SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO.1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
June 6, 1997
Date of Report
(date of earliest event reported)
DAUPHIN TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Illinois 33-21537-D 87-0455038
(State or other jurisdiction of Commission File No. (IRS Employer
incorporation or organization) Identification Number)
800 E. Northwest Hwy, Suite 950, Palatine, IL 60067
(Address of principal executive offices) (Zip Code)
(847) 358-4406
Registrant's telephone number, including area code
Former name or address, if changed since last report
This Amendment No. 1 to the Registrant's Current Report on Form 8-K Dated June
6, 1997 (the "Form 8-K"), is being filed for the purpose of amending the
information previously reported in Item 7(b) in the Form 8-K filed on June 20,
1997.
Item 7. Financial Statements and Exhibits
a) Financial Statements of Business Acquired:
1. The following audited financial statements of Richard M. Schultz &
Associates, Inc. are attached as Exhibit E.
I. Report of Independent Public Accountants
II. Balance Sheets as of June 30, 1996 and 1995
III. Statement of Income for the Years Ended June 30, 1996, 1995 and
1994
IV. Statement of Retained Earnings (Deficit) for the Years Ended
June 30, 1996, 1995 and 1994.
V. Statement of Cash Flows for the Years Ended June 30, 1996, 1995
and 1994
VI. Notes to Financial Statements
b) Pro Forma Financial Information:
1. The following updated, unaudited pro forma financial statements are
attached hereto as an Exhibit F
I. Unaudited Pro Forma Combined Condensed Balance Sheet as of
March 31, 1997
II. Unaudited Pro Forma Combined Condensed Statement of Income
for the Year Ended December 31, 1996
III. Unaudited Pro Forma Combined Condensed Statement of Income
for the Quarters Ended March 31, 1997
IV. Notes to Pro Forma Combined Condensed Financial Statements
The following exhibits are attached:
A. *Stock Exchange Agreement
B. *Richard M. Schultz Employment Agreement
C. *Escrow Agreement
D. *Press Release dated June 9, 1997
E. Audited Financial Statements for the Year Ended June 30, 1996 and 1995
F. Unaudited Pro Forma Combined Condensed Financial Statements for the
Twelve Monthe Ended December 31, 1996 and Quarter Ended March 31, 1997
*-Previously filed as an exhibit to Registrant's Form 8-K dated June 6, 1997
filed June 20, 1997.
SIGNATURES
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 hereto duly authorized.
Dauphin Technology, Inc.
By: Andrew Kandalepas
President
EXHIBIT INDEX
A. *Stock Exchange Agreement
B. *Richard M. Schultz Employment Agreement
C. *Escrow Agreement
D. *Press Release dated June 9, 1997
E. Audited Financial Statements for the Year Ended June 30, 1996 and 1995
F. Unaudited Pro Forma Combined Condensed Financial Statements for the
Twelve Months Ended December 31, 1996 and Quarters Ended March 31, 1997
*- Previously filed as an exhibit to Registrant's Form 8-K dated June 6, 1997
filed June 20, 1997.
<Page 2>
R. M. SCHULTZ & ASSOCIATES, INC.
FINANCIAL REPORT
JUNE 30, 1996
C O N T E N T S
INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL STATEMENTS F-1
FINANCIAL STATEMENTS
Balance sheets F-2 - F-3
Statements of income F-4
Statements of retained earnings (deficit) F-5
Statements of cash flows F-6 - F-7
NOTES TO THE FINANCIAL STATEMENTS F-8 - F-13
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
R. M. Schultz & Associates, Inc.
McHenry, Illinois
We have audited the accompanying balance sheets of R. M. Schultz & Associates,
Inc. as of June 30, 1996 and 1995, and the related statements of income,
retained earnings (deficit), and cash flows for the years ended June 30, 1996,
1995 and 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of R. M. Schultz & Associates,
Inc. as of June 30, 1996 and 1995, and the results of its operations and its
cash flows for the years ended June 30, 1996, 1995 and 1994, in conformity with
generally accepted accounting principles.
McGladrey & Pullen, LLP
Lincolnshire, Illinois
July 18, 1997
<PAGE F-1>
BALANCE SHEETS
June 30, 1996 and 1995
ASSETS 1996 1995
Current Assets
Cash $ 630 $ 29,844
Trade receivables, less allowance for
uncollectible accounts 1996 and 1995 $7,500 568,593 412,779
Unbilled services 72,392 52,000
Due from officer-stockholder 9,627 13,060
Due from affiliate 10,234 -
Income tax refunds - 12,654
Other receivables 3,493 2,810
Inventories 1,217,350 1,163,934
Prepaid expenses and supplies 16,926 18,725
--------- ---------
Total current assets 1,899,245 1,705,806
Equipment
Production and distribution equipment 590,735 552,175
Furniture and fixtures 37,629 37,629
Vehicles 24,247 36,363
Equipment under capital leases 65,558 65,558
--------- ---------
718,169 691,725
Less accumulated depreciation, including
amortization applicable to assets under
capital leases 1996 $20,224; 1995 $9,045 518,862 471,849
--------- ---------
199,307 219,876
Other Assets
Patent costs 18,823 18,883
Loan fees 12,800 8,000
--------- ---------
31,623 26,883
--------- ---------
$2,130,175 $1,952,565
========= =========
See Notes to Financial Statements.
<PAGE F-2>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
Current Liabilities
Notes payable $ 791,734 $ 373,609
Current maturities of long-term debt 25,498 19,105
Current maturities of obligations under
capital leases 14,340 13,147
Payable to affiliate - 26,084
Accounts payable 917,266 913,177
Income taxes payable 100 -
Accrued expenses 56,156 96,279
--------- ---------
Total current liabilities 1,805,094 1,441,401
Long-Term Debt, less current maturities
Affiliate 369,390 378,253
Other 34,060 16,000
--------- ---------
403,450 394,253
Obligations Under Capital Leases,
less current maturities 24,804 39,144
Contingency
Stockholders' Equity
Common stock, no par value; authorized
1,000,000 shares; issued and outstanding
177,050 shares 10,059 10,059
Additional paid-in capital 68,500 68,500
Retained (deficit) (181,732) (792)
--------- ---------
(103,173) 77,767
--------- ---------
$2,130,175 $1,952,565
========= =========
<PAGE F-3>
STATEMENTS OF INCOME
Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
Net sales $ 4,790,349 $ 4,964,447 $ 4,106,834
Cost of goods sold 3,946,324 3,846,055 3,120,829
--------- --------- ---------
Gross profit 844,025 1,118,392 986,005
Operating expenses 1,081,272 1,083,691 1,136,400
Operating income (loss) (237,247) 34,701 (150,395)
Financial income (expense):
Interest expense (102,359) (77,680) (54,178)
Interest income 580 872 743
Gain on sale of investment - - 187,426
Gain from litigation settlement, net 159,000 - -
--------- --------- ---------
57,221 (76,808) 133,991
(Loss) before income taxes (180,026) (42,107) (16,404)
Federal and state income taxes 914 - 1,759
--------- --------- ---------
Net (loss) $ (180,940) $ (42,107) $ (18,163)
========= ========= =========
See Notes to Financial Statements.
<PAGE F-4>
STATEMENTS OF RETAINED EARNINGS (DEFICIT)
Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
Balance, beginning $ (792) $ 41,315 $ 59,478
Net (loss) (180,940) (42,107) (18,163)
--------- -------- -------
Balance, ending $ (181,732) $ (792) $ 41,315
========= ======== =======
See Notes to Financial Statements.
<PAGE F-5>
STATEMENTS OF CASH FLOWS
Years Ended June 30, 1996, 1995 and 1994
1996 1995 1994
Cash Flows From Operating Activities
Net (loss) $ (180,940) $ (42,107) $ (18,163)
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Depreciation 61,086 67,361 43,577
Amortization of patent costs 1,345 - -
Amortization of loan fees 3,200 - -
Provision for doubtful accounts 28,250 - 4,655
(Gain) on sale of equipment (1,500) (422) -
(Gain) on sale of investment - - (187,426)
(Gain) from litigation settlement (159,000) - -
Write off of patent costs - - 5,083
Change in assets and liabilities:
(Increase) decrease in trade receivables (184,064) (160,478) 99,197
(Increase) in due from affiliate (10,234) - -
(Increase) decrease in other
receivables and prepaids 4,549 (13,192) 9,840
(Increase) decrease in income
tax refund claim 12,654 (3,389) (9,265)
(Increase) in inventories (219,416) (125,257) (138,277)
(Increase) in unbilled services (20,392) - -
Increase (decrease) in accounts
payable and accrued expenses (36,034) 233,808 131,234
(Decrease) in customer deposits - - (3,500)
Increase (decrease) in income taxes payable 100 - (155)
Increase (decrease) in notes
payable, suppliers (54,345) 54,345 -
Increase (decrease) in due to affiliate (26,084) (4,869) 30,953
-------- ------- -------
Net cash provided by(used in)
operating activities (780,825) 5,800 (32,247)
Cash Flows From Investing Activities
Proceeds from sale of investment - - 187,426
Proceeds from litigation settlement 325,000 - -
Purchase of equipment (40,517) (32,985) (97,963)
Proceeds from sale of equipment 1,500 2,190 -
Addition to patent costs (1,285) (9,994) -
-------- ------- -------
Net cash provided by (used in)
investing activities 284,698 (40,789) 89,463
Cash Flows From Financing Activities
Proceeds from long-term borrowings 100,000 23,247 -
Proceeds from short-term borrowings (85,064) 85,064 -
Net borrowings (payments) on revolving
credit agreement 557,534 - (10,800)
Principal payments on long-term borrowings (84,410) (27,076) (60,203)
Principal payments on capital leases (13,147) (11,419) (1,232)
Payment of loan fees (8,000) (8,000) -
-------- ------- -------
Net cash provided by (used in)
financing activities 466,913 61,816 (72,235)
-------- ------- -------
Net increase (decrease) in cash $ (29,214) $ 26,827 $ (15,019)
Cash:
Beginning 29,844 3,017 18,036
-------- ------- -------
Ending $ 630 $ 29,844 $ 3,017
======== ======= =======
Supplemental Disclosures of Cash Flow Information
Cash payments (receipts) for:
Interest $ 104,207 $ 77,680 $ 54,787
Income taxes, net of refunds
1996 $11,840; 1995 $9,312; 1994 $41 (11,840) 3,389 11,719
Supplemental Schedule of Noncash Investing and Financing Activities
Capital lease obligations incurred for
use of equipment - 49,000 15,942
See Notes to Financial Statements.
<PAGE F-6 & F-7>
1. Nature of Business and Significant Accounting Policies
Nature of business: The Company is involved in electronics design, development
and production. Sales are primarily to manufacturers located in Illinois and
Wisconsin. Credit is extended to customers with terms of net 30 days.
A summary of the Company's significant accounting policies follows:
Accounting estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Unbilled services: Unbilled engineering services are stated at cost.
Equipment: Equipment is stated at cost. Depreciation is computed primarily by
the straight-line method over estimated useful lives of five to ten years.
Amortization of leased assets is included with depreciation on owned assets.
Patents: Patents are stated at cost. Amortization is provided on a straight-
line basis over the 17 year life of the patent.
Loan fees: Loan fees are stated at cost. Amortization is provided on a
straight-line basis over the five-year loan term.
Income taxes: Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized. Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
Financial instruments: Except for the related party debt discussed in Note 4,
the Company has no financial instruments for which the carrying value
materially differs from fair value. The fair value of the related party debt
was determined using estimated future cash flows, discounted at the current
interest rate for similar loans.
Reclassifications: Certain items in the 1995 financial statements have been
reclassified to conform to the 1996 presentation.
2. Major Customers
Net sales to major customers for the years ended June 30, 1996, 1995 and 1994,
is as follows:
1996 1995 1994
Customer A $ 2,308,172 $ 2,476,531 $ 2,667,726
Customer B 597,755 765,723 487,955
3. Inventories
Inventories consisted of the following at June 30, 1996 and 1995:
1996 1995
Raw materials $ 641,794 $ 585,717
Work in process 542,959 508,468
Finished goods 232,597 69,749
--------- --------
1,417,350 1,163,934
Allowance for obsolescence (200,000) -
--------- --------
$1,217,350 $1,163,934
--------- --------
<PAGE F-8>
4. Pledged Assets, Notes Payable, Long-Term Debt and Contingency
Notes Long-Term
Payable Debt
-------- ----------
Revolving line of credit, bank, $900,000,
interest at 2.0% over prime, due on demand* $ 791,734 $
Bank, monthly principal installments of
$1,190, bearing interest at prime plus
2.25% to January 1999* 36,904
Enclave Corporation, a corporation with
similar ownership, monthly installments
of $2,575 including interest at 6.5% to
June 2000 with a balloon payment in July
2000, unsecured, subordinated to all bank debt 376,044
Finance company, monthly installments of $487
including interest at 9.5% to August 2000,
collateralized by equipment with a carrying
value of $21,287 16,000
-------- ---------
791,734 428,948
Less current maturities 25,498
-------- ---------
$ 791,734 $ 403,450
======== =========
Prime was 8.25% at June 30, 1996.
* This note is collateralized by substantially all of the Company's assets and
the personal guarantee of the Company's president (the majority stockholder).
The fair value of the related party debt is estimated at $315,000.
Aggregate maturities on long-term debt at June 30, 1996, are as follows:
Years ending June 30:
1997 $ 25,498
1998 26,379
1999 21,384
2000 9,045
2001 346,642
--------
$ 428,948
The Company is the guarantor of a note payable of the related party. The
balance of that note at June 30, 1996 and 1995, was approximately $42,400 and
$62,400, respectively.
The agreement with the Bank restricts the Company from declaring or paying any
dividend, whether in cash or stock. In addition, among other provisions the
loan agreement contains various financial covenants including tangible net
worth and total liability ratios, minimum net income after taxes and a minimum
subordinated debt balance. The Company was in violation of these covenants as
of June 30, 1996. The Company did not obtain a waiver from the bank.
5. Capital Lease
At June 30, 1996, equipment is being acquired under capital leases which contain
a purchase option under which the Company may purchase the assets for $1 on
expiration of the leases. The capital lease liabilities are payable in
monthly installments of $616, including interest to April 1997, and $1,250
including interest to June 1999.
<PAGE F-9>
Total minimum lease payments under the capital lease are as follows:
Years ending June 30:
1997 $ 20,543
1998 14,994
1999 14,994
---------
50,531
Less amount representing interest 11,387
---------
39,144
Less current maturities 14,340
---------
$ 24,804
6. Stock Bonus Plan
The Company has adopted bonus plans for key employees whereby the employee can
elect to receive common stock or stock appreciation rights which can be
converted to common stock. During the years ended June 30, 1996, 1,000 stock
appreciation rights were repurchased at their book value of $677. During the
year ended June 30 1995 and 1994, no shares of common stock or stock
appreciation rights were issued or repurchased. At June 30, 1996, 14,215
shares of stock appreciation rights are outstanding. The total value of these
rights is $6,244.
The stock appreciation rights give the holder the right to receive the value of
the applicable stock in cash during their employment if the Company agrees to
purchase them. However the shares must be exchanged for cash when the holder
leaves the Company. The value is determined annually by the Board of
Directors. Stock appreciation rights may be converted to common stock with one
share of common stock issued for each appreciation right.
The Company has the first option to purchase the shares of common stock issued
under the plan in the event the employee wishes to sell the shares or upon
termination of employment, death or disability.
Stock appreciation rights and stock issued under the agreement vest 33-1/3%
annually from the date of issuance. The increase in the vested value of the
stock appreciation rights is treated as compensation expense each year. The
value of the stock issued was amortized over a three-year period.
7. Leases
The Company leases its facility and various equipment from Enclave Corporation,
a corporation with similar ownership to the Company. The monthly rentals are
$9,000 plus routine maintenance through June 1998 for the facility, and $1,443
through April 1999 for the equipment. Total rental expense under these
agreements was $125,316 for each of the years ended June 30, 1996, 1995 and
1994.
The Company also leased a van and equipment from unrelated parties under various
operating leases which expired during the year ended June 30, 1995. Rental
expense under these leases was $6,944 and $14,856 for the years ended June 30,
1995 and 1994, respectively.
The total future minimum lease payments under the agreements are as follows:
Years ending June 30:
1997 $ 125,316
1998 125,316
1999 14,430
--------
$ 265,062
8. Research and Development Costs
Total research and development costs charged to cost of goods sold were $93,080,
$65,601 and $197,930, for the years ended June 30, 1996, 1995 and 1994,
respectively.
<PAGE F-10>
9. Gain on Sale of Investment
During the year ended June 30, 1992, the Company accepted preferred stock in a
newly formed customer in lieu of an accounts receivable balance. This stock
was subsequently converted into 245,819 shares of common stock. During the
year ended June 30, 1993, the Company determined that the shares were
worthless. Consequently, the investment was written off. During the year
ended June 30, 1994, the Company found a buyer for the shares and sold them for
$187,426 resulting in a gain of that amount in 1994.
10. Gain from Litigation Settlement
In September 1995, the Company received $325,000 in settlement of a lawsuit in
which the Company was the plaintiff. At that time, the Company wrote off
$166,000 in unusable inventory related to the lawsuit.
11. Income Tax Matters
The deferred tax assets and liabilities consist of the following components as
of June 30, 1996 and 1995:
1996 1995
Deferred tax assets:
Receivables $ 15,125 $ 1,875
Inventory allowances 50,000 -
Capitalized inventory costs 34,225 34,160
Accrued vacations 6,588 13,844
Stock appreciation rights 1,561 2,576
Net operating loss carryforward 500 -
-------- --------
107,999 52,455
Less valuation allowance 88,798 30,883
-------- --------
19,201 21,572
Deferred tax liabilities:
Equipment 13,719 14,185
Patent and advertising costs 2,282 7,387
Other 3,200 -
-------- --------
19,201 21,572
-------- --------
Net deferred income taxes $ - $ -
-------- --------
Reconciliation of income tax (credits) computed at the statutory federal income
tax rate to the Company's income tax expense for the years ended June 30, 1996,
1995 and 1994, is as follows:
1996 1995 1994
Computed "expected" tax (credits) $ (61,209) $ (14,316) $ (5,577)
Increase (decrease) resulting from:
Increase in valuation allowance 57,915 12,514 5,577
Effect of lower bracket rates used
in computation of deferred income taxes 13,770 - -
General business credits (8,156) - -
Other (1,406) 1,802 1,759
-------- ------- -------
$ 914 $ - $ 1,759
-------- ------- -------
<PAGE F-11>
12. Subsequent Event
On June 6, 1997, R. M. Schultz & Associates, Inc. merged with Dauphin
Technology, Inc. a public company, through a stock for stock exchange.
Subsequent to the merger Dauphin infused $699,000 into the Company of which
$326,000 was used to reduce bank debt and the balance was for working capital
purposes. In conjunction with the merger, the note payable affiliate of
approximately $373,000 at that time was contributed to equity.
<PAGE F-12>
DAUPHIN TECHNOLOGY, INC.
AND
RICHARD M. SCHULTZ & ASSOCIATES, INC.
PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
Page
Pro Forma Condensed Combining Balance Sheet of Dauphin
Technology, Inc. and Richard M. Schultz and Associates,
Inc. as of March 31, 1997 P-2
Pro Forma Condensed Combining Statement of Income of
Dauphin Technology, Inc. and Richard M. Schultz and
Associates, Inc.:
For the Year Ended December 31, 1996 P-3
For the three month period ended March 31, 1997 P-4
Notes to Pro Forma Condensed Combining Financial Statements P-5
The unaudited pro forma condensed combining balance sheet as of March 31, 1997
gives effect to the acquisition of Richard M. Schultz & Associates, Inc.
("RMS") by Dauphin Technology, Inc. ("Dauphin") as if the transaction had been
consummated on March 31, 1997. The following unaudited condensed combining
statements of income for the three months ended March 31, 1997 and for the year
ended December 31, 1996 set forth the consolidated operations of Dauphin
combined with RMS for the period presented as if the acquisition had occurred
on January 1, 1996 (the beginning of the earliest year presented).
These pro forma condensed combining financial statements, which have been
prepared by Dauphin management are based upon historical financial statements
of Dauphin and RMS, should be read in conjunction with the accompanying notes
to such pro forma condensed combining financial statements and the consolidated
financial statements and related notes thereto of Dauphin, incorporated herein
by reference, and RMS, included elsewhere herein. The historical interim
financial information for the three months ended March 31, 1997, used as a
basis for the pro forma combined consolidated financial statements, include all
necessary adjustments, which in the opinion of management of Dauphin and RMS,
are necessary to present the data fairly. These pro forma condensed combining
financial statements may not be indicative of the results that actually would
have occurred if the acquisition had been in effect on the dates indicated or
the results of operations that may be obtained in the future.
<Page P-1>
PRO FORMA CONDENSED COMBINING BALANCE SHEET OF
DAUPHIN TECHNOLOGY, INC. AND RICHARD M. SCHULTZ & ASSOCIATES, INC.
MARCH 31, 1997
(unaudited)
Dauphin Richard M. Historical Pro Forma Pro Forma
Technology, Inc. Schultz & Assc. Combined Adjustments Combined
--------------- -------------- -------- ----------- ---------
ASSETS
Cash $ 144,383 $ 593 $ 144,976 $ 144,976
Trade receivables 2,719 776,151 778,870 778,870
Other receivables 9,187 36,519 45,706 1 (c)(9,627) 36,079
Inventories 2,693,796 983,960 3,677,756 3,677,756
Prepaid expenses
and supplies 12,251 14,867 27,118 27,118
Excess cost over fair value
of net assets acquired 1(c)399,243 399,243
Property and
Equipment 108,586 156,863 265,449 265,449
Patent costs - 18,256 18,256 18,256
-------------- ----------- ---------- ----------- ---------
TOTAL ASSETS $2,970,922 $1,987,209 $4,958,131 389,616 $5,347,747
============== =========== ========== =========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable - 953,457 953,457 953,457
Current maturities
of long-term debt - 70,236 70,236 70,236
Current maturities of obligations
under capital leases - 14,340 14,340 14,340
Accounts payable 35,684 851,621 887,305 887,305
Income taxes payable - 100 100 100
Accrued expenses 61,293 52,695 113,988 1(c) 168,717 282,705
-------------- ----------- ---------- ----------- ---------
Total current
liabilities 96,977 1,942,449 2,039,426 2,208,143
Long-Term Debt, less
current maturities 40,951 389,331 430,282 1(c)(369,963) 60,319
Obligations under capital leases,
less current maturities - 13,091 13,091 13,091
Intercompany Accounts - - - -
-------------- ----------- ---------- ----------- ---------
Total Liabilities 137,928 2,344,871 2,482,799 (201,246) 2,281,553
Stockholders' Equity
Common stock 32,178 10,059 42,237 1(b) (9,839) 32,398
Treasury Stock (1,488,352) - (1,488,352) (1,488,352)
Additional paid-in
capital 24,016,657 68,500 24,085,157 1(b) 164,480 24,249,637
Retained earnings
(deficit) (19,727,489) (436,221) (20,163,710)1(b) 436,221(19,727,489)
-------------- ----------- ---------- ----------- ---------
2,832,994 (357,662) 2,475,332 590,862 3,066,194
-------------- ----------- ---------- ----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY 2,970,922 1,987,209 4,958,131 389,616 5,347,747
============== =========== ========== =========== =========
<Page P-2>
PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME OF
DAUPHIN TECHNOLOGY, INC. AND RICHARD M. SCHULTZ & ASSOCIATES, INC.
FOR THE YEAR ENDED DECEMBER 31, 1996
(unaudited)
Dauphin Richard M. Pro Forma Pro Forma
Technology, Inc. Schultz Combined Adjustments Combined
------------- ----------- ---------- ----------- ---------
Net sales $ 93,947 $ 5,196,543 $5,290,490 $5,290,490
Cost of goods sold 279,232 4,286,302 4,565,534 4,565,534
------------- ----------- ---------- ----------- ---------
Gross profit (185,285) 910,241 724,956 724,956
Selling, General and Administrative
expenses 1,007,309 1,062,667 2,069,976 2(d) 19,962 2,089,938
Research and
Development 76,711 - 76,711 76,711
------------- ----------- ---------- ----------- ---------
Operating (loss) (1,269,305) (152,426) (1,421,731) (1,441,693)
Financial income (expense):
Interest expense (2,310) (108,602) (110,912) (110,912)
Interest income 9,997 849 10,846 10,846
------------- ----------- ---------- ----------- ---------
7,687 (107,753) (100,066) (100,066)
(Loss) from continuing
operations before
income taxes (1,261,618) (260,179) (1,521,797) (1,541,759)
Federal and state
income taxes - (722) (722) (722)
------------- ----------- ---------- ----------- ---------
Net (loss) from continuing
operations $(1,261,618) $ (259,457)$(1,521,075) $(1,541,037)
============= =========== ========== =========== =========
Pro Forma per Share Data:
Weighted average number of shares
outstanding 24,076,301 24,296,301
Net (loss) from continuing
operations $ (0.06) $ (0.07)
See accompanying notes to pro forma combining financial statements
<Page P-3>
PRO FORMA CONDENSED COMBINING STATEMENT OF INCOME OF
DAUPHIN TECHNOLOGY, INC. AND RICHARD M. SCHULTZ & ASSOCIATES, INC.
FOR THE THREE MONTH ENDED MARCH 31, 1997
(unaudited)
Dauphin Richard M. Pro Forma Pro Forma
Technology, Inc. Schultz Combined Adjustments Combined
---------------- -------------- ----------- ----------- ----------
Net sales $ 22,317 $ 1,312,156 $ 1,334,473 $ 1,334,473
Cost of goods
sold 13,205 1,130,309 1,143,514 1,143,514
---------------- -------------- ----------- ----------- ----------
Gross profit 9,112 181,847 190,959 190,959
Operating
expenses 339,586 232,286 571,872 2(d) 4,991 576,863
Operating income
(loss) (330,474) (50,439) (380,913) (385,904)
Financial income (expense):
Interest expense - (26,766) (26,766) (26,766)
Interest income 3,843 3 3,846 3,846
---------------- -------------- ----------- ----------- ----------
3,843 (26,763) (22,920) (22,920)
(Loss) from continuing operations before
income taxes (326,631) (77,202) (403,833) (408,824)
Federal and state
income taxes - - - -
---------------- -------------- ----------- ----------- ----------
Net (loss) from continuing
operations $ (326,631) $ (77,202) $ (403,833) $ (408,824)
================ ============== =========== =========== ==========
Pro Forma per Share Data:
Weighted average number of shares
outstanding 29,547,111 29,767,111
Net (loss) from continuing
operations $ (0.01) $ (0.02)
See accompanying notes to pro forma combining financial statements
<Page P-4>
NOTES TO PRO FORMA CONDENSED COMBINING
FINANCIAL STATEMENTS
BACKGROUND
Dauphin has acquired RMS through an exchange of stock for stock in accordance
with the Exchange Agreement dated June 6, 1997. While subject to adjustments,
the Exchange Agreement calls for RMS shareholders to 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, in exchange for all issued and outstanding shares
RMS. 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.
RMS financial information presented elsewhere in the audited financial
statements reflects a June 30 fiscal year-end. Pro forma information has been
prepared using Dauphin and RMS information assuming December 31 year-end.
This transaction is to be accounted for as a purchase and, accordingly, certain
estimates were made in the presentation of pro forma financial statements.
ASSUMPTIONS
1) The pro forma condensed combining balance sheet of Dauphin and RMS as of
March 31, 1997, have been prepared with the following assumptions:
a) The transaction referred to above occurred on March 31, 1997.
b) The Exchange Agreement calls for the exchange of 220,000 shares of Dauphin
for all issued and outstanding shares of RMS.
c) The acquisition is accounted for using the purchase method of accounting
and, accordingly, the net assets of RMS are adjusted to their fair market
value. The components of the transaction are outlined as follows:
Dauphin Consideration:
Dauphin Common Stock (220,000 shares at $1.06 per share) $ 233,200
Liabilities Assumed 2,344,871
Less: Affiliated Debt Forgiven (360,336)
Cost of the Transaction 168,717
---------
Total Consideration 2,386,452
Historical book value of RMS assets 1,987,209
---------
Excess of cost over fair value of net assets acquired 399,243
The price of Dauphin Common Stock of $1.06 was used in connection with the
acquisition and is consistent with the closing price on the date the Exchange
was publicly announced.
2) The pro forma condensed combining statement of income presented herein, have
been prepared in accordance with the following financial assumptions:
a) The pro forma condensed combining statement of income presented herein
include the historical net income of Dauphin for the year ended December
31, 1996 and three months ended March 31, 1997. The historical financial
income for Dauphin for the year ended December 31, 1996 does not include
the extraordinary item related to emergence from bankruptcy, costs related
to reorganization and related computations of income per share, as if such
entries were present.
b) The acquisition occurs January 1, 1996 and is accounted for by the
purchase method of accounting. Accordingly, the operations of RMS are
included in Dauphin's consolidated results of operations from January 1,
1996 forward.
c) The effect of the pro forma purchase accounting adjustments outlined in
1(c) above on the individual balance sheet captions and in the total for
each of the next five years and thereafter are as follows:
<Page P-5>
Excess of cost over net assets acquired
1998 $ 19,962
1999 19,962
2000 19,962
2001 19,962
2002 19,962
After 5 years 299,433
-------
Total $399,243
d) The adjustments to reflect amortization of the purchase adjustments in the
pro forma condensed combining financial statements of income included herein
are as follows:
Year ended Three months ended
December 31, 1996 March 31, 1997
Increase in operating expense
for amortization of excess of
assets over fair value of net
assets acquired $ 19,962 $ 4,991
The excess of cost over fair value of assets of RMS acquired by Dauphin is
amortized on a straight line basis over 20 years.