UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(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, 2001
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 April 25, 2001,
61,866,069 shares of the registrant's common stock, $.001 par value, was issued
and outstanding.
1
DAUPHIN TECHNOLOGY, INC.
Table of Contents
-----------------
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2001 and December 31, 2000 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2001 and 2000 4
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year Ended December 31, 2000 and
Three Months Ended March 31, 2001 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2001 and 2000 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 12
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
2
Dauphin Technology, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2001 and December 31, 2000
(Unaudited)
- ----------------------------------------------------------------------------------------------
March 31, 2001 December 31, 2000
-------------- -----------------
(RESTATED) (RESTATED)
-----------------
CURRENT ASSETS:
Cash $ 1,929,822 $ 2,683,480
Accounts receivable-
Trade, net of allowance for bad debt of $50,621
at March 31, 2001 and December 31, 2000 344,725 321,377
Employee receivables 18,248 21,590
Inventory, net of reserve for obsolescence of $2,491,216
at March 31, 2001 and December 31, 2000 529,060 505,749
Prepaid expenses 121,714 20,794
------------ ------------
Total current assets 2,943,569 3,552,990
INVESTMENT IN RELATED PARTY 290,000 290,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,225,685 at March 31, 2001 and
$1,127,040 at December 31, 2000 1,405,755 1,477,787
ESCROW DEPOSIT 706,164 752,500
GOODWILL, net of accumulated amortization of $687,500
at March 31, 2001 and $412,500 at December 31, 2000 4,812,500 5,087,500
------------ ------------
Total assets $ 10,157,988 $ 11,160,777
============ ============
CURRENT LIABILITIES:
Accounts payable $ 225,390 $ 290,474
Accrued expenses 75,088 80,433
Current portion of long-term debt 109,738 113,629
Customer Deposits 53,588 53,244
------------ ------------
Total current liabilities 463,804 537,780
LONG-TERM DEBT 84,182 102,133
------------ ------------
Total liabilities 547,986 639,913
COMMITMENTS AND CONTINGENCIES -- --
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; 61,866,069 and 61,652,069 issued and
outstanding at March 31, 2001 and at
December 31, 2000, respectively 61,867 61,653
Warrants 3,270,150 3,321,810
Paid-in capital 53,634,862 53,479,116
Accumulated deficit (47,356,877) (46,341,715)
------------ ------------
Total shareholders' equity 9,610,002 10,520,864
------------ ------------
Total liabilities and shareholders' equity $ 10,157,988 $ 11,160,777
============ ============
3
Dauphin Technology, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31, 2001 and 2000
(Unaudited)
- -------------------------------------------------------------------------------
Three Months
Ended March 31,
-------------------------------
2001 2000
------------ ------------
(RESTATED)
NET REVENUE $ 445,154 $ 4,736
COST OF REVENUE 328,585 (234,150)
------------ ------------
Gross Profit (Loss) 116,569 238,886
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 750,984 1,134,184
RESEARCH AND DEVELOPMENT
EXPENSE 462,522 84,714
------------ ------------
Loss from Operations (1,096,937) (980,012)
INTEREST EXPENSE 6,885 30,026
INTEREST INCOME 88,660 --
------------ ------------
Loss before Income Taxes (1,015,162) (1,010,038)
INCOME TAXES -- --
------------ ------------
NET LOSS $ (1,015,162) $ (1,010,038)
============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.02) $ (0.02)
============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 61,798,069 56,337,996
============ ============
4
Dauphin Technology, Inc.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year ended December 31, 2000 and three months
ended March 31, 2001
(Unaudited)
Common Stock
--------------- Paid-in
Shares Amount Capital
------ ------ -------
BALANCE, December 31, 1999 51,671,582 $51,671 $38,089,320
Issuance of common stock in connection with:
Private placement 4,654,613 4,656 6,877,639
Stock purchase agreement 2,136,616 2,137 5,854,991
Warrant exercise 1,999,602 1,999 1,234,715
Consulting fees 500,000 500 312,000
Employee stock compensation - - 70,622
Settlement of trade payables 480,000 480 299,520
Stock options exercised 2,000 2 998
Vendor payments 207,656 208 739,311
Net loss - - -
---------- ------- -----------
BALANCE, December 31, 2000, restated 61,652,069 61,653 53,479,116
Issuance of common stock in connection with:
Warrant exercise 210,000 210 153,750
Stock options exercised 4,000 4 1,996
Net loss - - -
---------- ------- -----------
BALANCE, March 31, 2001, restated 61,866,069 $61,867 $53,634,862
========== ======= ===========
Treasury Stock
-------------- Accumulated
Warrants Shares Amount Deficit Total
-------- ------ ------ ------- -----
BALANCE, December 31, 1999 $1,238,089 - $ - $(38,826,736) $ 52,344
Issuance of common stock in connection with:
Private placement 419,556 - - - 7,301,851
Stock purchase agreement 1,142,872 - - - 7,000,000
Warrant exercise (620,641) - - - 616,073
Consulting fees 1,103,669 - - - 1,416,169
Employee stock compensation - - - - 70,622
Settlement of trade payables - - - - 300,000
Stock options exercised - - - - 1,000
Vendor payments 38,265 - - - 777,784
Net loss - - - (7,514,979) (7,514,979)
---------- ------ ------ ----------- -----------
BALANCE, December 31, 2000, restated 3,321,810 - - (46,341,715) 10,520,864
Issuance of common stock in connection with:
Warrant exercise (51,660) - - - 102,300
Stock options exercised - - - - 2,000
Net loss - - - (1,015,162) (1,015,162)
---------- ------ ------ ------------ -----------
BALANCE, March 31, 2001, restated $3,270,150 - $ - $(47,356,877) $ 9,610,002
========== ====== ====== ============ ===========
5
Dauphin Technology, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2001 and 2000
(Unaudited)
- ------------------------------------------------------------------------------------
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES -
Net loss $(1,015,162) $(1,010,038)
Non-cash items included in net loss:
Depreciation and amortization 98,645 100,269
Amortization of goodwill 275,000 --
Warrants issued in lieu of consulting fees -- 191,333
Common stock issued to vendors -- 312,500
Settlement of trade payables -- (418,960)
(Increase) decrease in accounts receivable - trade (23,348) 12,810
Decrease in accounts receivable from employees 3,342 --
Increase in inventory (23,311) --
Increase in prepaid expenses (100,920) (80,315)
Decrease in escrow deposits 46,336 --
Decrease in accounts payable (65,084) (1,231,964)
Decrease in accrued expenses (5,345) (11,206)
Increase in customer deposits 344 --
----------- -----------
Net cash used in operating activities (809,503) (2,135,571)
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchase of equipment (26,613) (2,195)
----------- -----------
Net cash used in investing activities (26,613) (2,195)
CASH FLOWS FROM FINANCING ACTIVITIES -
Proceeds from issuance of shares 104,300 6,485,805
Proceeds from issuance of warrants -- 60,572
Repayment of long-term leases and other obligations (21,842) (25,735)
Decrease in short-term borrowing -- (186,000)
----------- -----------
Net cash provided by financing activities 82,458 6,334,642
----------- -----------
Net (decrease) increase in cash (753,658) 4,196,876
CASH BEGINNING OF PERIOD 2,683,480 31,087
----------- -----------
CASH END OF PERIOD $ 1,929,822 $ 4,227,963
=========== ===========
CASH PAID DURING THE PERIOD FOR -
Interest $ 6,885 $ 30,026
NON-CASH ACTIVITY:
Common stock issued in connection with:
Settlement of customer deposits and payables $ -- $ 300,000
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 subsidiaries
design, manufacture and market mobile hand-held, pen-based computers, broadband
set-top boxes, as well as other electronic devices for home and business use and
perform design services, process methodology consulting and intellectual
property development, out of its three 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 subsidiaries, R.M. Schultz & Associates, Inc. ("RMS"), and Advanced
Digital Designs, Inc ("ADD"). 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 61,798,069 for the three-month period March 31, 2001 and
56,337,996 for the three-month period March 31, 2000. Diluted earnings per
common share are adjusted for the assumed conversion exercise of stock options
and warrants unless such adjustment would have an anti-dilutive effect.
Approximately 12.5 million additional shares would be outstanding if all
warrants and all stock options were exercised as of March 31, 2001.
Unaudited Financial Statements
The accompanying statements are unaudited, but have been prepared in accordance
with accounting principles generally accepted in the United States of America
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 accounting principles generally accepted in the
United States of America 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, 2000.
The reader is reminded that the results of operations for the interim period are
not necessarily indicative of the results for the complete year.
Use of Estimates
The presentation of the Company's consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America 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.
7
Dauphin Technology, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
Restatement of prior period
Selling, general and administrative expenses, interest expense, net loss and per
share amounts have been adjusted from previously reported amounts to offset the
difference between the quoted market price and the proceeds from stock sales
under the private placement against additional paid in capital rather than
interest expense amounting to $1,721,939 ($0.02 per share) for the quarter ended
March 31, 2000.
3. RISKS AND UNCERTAINTIES
-----------------------
The Company has incurred a net operating loss in each year since its founding
and as of March 31, 2001 has an accumulated deficit of $47,356,877. 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 design and develop and market commercially acceptable products
including its set-top box. Financial success will also depend on amending
contract terms to result in net revenue in excess of costs of manufacture and
selling, general and administrative costs. 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. BUSINESS SEGMENTS
-----------------
The Company has two reportable segments: Dauphin Technology, Inc. and RMS
(Dauphin) and Advanced Digital Designs, Inc. (ADD). Dauphin is involved in
design, manufacturing and distribution of hand-held pen-based computer systems
and accessories and smartbox set-top boxes. ADD performs design services,
process methodology consulting and intellectual property development.
March 31, March 31,
2001 2000
----------- ----------
Revenue
Dauphin $ 4,566 $ 4,736
ADD 638,275 -
Inter-company elimination (197,687) -
----------- ---------
Total $ 445,154 $ 4,736
=========== =========
Operating (Loss)
Dauphin $(1,037,747) $(980,012)
ADD (59,190) -
Inter-company elimination - -
----------- ---------
Total $(1,096,937) $(980,012)
=========== =========
March 31, December 31,
2001 2000
---------- ------------
Assets
Dauphin $ 17,752,580 $ 18,393,220
ADD 6,920,437 6,735,372
Inter-company elimination (14,515,029) (13,967,815)
------------ ------------
Total $ 10,157,988 $ 11,160,777
============ ============
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company is an operating entity and in the normal course of business, from
time to time, may be involved in litigation. In management's opinion, any
current or pending litigation is not material to the overall financial position
of the Company.
8
Dauphin Technology, Inc.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. EQUITY TRANSACTIONS
-------------------
2001 Events
During the first quarter of 2001, the Company received proceeds in the amount of
$102,300 for the exercise of 210,000 warrants. Additionally, employees exercised
4,000 stock options at a price of $.50 per share.
Subsequent Events
On April 3, 2001, the Company and Estel Telecommunications S.A. cancelled the
performance bond issued on October 26, 2000 and the 1,550,000 shares of
restricted stock held by Best S.A. were returned to the Company. In connection
with the cancellation of the shares, Best S.A. executed the personal guarantee
of Mr. Andrew J. Kandalepas, which he had granted to secure the performance of
the Company's obligation to register the 1,550,000 shares issued in connection
with the performance bond.
7. RESTATEMENT
-----------
The condensed consolidated balance sheet and the condensed consolidated
statement of shareholders equity as of and for the year-ended December 31, 2000
have been restated to decrease the net loss and decrease additional paid in
capital by $1,302,383 to correctly reflect sales of equity securities in the
private placement in the first quarter of 2000 at a discount from the quoted
market prices. (See Note 2.)
9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
THREE MONTHS ENDED MARCH 31, 2001 COMPARED WITH THREE MONTHS ENDED
- ------------------------------------------------------------------
MARCH 31, 2000
- --------------
Revenues for the three months ended March 31, 2001 and 2000 were approximately
$445,000 and $5,000, respectively. Revenues in the first quarter of 2001
consisted of approximately $327,000 of consulting fees from the Company's design
engineering subsidiary and $34,000 from the sale of the Orasis(R) hand-held
computer and accessories. Revenues in the first quarter of 2000 were
approximately $5,000 from the sale of the Orasis(R) accessories. Cost of
revenues and gross profit margins are not comparable for the period due to
fluctuation in sales settlement of trade payables in 2000. Cost of revenues for
2001 consists primarily of design services payroll and related costs.
Selling, general and administrative expenses decreased to approximately $751,000
in 2001 from $1,134,000 in 2000. Selling, general and administrative expenses
during 2000 consisted of professional fees and financial services expenses
related to the private placement. In 2001, these costs were partially offset by
the increase in expenses for the design engineering operations.
Research and Development expenses increased to approximately $463,000 during the
first quarter ended March 31, 2001 from $85,000 for the corresponding period in
2000. Research and Development costs primarily consist of costs related to the
development of the set-top box, with a small portion related to further
development of the Orasis(R).
Interest expense decreased to approximately $7,000 for the first quarter of 2001
from $30,000 for the first quarter of 2000. The interest is primarily related to
certain capital leases on various equipment.
Net loss
The consolidated loss after tax increased for the first quarter ended March 31,
2001 to approximately ($1,015,000) or ($0.02) per share from ($1,010,000) or
($0.02) per share in 2000. The loss for 2001 was primarily attributed to the
amortization of goodwill associated with the acquisition of Advanced Digital
Designs, Inc., research and development costs regarding the set-top box and
general administrative expenses, whereas the loss for 2000 was primarily
attributed to legal and professional fees associated with the private placement.
Loss per common share is calculated based on the monthly weighted average number
of common shares outstanding, which were 61,798,069 for the three-month period
ended March 31, 2001, and 56,337,996 for the three-month period ended March 31,
2000.
Balance Sheet
Total assets for the Company at March 31, 2001 were approximately $10,158,000, a
decrease of approximately $1,000,000 from December 31, 2000. The decrease was
primarily attributable to the net cash used in operations of approximately
$810,000, the purchase of equipment of $27,000, offset by the proceeds from the
exercise of stock warrants and stock options of $104,000 and the decline in
current liabilities of $70,000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has incurred a net operating loss in each year since its founding
and as of March 31, 2001 has an accumulated deficit of approximately
$47,357,000. 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 including its set-top box. 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.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
THE RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Continued)
-------------------------------------------
For the three months ended March 31, 2001, the Company used $810,000 of cash in
operating activities, used $26,000 in investing activities and generated $82,000
of cash from financing activities that produced a decrease in cash of $754,000
for the three months. The net loss of $1,015,000 was partially offset by the
non-cash items of depreciation and amortization. Investing activities consisted
of the purchase of test equipment. Financing activities consisted of the
exercise of warrants, offset by the payment of long-term lease obligations. As
of March 31, 2001, the Company had a current asset to current liabilities ratio
of 6.3 as compared to a ratio of 6.6 at December 31, 2000. The Condensed
Consolidated Statements of Cash Flows, included in this report, detail the other
sources and uses of cash and cash equivalents.
In the second quarter of 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 for use by the Company at its discretion. During the third quarter of
2000, the Company received $5,000,000 from the equity line in exchange for the
issuance of 1,354,617 shares of common stock. In October 2000, the Company
received an additional $2,000,000 from the equity line in exchange for 781,999
shares of common stock. The Company has available up to $93,000,000 under the
equity line of credit as of March 31, 2001.
RISK FACTORS
------------
We operate in a highly competitive and volatile industry. We are faced with
aggressive pricing by competitors; competition for necessary parts, components
and supplies; continually changing customer demands and rapid technological
developments; and risks that buyers may encounter difficulties in obtaining
governmental licenses or approvals, or in completing installation and
construction of infrastructure, necessary to use our products or to offer them
to end users. 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 2000 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.
11
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 thereunto duly authorized.
DAUPHIN TECHNOLOGY, INC.
(Registrant)
Date: April 14, 2002 By: /s/ Andrew J. Kandalepas
-----------------------------------
Andrew J. Kandalepas
Chief Executive Officer
Date: April 14, 2002 By: /s/ Harry L. Lukens, Jr.
-----------------------------------
Harry L. Lukens, Jr.
Chief Financial Officer
12