion 116,568 122,176
Accrued cost of non-compete agreement, less current portion 270,336 278,628
----------- -----------
Total other liabilities 386,904 400,804
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STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 15,000,000 shares
authorized, 9,419,478 shares issued and outstanding 9,420 9,327
Capital in excess of par value 2,397,708 2,381,151
Unearned restricted common stock issued (217,372) (217,372)
Treasury stock (10,625) (10,625)
Accumulated deficit (1,694,022) (1,502,221)
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485,109 660,260
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$ 1,999,648 $ 2,428,585
=========== ===========
</TABLE>
See the accompanying notes to consolidated financial statements.
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<PAGE> 4
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
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<CAPTION>
1997 1996
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<S> <C> <C>
SALES $ 1,169,070 $ 1,854,005
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COSTS AND EXPENSES
Cost of sales 1,082,292 1,437,353
Selling, general and administrative expenses 267,055 243,074
Product development expenses -- 11,677
----------- -----------
Total costs and expenses 1,349,347 1,692,104
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INCOME (LOSS) FROM OPERATIONS (180,277) 161,901
OTHER INCOME (EXPENSE)
Interest expense (11,524) (40,300)
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INCOME (LOSS) BEFORE INCOME TAXES (191,801) 121,601
INCOME TAX EXPENSE -- --
----------- -----------
NET INCOME (LOSS) $ (191,801) $ 121,601
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ (0.020) $ 0.013
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 9,388,645 9,036,478
=========== ===========
</TABLE>
See the accompanying notes to consolidated financial statements.
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<PAGE> 5
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
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<CAPTION>
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(191,801) $ 121,601
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 27,997 23,700
Expenses related to restricted common stock earned -- 10,000
Changes in assets and liabilities:
Accounts receivable (3,374) (72,717)
Inventories 167,186 5,742
Other assets 25,366 17,867
Insurance claim receivable 201,980 --
Accounts payable and accrued expenses (155,911) (6,501)
Accrued payroll and related liabilities (6,323) 3,487
Income taxes payable (3,967) (18,377)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 61,153 84,802
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and equipment (49,739) (21,542)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on non-compete agreement (7,564) --
Repayments of long-term debt (58,334) (87,500)
Payments on capitalized lease obligations (5,037) (4,236)
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NET CASH USED IN FINANCING ACTIVITIES (70,935) (91,736)
--------- ---------
NET DECREASE IN CASH (59,521) (28,476)
CASH, Beginning of period 92,089 96,005
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CASH, End of period $ 32,568 $ 67,529
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 11,524 $ 18,377
Interest paid $ 3,967 $ 22,022
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
</TABLE>
During the three-month period ended March 31, 1997, $16,650 of long-term debt
was converted into 92,500 shares of the Company's $.001 par value common stock.
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, 1996.
NOTE 2 - RELATED PARTY TRANSACTIONS:
In October, 1996, Mr. Dennis DiDonato, a former officer and director of the
Company filed an action against the Company, its Chairman of the Board, and
its two subsidiaries, in the Supreme Court of New York, Westchester County, to
collect compensation claimed due him for services rendered in 1994 plus interest
thereon and for severance allegedly owed him in the sum of $150,000, plus
interest, and for the alleged breach of an unsigned three year employment
contract, in the sum of $500,000 plus interest.
On January 28, 1997, the Company agreed in a settlement to pay Mr. DiDonato
$60,000 in twelve monthly equal installments. The balance due is included in
accrued payroll and related liabilities on the consolidated balance sheet at
March 31, 1997.
NOTE 3 - MAJOR CUSTOMERS:
At March 31, 1997, accounts receivable includes approximately $501,625 from
three major customers. Approximate sales to major customers during the three
months ended March 31, 1997 and 1996 are summarized below:
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<CAPTION>
1997 1996
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<S> <C> <C>
International Business Machines Corp. $ 254,675 $ 380,000
United States Defense Department 293,194 37,000
United States Postal Service 611,036 1,395,000
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$1,158,905 $1,812,000
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</TABLE>
NOTE 4 - STOCKHOLDERS' EQUITY:
In January of 1997, the Company issued 92,500 shares of its common stock of the
Company was issued upon the conversion $16,650 due on a subordinated convertible
note.
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<PAGE> 7
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE:
The Company has a bank note payable on demand of $100,000 which is secured by
all of the Company's assets and guaranteed by the Company's principal
stockholders. The note payable bears interest at 1.0% above the bank's prime
rate (9.25% at March 31, 1997).
The following is a summary of the Company's long-term debt obligations at March
31, 1997.
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Bank note payable in equal monthly installments of $29,167 through April
1997, plus interest at 1.25% above the bank's prime rate (9.5% at March 31,
1997), secured by all of the Company's assets and guaranteed by the
Company's principal stockholders $ 58,333
Subordinated convertible note payable in October 1997, bearing interest at
10%, convertible into 107,500 shares of
the Company's common stock during the term of the note. 33,350
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$ 91,683
========
Aggregate future principal payments on long-term debt are as follows: Period
ending March 31:
1998 $ 91,683
========
NOTE 6 - CAPITALIZED LEASE OBLIGATIONS
The following is a summary of capitalized leases at March 31, 1997:
Five equipment leases payable with monthly installments ranging from
$176 to $1605 including interest ranging from 11.75% to 14.74%. $145,559
Less current portion (28,991)
--------
$116,568
========
Aggregate future principal payments on capitalized lease obligations are as
follows:
Twelve-month period ending March 31:
1998 $ 33,046
1999 36,978
2000 30,455
2001 16,089
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$116,568
========
</TABLE>
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<PAGE> 8
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - INCOME TAXES:
The provision for income taxes represents minimum state corporate taxes
currently due.
The net operating loss incurred in 1994 created an uncertainty as to whether the
Company will be able to utilize its net operating loss carryforwards and realize
its deferred tax asset. Accordingly, management elected to record a valuation
allowance for the entire amount of its deferred tax asset. At December 31, 1996,
the Company has a net operating loss carryforward of approximately $860,000 for
federal income tax purposes.
:
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<PAGE> 9
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
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, 1997 to
1996
Sales decreased from $1,854,005 in 1996 to $1,169,070 in 1997. This
decrease is due to reduced sales volume to IBM Corporation and the
United States Postal Service.
Cost of sales as a percentage of sales increased from 77.5% in 1996 to
92.5% in 1997. This increase is primarily due to increased end of
program costs on contracts with the United States Postal Service and
expensed start-up costs on new contracts with BE Aerospace and
Chromalloy of Connecticut, Inc.
Selling, general and administrative expenses, increased from $243,074 in
1996 to $267,055 which is not a significant variation.
As a result of all the factors discussed above, income from operations
decreased from $161,901 in 1996 to loss from operations of $180,277 in
1997.
Interest expense decreased from $40,300 in 1996 to $11,524 in 1997. This
decrease is due to the corresponding debt being reduced.
As a result of all factors discussed above, net income decreased from
$121,601 in 1996 to a net loss of $191,801 in 1997.
Backlog
As of April 7, 1997, the Company had a sales backlog of approximately
$1,208,829. Scheduled shipments of this backlog are approximately
$1,143,329 in 1997 and $65,500 in 1998.
Management is aggressively pursuing efforts to diversify the Company's
product line and attract new customers, along with expanding services
within its current 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 $61,153 in 1997 and $84,802 in
1996. In addition, the Company used cash of $49,739 in 1997 and $21,542
in 1996 to acquire property and equipment and repaid long-term debt and
capital lease obligations of $70,935 in 1997 and $91,736 in 1996.
The Company had a working capital surplus of $143,428 at March 31, 1997
and $354,221 at December 31, 1996. The ratio of current assets to
current liabilities was 1.12 to 1.00 at March 31, 1997 and 1.26 to 1.00
at December 31, 1996.
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<PAGE> 10
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Management believes that the Company has sufficient liquidity, borrowing
capacity and other capital resources to meet its planned needs for the
next year.
In May of 1997, the Company obtained a $150,000 term loan and a $100,000
revolving line-of-credit from Penn Security Bank and Trust Company.
Proceeds from the term note must be used to purchase equipment to be
used at the Company's Scranton facility while the revolving
line-of-credit may be used for other cash requirements of the Company.
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.
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<PAGE> 11
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
See Note 2 of the consolidated financial statements regarding settlement of
claim.
ITEM 2 - CHANGES IN SECURITIES
See Note 4 of the consolidated financial statements. The stated issuance of
common stock of the Company was exempt pursuant to section 4(2) of the
Securities Act of 1933, as amended.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
The Company is currently diversifying its work scope to include the manufacture
and the overhaul and repair of jet engine and aircraft components for the
aerospace industry. The Company received its Overhaul and repair license from
the FAA in November of 1996 and has been aggressively updating its plant and
equipment to meet the needs of this work.
During 1997, the Company received a number of contracts from Chromalloy of
Connecticut, Inc. to perform part refurbishment on a number of components for
various jet engine models. The contracts are ongoing with sales volume expected
to be at a minimum of $400,000 per year. There are no assurances of additional
orders.
During 1997, the Company also signed a three year contract with BE Aerospace for
the manufacture of airline seat components used on the Boeing 777 aircraft. The
contract has an expected minimum sales volume of approximately $1.9 million over
the period of the contract. This volume is expected to increase as BE Aerospace
obtains additional customers, although ther are no assurances of additional
orders.
The Company has been selected as the sole manufacturer of the R-Bar for Mass
Transit Safety, Inc. The R-Bar is a safety restraint to be fitted on school
buses instead of the traditional seat belts. The Company has received its
first purchases order for this contract worth approximately $124,000 for a July
1997 delivery. Management anticipates a strong market for this product.
The Company also received a vendor code from Pratt & Whitney Aircraft during
1997. Management is currently preparing qoutes on various proposals for Pratt.
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.
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<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dawn Technologies, Inc.
/S/ David Sklar May 14, 1997
------------------------------------------ ------------
By: David Sklar Date
President and Chief Executive
Officer (Principal Executive Officer)
Dawn Technologies, Inc.
/S/ John Scanlon May 14, 1997
------------------------------------------ ------------
By: John Scanlon Date
Chief Financial and Accounting
Officer (Principal Finance and
Accounting Officer)
-12-
<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> 32,568
<SECURITIES> 0
<RECEIVABLES> 640,742
<ALLOWANCES> 0
<INVENTORY> 597,753
<CURRENT-ASSETS> 1,271,063
<PP&E> 1,543,502
<DEPRECIATION> 814,917
<TOTAL-ASSETS> 1,999,648
<CURRENT-LIABILITIES> 1,127,635
<BONDS> 386,904
0
0
<COMMON> 9,420
<OTHER-SE> 475,689
<TOTAL-LIABILITY-AND-EQUITY> 1,999,648
<SALES> 1,169,070
<TOTAL-REVENUES> 1,169,070
<CGS> 1,082,292
<TOTAL-COSTS> 1,349,347
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,524
<INCOME-PRETAX> (191,801)
<INCOME-TAX> 0
<INCOME-CONTINUING> (191,801)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (191,801)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
