UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____________ to ____________.
Commission File No. 33-21537-D
DAUPHIN TECHNOLOGY, INC.
(Exact name of registrant as specified in charter)
Illinois 87-0455038
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 E. Northwest Hwy., Suite 950, Palatine, Illinois 60067
(Address of principal executive offices) (Zip Code)
(847) 358-4406
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed 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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING DURING THE
PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No _____.
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date: As of August 13, 1997, the number of Shares of the Registrant's Common
Stock, $.001 par value, 32,497,111 was issued and 30,158,513 was outstanding,
with 2,338,598 treasury shares.
<PAGE>
DAUPHIN TECHNOLOGY, INC.
Table of Contents
PART I FINANCIAL INFORMATION Page
Item 1. Financial Statements
BALANCE SHEETS
June 30, 1997 and December 31, 1996 3
STATEMENTS OF OPERATIONS
Six Months and Three Months Ended June 30, 1997 and 1996 4
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Six Months Ended June 30, 1996,
Twelve Months Ended December 31, 1996 and
Six Months Ended June 30, 1997 5
STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1997 and 1996 6
NOTES TO FINANCIAL STATEMENTS 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 9
PART II OTHER INFORMATION 11
Item 1. Legal Proceedings
Item 2. Changes in the Rights of the Company's Security Holders
Item 3. Default by the Company on its Senior Securities
Item 4. Submission of Matters to a Vote of Securities Holders
Item 5. Other Information
Item 6(a). Exhibits
Item 6(b). Reports on Form 8-K
SIGNATURE 12
<Page 2>
DAUPHIN TECHNOLOGY, INC.
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
June 30, December 31,
1997 1996
CURRENT ASSETS:
Cash $ 298,405 $ 388,600
Restricted Cash ---- 232,000
Accounts Receivable
Trade 552,318 2,010
Other 2,662 ----
Inventory 3,572,752 2,652,461
Prepaid Expenses 48,805 12,251
---------- ----------
Total Current Assets 4,474,942 3,287,322
PROPERTY AND EQUIPMENT, net of
Accumulated Depreciation of
$128,022 at June 30, 1997 and
$103,074 at December 31, 1996 250,925 115,538
INTANGIBLE ASSETS, net of Accumulated
Amortization of $2,218
at June 30, 1997 725,913 ----
---------- ----------
TOTAL ASSETS $ 5,451,780 $ 3,402,860
========== ==========
CURRENT LIABILITIES:
Accounts Payable $ 750,525 $ 204,450
Accrued Expenses 245,788 62,314
Short Term Notes Payable 663,380 ----
---------- ----------
Total Current Liabilities 1,659,693 266,764
LONG TERM LIABILITIES 92,126 43,196
TOTAL LIABILITIES 1,751,819 309,960
SHAREHOLDERS' EQUITY:
Preferred Stock, $.01 Par Value,
10,000,000 Shares Authorized but
None Issued ---- ----
Common Stock $.001 Par Value,
100,000,000 Shares Authorized:
32,497,111 Shares and 31,706,397
Shares Issued at June 30, 1997
and December 31, 1996, and 30,903,639
and 29,547,111 Outstanding at June
30, 1997 and December 31, 1996 32,497 31,706
Treasury Shares (1,025,348) (1,407,777)
Paid in Capital 24,736,737 23,869,829
Accumulated Deficit (20,043,925) (19,400,858)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 3,699,961 3,092,900
---------- ----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 5,451,780 $ 3,402,860
========== ==========
<Page 3>
DAUPHIN TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Six Months Three Months
Ended June 30 Ended June 30
1997 1996 1997 1996
-------- -------- -------- --------
NET SALES $ 359,464 $ 23,154 $ 337,147 $ 1,670
COST OF SALES 388,698 12,655 375,493 4,795
-------- -------- -------- --------
Gross Profit (29,234) 10,499 (38,346) (3,125)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 652,428 320,533 316,694 228,935
RESEARCH AND DEVELOPMENT
EXPENSE 19,789 ---- 15,937 ----
-------- -------- -------- --------
(Loss) before Reorganization
Items and Income Taxes
and Extraordinary Item (701,451) (310,034) (370,977) (232,060)
REORGANIZATION ITEMS:
Professional Fees ---- 196,028 ---- 101,290
OTHER INCOME 58,384 ---- 54,541 ----
-------- -------- -------- --------
(Loss) before Income Taxes and
Extraordinary Item (643,067) (506,062) (316,436) (333,350)
INCOME TAXES ---- ---- ---- ----
-------- -------- -------- --------
(Loss) before
Extraordinary Item (643,067) (506,062) (316,436) (333,350)
EXTRAORDINARY ITEM, Net of
Income Taxes of $0 ---- 38,065,373 ---- 38,065,373
-------- ---------- -------- ----------
NET INCOME (LOSS) $(643,067) $37,559,311 $(316,436) $37,732,023
======== ========== ======== ==========
INCOME (LOSS) PER COMMON SHARE:
Before Extraordinary Item $ (0.03) $ (0.03) $ (0.01) $ (0.02)
Extraordinary Item ---- 1.98 ---- 1.76
-------- ---------- -------- ----------
Net Income (Loss) $ (0.03) $ 1.95 $ (0.01) $ 1.74
======== ========== ======== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 29,773,199 19,277,401 29,968,314 21,711,925
<Page 4>
DAUPHIN TECHNOLOGY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
SIX MONTHS ENDED JUNE 30, 1996, SIX MONTHS ENDED
DECEMBER 31, 1996 AND SIX MONTHS ENDED JUNE 30, 1997
(all numbers are in 000)
Common Stock Paid-in Treasury Stock Accum Total
Shares Amount Capital Shares Amount Deficit
------- ------ ------- ------ ------ ------- -----
BALANCE
December 31, 1995 14,408 $ 14 $ 5,144 ---- ---- $(56,069) $(50,910)
Issuance of Common
Stock in Connection with:
Bankruptcy 11,650 12 13,036 ---- ---- ---- 13,048
Purchase of
Inventory 2,600 2 2,910 ---- ---- ---- 2,912
Private Placement 357 1 399 ---- ---- ---- 400
Net Loss ---- ---- ---- ---- ---- 37,559 37,559
------ ------ ------ ------ ------ ------- --------
June 30, 1996 29,015 29 21,490 ---- ---- (18,510) 3,009
Private Placement 1,591 2 1,610 ---- ---- ---- 1,612
Settlement of Notes 1,100 1 769 ---- ---- ---- 770
Purchase of
Treasury Stock ---- ---- ---- (2,159) (1,408) ---- (1,408)
Net Loss ---- ---- ---- ---- ---- (891) (891)
------ ------ ------ ------ ------ ------- --------
December 31, 1996 31,706 $ 32 $ 23,869 (2,159)$(1,408)$(19,401) $ 3,093
Issuance of Common
Stock in Connection with:
Private Placement 466 0 634 ---- ---- ---- 634
Purchase of Subsidiary 325 0 233 ---- ---- ---- 233
Purchase of Treasury
Stock ---- ---- ---- (160) (81) ---- (81)
Issuance of
Treasury Stock ---- ---- ---- 726 463 ---- 463
Net Loss ---- ---- ---- ---- ---- (643) (643)
------ ------ ------ ------ ------ ------- --------
June 30, 1997 32,497 $ 32 $ 24,737 (1,593)$(1,025) $(20,044) $ 3,700
====== ====== ====== ====== ====== ======= ========
<Page 5>
DAUPHIN TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES -
Net (Loss) $ (643,067) $ 37,559,311
Non-Cash Items Included in Net (Loss):
Depreciation 24,948 14,067
Amortization of Goodwill 2,218 ----
Extraordinary Item ---- (38,065,373)
Change in - Prior to purchase of
Richard M. Schultz and Associates, Inc.:
(Increase) in Accounts Receivable - Trade (17,886) (3,545)
(Increase)/Decrease in Accounts
Receivable - Other (2,662) 166,945
Decrease in Inventory 4,591 10,197
(Increase) in Prepaid Expenses (24,000) (9,189)
(Decrease) in Accounts Payable (185,019) (110,015)
(Decrease)/Increase Accrued Expenses 73,823 ----
---------- ------------
Net Cash (Used For)
Operating Activities (767,054) (437,602)
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of Equipment and Furniture, Net (3,500) (37,546)
Purchase of a Subsidiary (70,361) ----
---------- ------------
Net Cash (Used For) Investing Activity (73,861) (37,546)
CASH FLOWS FROM FINANCING ACTIVITIES -
Long-Term Leases and Other Obligations (4,664) ----
Repayment of Debt (699,044) ----
Proceeds from Issuance of Common Stock
in Private Placement 1,016,928 400,000
Increase in Short Term Borrowing 207,500 356,804
---------- ------------
Net Cash Provided by
Financing Activities 518,720 756,804
---------- ------------
Net (Decrease) Increase in Cash (322,195) 281,656
CASH BEGINNING OF PERIOD 620,600 92,604
CASH END OF PERIOD $ 298,405 $ 374,260
CASH PAID DURING THE PERIOD FOR -
Interest $ 10,367 $ ----
Reorganization Costs ---- 165,670
Income Taxes ---- ----
SUPPLEMENTAL NON-CASH ACTIVITY -
Purchase of Inventory through
Issuance of Stock $ ---- $ 2,584,127
Purchase of Richard M. Schultz and Associates, Inc.
Liabilities Assumed $ 2,041,531 $ ----
Stock Issued $ 233,200 $ ----
<Page 6>
DAUPHIN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dauphin Technology, Inc. (the "Company") was founded to design, manufacture and
market mobile computing systems including laptop, notebook, handheld and pen-
based computers, components and accessories. From 1988 to 1992, it functioned
primarily as a development stage company which focused most of its efforts on
developing mobile computers that would meet the specifications of certain
government contracts. Historically, the Company marketed directly and through
computer solution providers to both the commercial and government markets.
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The interim consolidated financial statements presented herein include the
accounts of Dauphin Technology, Inc. and its subsidiaries. References to
"Dauphin" or the "Company" mean Dauphin Technology, Inc. and, unless the
context indicates otherwise, its consolidated subsidiaries. All significant
intercompany transactions and accounts have been eliminated in consolidation.
These interim consolidated financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). In the opinion of management, the
unaudited financial statements for the three-month and six-month periods ended
June 30, 1996 and 1997, are presented on a basis consistent with audited
financial statements and contain all adjustments, consisting only of normal and
recurring adjustments, necessary for a fair presentation. The interim
consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto for the year ended December 31,
1996 included in the Company's Form 10-K.
The results of operations for interim periods are not necessarily indicative of
results of operations for the full year.
On January 3, 1995, the Company filed a petition for relief under Chapter 11 of
the Federal Bankruptcy Code in the United States Bankruptcy Court for the
Northern District of Illinois, Eastern Division. During the first half of
1996, the Company operated under Chapter 11 and without an approved Plan of
Reorganization.
On May 9, 1996, the Third Amended Plan of Reorganization was approved by the
shareholders and creditors and confirmed by the Court. On July 23, 1996 the
Bankruptcy Court approved the implementation of the Third Amended Plan of
Reorganization and discharged Dauphin as Debtor-in-Possession. This final
decree closed Dauphin's bankruptcy proceedings.
2. EQUITY TRANSACTIONS
On January 27, 1997, the Company issued 146,500 common shares for $147,300 or
$1.01 per share to a qualified investor. The common shares issued in
connection with these transaction were unissued shares that were previously
registered by the Company. Funds obtained from these transactions were used to
repurchase 146,500 common shares for $80,575 or $0.55 per common share that
were issued as part of the bankruptcy settlement to an affiliate. These shares
are currently being held as treasury shares. As a net result of the
transaction, the Company obtained $66,725 for normal operating expenses of the
Company.
In June 1997, the Company issued 1,045,528 shares for $950,203 or $0.91 per
share to a group of qualified investors. The common shares issued in connection
with these transaction were unissued shares that were previously registered by
the Company and some of the Treasury shares that were acquired by the Company
in the past. Funds obtained from these transactions were used to complete the
acquisition of RMS as described below and for normal operating expenses of the
Company.
On July 10, 1997 the Company sold 105,263 common shares to a qualified investor
for $100,000 or $0.95 per share. The common shares issued in connection with
this transaction were Treasury shares.
Also in June 1997, the Company borrowed $200,000 from related parties. These
funds shall be repaid, with accrued interest within next six month.
3. ACQUISITION OF RICHARD M. SCHULTZ & ASSOCIATES, INC.
On June 6, 1997, the Company purchased all outstanding common stock of Richard
M. Schultz and Associates, Inc., for $2,443,447, consisting of issuance of
common stock for $233,200, acquisition costs of $168,717 and an assumption of
$2,041,531 of liabilities. The purchase price was allocated to accounts
receivable ($590,330), inventories ($923,536), other current assets ($71,636),
property and equipment ($148,108), with the remaining amount ($709,837) being
allocated to goodwill. The acquisition was accounted for as a purchase. The
goodwill is being amortized over 20 years and the amortization expense for the
second quarter of 1997 was $2,218.
Under the terms of the acquisition, RMS shareholders received 220,000 shares of
Dauphin common stock, with an additional 105,000 of such shares deposited into
an escrow to be released equally over the next three years if certain financial
goals of RMS are achieved. Upon issuance of the contingent shares, there will
be an additional element of cost related to the transaction that will be
recorded as goodwill and amortized over the remaining life. In addition to
shares exchange, Dauphin assumed all liabilities of RMS, including certain
LaSalle Bank notes, related party note and trade debts. The terms of the
LaSalle Revolving Line of Credit have been negotiated and at the closing
Dauphin transferred $300,000 to LaSalle as a down-payment with the remainder of
the note due sixty days from closing.
Results of the operations of Richard M. Schultz & Associates, Inc. are included
within the consolidated financial statements commencing June 6, 1997.
Unaudited pro forma results as of January 1, 1997 are as follows:
Three Months Ended Six Months Ended
6/30/96 6/30/97 6/30/96 6/30/97
---------- --------- ----------- -----------
Revenues $ 1,490,427 $ 889,523 $ 2,552,766 $ 2,223,162
Net Income $37,775,569 $(842,214) $37,349,857 $(1,203,144)
Number of Common Shares 21,931,925 30,188,314 19,497,401 29,993,199
Net Income
Per Common Share $ 1.73 $ (0.03) $ 1.92 $ (0.04)
Such pro forma information is not necessarily indicative of the results of
future operations.
4. LIABILITIES
The Company has assumed all then existing liabilities of RMS, as part of the
acquisition. RMS has an existing line of credit facility through LaSalle Bank,
NI, collateralized by all Accounts Receivable, Inventories and Equipment. The
Company anticipates that the line will be refinanced or paid in the near
future.
Also, some of the existing equipment and vehicles at RMS are leased. These are
capital leases, with a $1 buyout option, that should expire from one to three
years.
5. OTHER MAJOR EVENTS
On July 16, 1997 the Company repurchased all shares in the possession of the
founder and former President, Alan Yong. In total 745,126 shares were
reacquired for $260,794 or $0.35 per share. Simultaneously, Alan Yong tendered
his resignation to the Board of Directors. The resignation was not under any
adverse conditions.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Note: This discussion contains forward looking statements that involve risks
and uncertainties. The Company's actual results could differ significantly
from those set forth herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed herein, as well as
those discussed in the Company's fiscal year 1996 Annual Report on Form 10-K.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis only as of the date hereof.
The Company undertakes no obligation to publicly release the results of any
revision to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
CHANGES IN FINANCIAL POSITION
June 30,1997 Compared to December 31, 1996
Due to the acquisition of RMS, total assets increased during the quarter to
$5,454,000 at June 30, 1997 from $3,403,000 at December 31, 1996. Decrease in
cash from $388,600 on December 31, 1996 to $298,405 on June 30, 1997, was
primarily due to payment of normal operating expenses and costs associated with
the acquisition. Restricted Cash that was designated for the satisfaction of
Letter of Credit was disbursed and the Letter of Credit was settled. Accounts
Receivable represent certain funds due to the Company as part of the normal
operations of the Company, including RMS. Increase in inventory, property,
plant and equipment and goodwill was due to acquisition of RMS.
Total liabilities increased by approximately $1,400,000 as a result of
acquisition of RMS. The remaining debt represents normal obligations incurred
in a day-to-day operations of the Company. Shareholders Equity - Common Stock,
Paid-in-Capital and Treasury Shares reflect the issuance of additional shares
as part of the private placement, the repurchase of shares from an affiliate
and the issuance of shares in connection with the acquisition of RMS.
RESULTS OF OPERATIONS
June 30, 1997 Compared to June 30, 1996
Revenues
Total sales revenue in the second quarter of 1997 grew primarily due to
acquisition of RMS, which accounted for $300,000 of sales. Due to the small
dollar value of sales the change in the gross profit margin cannot be compared
to historical margins and is not indicative of future margins.
Expenses
Salaries and employment taxes for current employees represent a major part of
expenses for the quarter. The Company employs a total of eighty people now
compared to nine a year ago. Other large expenses were rents, legal and
professional fees related to the acquisition. The Company had to pay an annual
corporate registration fee in excess of $51,000 dollars due to a one time
increase in Paid-in-Capital account associated with emergence from Bankruptcy.
Net Income(Loss)
The (loss) after tax increased for the second quarter of 1997 to ($641,000) or
($0.03) per share from ($506,000) or ($0.03) per share in 1996. (Loss) per
common share is calculated based on the monthly weighted average number of
common shares outstanding which were 29,773,199 for the six month period June
30, 1997, and 19,277,401 for the period June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial requirements were met through cash generated from
private equity placement and borrowing from related parties.
Cash generated from sales of its subsidiary should be sufficient to operate such
subsidiary. Cash flow generated from the sales of DTR-2, will be applied to
current and future working capital needs. The Company is pursuing avenues to
raise additional operating capital, possibly through a credit facility.
The Company has retained the services of Ewing & Company, and Goodbody
International, Inc., investment banking firms, to assist with a strategy to
obtain certain working capital. The funds raised will be used to pay for the
development of the next generation of mobile computers, pay the remaining debt
of R.M. Schultz and Associates, Inc., pursue other mergers and/or acquisitions,
and to deploy the products the Company has in development.
The Company believes that the funds it currently has on hand, when coupled with
its anticipated operating profits, any additional funds generated through the
efforts of the investment banking firms, or which it may borrow in the future,
and the funds that were raised through the issuance of the Reserve Shares,
provide sufficient funds for the Company to finance its operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The management of the Company is not aware of any current pending or threatening
litigation.
Item 2. Changes in the Rights of the Company's Security Holders. None.
Item 3. Default by the Company on its Senior Securities. None
Item 4. Submission of Matters to a Vote of Securities Holders. None.
Item 5. Other Information. None.
Item 6(a). Exhibits. None.
Item 6(b). Reports on Form 8-K.
Form 8-K dated June 6, 1997 and filed on June 20, 1997 reporting Company's
acquisition of all issued and outstanding shares of Richard M. Schultz &
Associates, Inc.
<Page 11>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, Registrant's Chief Financial Officer, thereunto duly authorized.
Dated: August 13, 1997
DAUPHIN TECHNOLOGY, INC.
(Registrant)
By: S. Burd
Savely Burd
(Chief Financial Officer)
<Page 12>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 298,405
<SECURITIES> 0
<RECEIVABLES> 562,480
<ALLOWANCES> (7,500)
<INVENTORY> 3,572,752
<CURRENT-ASSETS> 4,474,942
<PP&E> 378,947
<DEPRECIATION> 128,022
<TOTAL-ASSETS> 5,451,780
<CURRENT-LIABILITIES> 1,659,693
<BONDS> 0
0
0
<COMMON> 32,497
<OTHER-SE> 3,667,464
<TOTAL-LIABILITY-AND-EQUITY> 5,451,780
<SALES> 359,464
<TOTAL-REVENUES> 359,464
<CGS> 388,698
<TOTAL-COSTS> 388,698
<OTHER-EXPENSES> 661,850
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,367
<INCOME-PRETAX> (643,067)
<INCOME-TAX> 0
<INCOME-CONTINUING> (643,067)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (643,067)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
