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 March 31, 2000
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
incorporation or organization) (I.R.S. Employer 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 May 14, 2000,
57,813,849 shares of the registrant's common stock, $.001 par value, was
issued and outstanding.
<Page 1>
DAUPHIN TECHNOLOGY, INC.
Table of Contents
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999 3
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999 4
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Year Ended December 31, 1999 and
Three Months Ended March 31, 2000 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999 6
NOTES TO FINANCIAL STATEMENTS 7
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10
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 11
<Page 2>
DAUPHIN TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND DECEMBER 31, 1999
(Unaudited)
March 31, December 31,
2000 1999
--------------- ---------------
CURRENT ASSETS:
Cash $ 4,227,963 $ 31,087
Accounts receivable-
Trade, net of allowance for bad debt
of $428,599 at March 31, 2000 and
December 31, 1999 112,034 124,844
Employee receivables 118 118
Inventory, net of reserve for obsolescence
of $1,945,296 at March 31, 2000 and
December 31, 1999 1,521,886 1,521,886
Prepaid expenses 119,094 38,779
--------------- ---------------
Total current assets 5,981,095 1,716,714
INVESTMENT IN RELATED PARTY 290,000 290,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $812,461 at March 31,
2000 and $712,192 at December 31, 1999 1,267,366 1,365,440
--------------- ---------------
Total assets $ 7,538,461 $ 3,372,154
=============== ===============
CURRENT LIABILITIES:
Accounts payable $ 243,739 $ 1,894,663
Accrued expenses 15,513 26,719
Current portion of long-term debt 127,249 127,249
Short-term borrowings 100,000 286,000
Unearned revenue - 300,000
--------------- ---------------
Total current liabilities 486,501 2,634,631
LONG-TERM DEBT 159,444 185,179
COMMITMENTS AND CONTINGENCIES - -
--------------- ---------------
Total liabilities 645,945 2,819,810
SHAREHOLDERS' EQUITY:
Preferred stock, $0.01 par value,
10,000,000 shares authorized but unissued - -
Common stock, $0.001 par value,
100,000,000 shares authorized; 57,604,853
and 51,671,582 shares issued and
outstanding at March 31, 2000 and at
December 31, 1999 respectively 57,605 51,671
Warrants 1,751,041 1,238,089
Paid-in capital 46,642,583 38,089,320
Accumulated deficit (41,558,713) (38,826,736)
--------------- ---------------
Total shareholders' equity 6,892,516 552,344
--------------- ---------------
Total liabilities and shareholders' equity $ 7,538,461 $ 3,372,154
=============== ===============
Footnotes attached are an integral part of these financial statements.
<Page 3>
DAUPHIN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
-------------- --------------
NET SALES $ 4,736 $ 1,246,061
COST OF SALES (234,150) 1,420,237
-------------- --------------
Gross loss 238,886 (174,176)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 1,093,184 926,863
RESEARCH AND DEVELOPMENT EXPENSE 84,714 291,249
-------------- --------------
Loss before interest and income taxes (939,012) (1,392,288)
INTEREST EXPENSE 1,792,965 660,557
INTEREST INCOME - 4,292
-------------- --------------
Loss before income taxes (2,731,977) (2,048,553)
INCOME TAXES - -
-------------- --------------
Net loss $ (2,731,977) $ (2,048,553)
============== ==============
BASIC AND DILUTED (LOSS) PER SHARE $ (0.05) $ (0.05)
============== ==============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 56,276,124 41,043,203
Footnotes attached are an integral part of these financial statements.
<Page 4>
DAUPHIN TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1999
AND THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<TABLE>
Common Stock Paid-in Treasury Stock Accumulated
Shares Amount Capital Warrants Shares Amount Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------- ------------ -------- ------------ ---------- ------------ --------- ------------- -----------
BALANCE, December 31, 1998 40,000,000 $ 40,000 $ 32,343,785 $ 55,181 (138,182) $ (33,306) $ (29,520,432) $ 2,885,228
Issuance of common stock in connection with:
Conversions of debt 4,985,358 4,985 3,842,235 287,700 101,673 24,402 - 4,159,322
Private placement 6,003,529 6,004 1,481,167 895,208 14,963 3,591 - 2,385,970
Settlement of trade payables 656,322 656 395,243 - 1,546 371 - 396,270
Stock bonuses paid 26,373 26 26,890 - 20,000 4,942 - 31,858
Net loss - - - - - - (9,306,304) (9,306,304)
----------- -------- ------------ ---------- ------------ --------- ------------- -----------
BALANCE, December 31, 1999 51,671,582 $ 51,671 $ 38,089,320 $1,238,089 - $ - $ (38,826,736) $ 552,344
Issuance of common stock in connection with:
Private placement 4,560,169 4,560 7,843,806 419,556 - - - 8,267,922
Warrant exercise 393,102 393 97,937 (97,937) - - - 393
Consulting fees 500,000 500 312,000 191,333 - - - 503,833
Settlement of trade payables 480,000 480 299,520 - - - - 300,000
Net loss - - - - - - (2,731,977) (2,731,977)
----------- -------- ------------ ---------- ------------ --------- ------------- -----------
BALANCE, March 31, 2000 57,604,853 $ 57,605 $ 46,642,583 $1,751,041 - $ - $ (41,558,713) $ 6,892,515
=========== ======== ============ ========== ============ ========= ============= ===========
<Table/>
Footnotes attached are an integral part of these financial statements.
<Page 5>
DAUPHIN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
2000 1999
--------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES -
Net (loss) $ (2,731,977) $ (2,048,553)
Non-cash items included in net (loss):
Depreciation and amortization 100,269 256,961
Warrants issued in lieu of consulting fees 462,833 18,473
Stock bonuses - 12,500
Interest expense on convertible debt - 591,843
Interest expense on capital raised 1,762,939 -
Settlement of trade payables (418,960) -
Decrease in accounts receivable - trade 12,810 117,945
Decrease in accounts receivable from employees - 491
(Increase) in inventory - (538,234)
(Increase)/decrease in prepaid expenses (80,315) 4,211
Increase/(decrease) in accounts payable (1,650,924) 569,872
(Decrease) in accrued expenses (11,206) (19,298)
(Decrease)/increase in unearned revenue (300,000) 300,000
--------------- -------------
Net cash (used for) operating activities (3,040,531) (733,780)
CASH FLOWS FROM INVESTING ACTIVITIES -
Investment in related party - 10,000
Purchase of property and equipment (2,195) (11,419)
--------------- -------------
Net cash (used for) investing activities (2,195) (1,419)
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds from issuance of shares 6,906,650 344,513
Proceeds from issuance of warrants 512,952 58,979
Long-term leases and other obligations - (29,379)
Increase/(decrease) in short term borrowing (180,000) 450,250
--------------- -------------
Net cash provided by financing activities 7,239,602 824,363
--------------- -------------
Net increase (decrease) in cash 4,196,876 89,164
CASH BEGINNING OF PERIOD 31,087 55,701
--------------- -------------
CASH END OF PERIOD $ 4,227,963 $ 144,865
=============== =============
CASH PAID DURING THE PERIOD FOR -
Interest $ 30,026 $ 45,150
Income Taxes - -
--------------- -------------
NON-CASH ACTIVITY:
Stock issued in conversion of debt $ 300,000 $ 1,468,934
Footnotes attached are an integral part of these financial statements.
<Page 6>
DAUPHIN TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Dauphin Technology, Inc. ("Dauphin" or the "Company") and its subsidiary
design, manufacture and market mobile hand-held, pen-based computers, as well
as other electronic devices for home and business use out of its two
locations in northern Illinois. The Company, an Illinois corporation, was
formed on June 6, 1988 and became a public entity in 1991.
Basis of Presentation
The consolidated financial statements include the accounts of Dauphin and its
wholly owned subsidiary, R.M. Schultz & Associates, Inc. ("RMS"). All
significant intercompany transactions and balances have been eliminated in
consolidation.
2. SUMMARY OF MAJOR ACCOUNTING POLICIES
Earnings (Loss) Per Common Share
Basic earnings per common share are calculated on income available to common
stockholders divided by the weighted-average number of shares outstanding
during the period, which were 56,276,124 for the three-month period March 31,
2000 and 41,043,203 for the three-month period March 31, 1999. Diluted
earnings per common share are adjusted for the assumed exercise of stock
options and warrants unless such adjustment would have an anti-dilutive
effect. Approximately 10 million additional shares would be outstanding if
all options and warrants were exercised as of March 31, 2000.
Unaudited Financial Statements
The accompanying statements are unaudited, but have been prepared in
accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) considered
necessary for a fair presentation of results have been included. The interim
financial statements contained herein do not include all of the footnotes and
other information required by generally accepted accounting principles for
complete financial statements as provided at year-end. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the registrant's annual report on Form 10-K for the year
ended December 31, 1999.
The reader is reminded that the results of operations for the interim period
are not necessarily indicative of the results for the complete year.
3. RISKS AND UNCERTAINTIES
The Company has incurred a net operating loss in each year since its founding
and as of March 31, 2000 has an accumulated deficit of $41,558,713. The
Company expects to incur operating losses over the near term. The Company's
ability to achieve profitability will depend on many factors including the
Company's ability to manufacture and market commercially acceptable products.
There can be no assurance that the Company will ever achieve a profitable
level of operations or if profitability is achieved, that it can be
sustained.
4. LIABILITIES
During the first quarter of 2000, the Company used the proceeds from the
private placement to pay down and settle approximately $1.4 million of trade
and other payables outstanding as of December 31, 1999 with $1 million of
cash. The difference between carrying value of payables at the end of the
year and cash settlement has been recorded as an adjustment to cost of goods
sold and selling, general and administrative expenses on the income statement
above.
On March 15, 2000 the Company established an irrevocable letter of credit in
the amount of $56,200 for the benefit of a vendor. The letter of credit is
collateralized by cash, which has been segregated into a separate account.
<Page 7>
5. BUSINESS SEGMENTS:
March 31, 2000 March 31, 1999
-------------- --------------
Revenue
Dauphin $ 4,736 $ 89,481
RMS - 1,243,652
Inter-company elimination - (87,072)
-------------- --------------
Total 4,736 1,246,061
Operating (Loss)
Dauphin (1,120,265) (990,865)
RMS 181,253 (393,222)
Inter-company elimination - (10,451)
-------------- --------------
Total (939,012) (1,394,538)
March 31, 1999 December 31, 1999
-------------- --------------
Assets
Dauphin 11,930,548 6,443,079
RMS 2,231,833 2,156,937
Inter-company elimination (6,623,920) (5,227,862)
-------------- --------------
Total 7,538,461 3,372,154
6. COMMITMENTS AND CONTINGENCIES
The Company is an operating entity and in the course of business, from time
to time, is involved in litigation. In management's opinion, any and all
known lawsuits, if settled unfavorably, would not be material to the overall
financial position of the Company, and are fully reflected in the financial
statements above.
7. EQUITY TRANSACTIONS
2000 Events
During the first quarter of 2000, the Company conducted a private placement
of 4,560,169 common shares and approximately 1.2 million warrants to a group
of accredited investors in exchange for approximately $7.8 million. The
proceeds were used for settling the majority of trade payables, for day-to-
day operations and to start the development of the set-top box.
In January, the Company issued 480,000 shares to a customer in exchange for
$300,000 of customer deposits.
In January 2000, the Company issued warrants to an investment banker to
purchase 350,000 shares at an exercise price of $1.00.
In January, the Company issued 500,000 shares to a consulting firm for
services rendered in relation to a European contract.
Subsequent Events
In April, the Company concluded its private placement and agreed to issue
3,630,000 options to an investment banker in lieu of consulting fees.
On April 12, 2000, the Company entered into a common stock purchase
agreement, escrow agreement and registration rights agreement with an
institutional investor. These agreements provide a $100,000,000 equity line
of credit conditioned on registration of the underlying shares and warrants.
The Company may make up to eighteen draws of up to $10,000,000 per draw, with
a $100,000,000 aggregate draw limit. Upon each draw, we must issue shares to
the investor based upon the amount of the draw and a price determined by
reference to the 22-day average trading price and 45-day average volume of
our shares. Upon each draw, the Company also must issue to the investor
warrants to purchase additional common shares in an amount equal to 7% of the
shares issued. Each warrant shall have a three-year term and an exercise
price equal to 120% of the daily volume weighted average of our shares on the
trading day preceding the draw.
<Page 8>
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 1998 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 AND RESULTS OF OPERATIONS
Dauphin Technology, Inc.
Revenue for Dauphin Technology, Inc. decreased from $89,000 in the first
quarter of 1999 to $5,000 in 2000. The revenue decreased as a result of
financial constraints on the Company and management's focus on the
development of a set-top box. The gross profit margins are not comparable for
the periods due to fluctuation in sales.
Selling, general and administrative expenses increased to approximately
$1,040,000 in 2000 from $927,000 in 1999. The increase from 1999 to 2000 was
due to increased professional fees and financial service expenses related to
the private placement, offset by certain settlements of trade payables.
R.M. Schultz & Associates, Inc.
Revenue for RMS decreased from $1.25 million in 1999 to $0 in 2000 due in
fact to Company's shift away from contract manufacturing. The gross profit
margins are not comparable for the periods due to fluctuation in sales.
Selling, general and administrative expenses decreased in 2000 to
approximately $53,000 from $176,000 in 1999. The decrease from 1999 to 2000
was primarily due to staff reductions and cost cutting that the management
implemented throughout the latter part of 1999 and the first quarter of 2000.
Net (loss)
The loss after tax increased for the first quarter of 2000 to ($2.73) million
or ($0.05) per share from ($2.05) or ($0.05) per share in 1999 spread over a
larger number of shares outstanding. The net loss increase was due to a major
increase in interest expense, professional fees and financial services fees
related to the private placement. Loss per common share is calculated based
on the monthly weighted average number of common shares outstanding, which
were 56,276,124 for the three month period March 31, 2000 and 41,043,203 for
the three month period March 31, 1999.
Use of Estimates
The presentation of the Company's consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Balance Sheet
During the first quarter of 1999, total assets for the Company increased to
$7,538,000 from $3,372,000 at December 31, 1999. The increase was primarily
due to an increase in cash as a result of the completion of the private
placement. Accounts receivable decreases were primarily due to a slowdown in
customer orders. Trade accounts payable decreased during the quarter mostly
due to payments and settlements of vendor inventories. Short-term borrowings
and unearned revenue decreased during the quarter due to their conversions
into equity.
<Page 9>
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred a net operating loss in each year since its founding
and as of March 31, 2000 has an accumulated deficit of $41,558,713. The
Company expects to incur operating losses over the near term. The Company's
ability to achieve profitability will depend on many factors including the
Company's ability to manufacture and market commercially acceptable products.
There can be no assurance that the Company will ever achieve a profitable
level of operations or if profitability is achieved that it can be sustained.
During the first quarter of 2000 the Company conducted a private placement.
In total the company raised approximately $7.8 million, of which $1.2 were
used to settle certain trade payables. In addition to cash in the bank, the
Company entered into a common stock purchase agreement, escrow agreement and
registration rights agreement with an institutional investor. These
agreements provide a $100,000,000 equity line of credit for use by the
Company at it's discretion.
<Page 10>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings None.
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. None.
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: May 15, 2000
DAUPHIN TECHNOLOGY, INC.
(Registrant)
By: /s/Christopher Geier
Christopher Geier
(Executive Vice President and acting Chief Financial Officer)
<Page 11>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,227,963
<SECURITIES> 290,000
<RECEIVABLES> 540,751
<ALLOWANCES> (428,599)
<INVENTORY> 1,521,886
<CURRENT-ASSETS> 5,981,095
<PP&E> 2,079,827
<DEPRECIATION> 812,461
<TOTAL-ASSETS> 7,538,461
<CURRENT-LIABILITIES> 486,501
<BONDS> 0
0
0
<COMMON> 57,605
<OTHER-SE> 6,834,911
<TOTAL-LIABILITY-AND-EQUITY> 7,538,461
<SALES> 4,736
<TOTAL-REVENUES> 4,736
<CGS> (234,150)
<TOTAL-COSTS> (234,150)
<OTHER-EXPENSES> 1,177,898
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,792,965
<INCOME-PRETAX> (2,731,977)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,731,977)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,731,977)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
