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 June 30, 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 August 8, 2001,
62,666,127 shares of the registrant's common stock, $.001 par value, was issued
and outstanding.
DAUPHIN TECHNOLOGY, INC.
Table of Contents
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2001 and December 31, 2000 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months and Three Months Ended June 30, 2001 and 2000 4
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year Ended December 31, 2000 and
Six Months Ended June 30, 2001 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2001 and 2000 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 7
Management's Discussion and Analysis of Financial Condition and the Results
of Operations 10
Item 2.
PART II OTHER INFORMATION 13
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 13
2
Dauphin Technology, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2001 and December 31, 2000
(Unaudited)
================================================================================
June 30, 2001 December 31, 2000
------------- -----------------
RESTATED RESTATED
-------- --------
CURRENT ASSETS:
Cash $ 756,925 $ 2,683,480
Accounts receivable-
Trade, net of allowance for bad debt of $50,621 at June 30,
2001 and December 31, 2000 275,687 321,377
Employee receivables 18,248 21,590
Inventory, net of reserve for obsolescence of $2,491,216 at
June 30, 2001 and December 31, 2000 527,241 505,749
Prepaid expenses 84,206 20,794
------------ -----------
Total current assets 1,662,307 3,552,990
INVESTMENT IN RELATED PARTY 290,000 290,000
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $1,324,774 at June 30, 2001 and $1,127,040
at December 31, 2000 1,341,394 1,477,787
ESCROW DEPOSIT 611,491 752,500
GOODWILL, net of accumulated amortization of
$962,500 at June 30, 2001 and $412,500 at December 31, 2000 4,537,500 5,087,500
------------ -----------
Total assets $ 8,442,692 $11,160,777
============ ===========
CURRENT LIABILITIES:
Accounts payable $ 230,612 $ 290,474
Accrued expenses 79,979 80,433
Current portion of long-term debt 96,254 113,629
Customer Deposits 50,488 53,244
------------ -----------
Total current liabilities 457,333 537,780
LONG-TERM DEBT 72,856 102,133
------------ -----------
Total liabilities 530,189 639,913
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;
62,932,187 and 61,652,069 issued and outstanding at June 30,
2001 and at December 31, 2000 62,933 61,653
Warrants 3,358,700 3,321,810
Paid-in capital 54,918,337 53,479,116
Accumulated deficit (50,427,467) 46,341,715)
------------ ------------
Total shareholders' equity 7,912,503 10,520,864
------------ -----------
Total liabilities and shareholders' equity $ 8,442,692 $11,160,777
============ ===========
The accompanying notes are an integral part of these statements.
3
Dauphin Technology, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six months and three months ended June 30, 2001 and 2000
(Unaudited)
- ---------------------------------------------------------------------------------------------------
Six Months Three Months
Ended June 30, Ended June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
RESTATED RESTATED RESTATED
------------ ------------ ------------
NET REVENUE $ 827,241 $ 16,041 $ 382,087 $ 11,305
COST OF REVENUE 643,400 123,411 314,815 357,561
------------ ------------ ------------ ------------
Gross Profit (Loss) 183,841 (107,370) 67,272 (346,256)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSE 3,130,610 1,861,049 2,379,626 726,865
RESEARCH AND DEVELOPMENT
EXPENSE 1,240,896 250,858 778,374 166,144
------------ ------------ ------------ ------------
Loss from Operations (4,187,665) (2,219,277) (3,090,728) (1,239,265)
INTEREST EXPENSE 11,780 54,202 4,895 24,176
INTEREST INCOME 113,693 13,810 25,033 13,810
------------ ------------ ------------ ------------
Loss before Income Taxes (4,085,752) (2,259,669) (3,070,590) (1,249,631)
INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (4,085,752) $ (2,259,669) $ (3,070,590) $ (1,249,631)
============ ============ ============ ============
BASIC AND DILUTED LOSS PER SHARE $ (0.07) $ (0.04) $ (0.05) $ (0.02)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 62,364,461 57,005,361 62,930,854 57,734,598
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
4
Dauphin Technology, Inc.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Year ended December 31, 2000 and six months ended June 30, 2001
(Unaudited)
Common Stock
------------ Paid-in
Shares Amount Capital Warrants
------ ------ ------- --------
BALANCE, December 31, 1999 51,671,582 $51,671 $38,089,320 $1,238,089
Issuance of common stock in connection with:
Private placement 4,654,613 4,656 6,877,639 419,556
Stock purchase agreement 2,136,616 2,137 5,854,991 1,142,872
Warrant exercise 1,999,602 1,999 1,234,715 (620,641)
Consulting fees 500,000 500 312,000 1,103,669
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 38,265
Net loss - - - -
---------- ------- ---------- ----------
BALANCE, December 31, 2000, restated 61,652,069 61,653 53,479,116 3,321,810
Issuance of common stock in connection with:
Warrant exercise 210,000 210 153,750 (51,660)
Stock options exercised 8,000 8 3,992 -
Vendor payments 30,000 30 40,770 88,550
Personal Guarantee 1,032,118 1,032 1,240,079 -
Net loss - - - -
---------- ------- ----------- ----------
BALANCE, June 30, 2001, restated 62,932,187 $62,933 $54,948,337 $3,358,700
========== ======= =========== ==========
Treasury Stock
-------------- Accumulated
Shares Amount Deficit Total
------ ------ ------- -----
BALANCE, December 31, 1999 - $ - $(38,826,736) $ 552,344
Issuance of common stock in connection with:
Private placement - - - 7,301,851
Stock purchase agreement - - - 7,000,000
Warrant exercise - - - 616,073
Consulting fees - - - 1,416,169
Employee stock compensation - - - 70,622
Settlement of trade payables - - - 300,000
Stock options exercised - - - 1,000
Vendor payments - - - 777,784
Net loss - - (7,514,979) (7,514,979)
------ ------ ------------ -----------
BALANCE, December 31, 2000, restated - - (46,341,715) 10,520,864
Issuance of common stock in connection with:
Warrant exercise - - - 102,300
Stock options exercised - - - 4,000
Vendor payments - - - 129,350
Personal Guarantee - - - 1,271,741
Net loss - - (4,085,752) (4,085,752)
------ ------ ------------ -----------
BALANCE, June 30, 2001, restated - $ - $(50,427,467) $ 7,912,503
====== ====== ============ ===========
The accompanying notes are an integral part of these statements.
5
- -
Dauphin Technology, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 2001 and 2000
(Unaudited)
- ---------------------------------------------------------------------------------------------------
2001 2000
------------- -----------
RESTATED RESTATED
------------- -----------
CASH F LOWS FROM OPERATING ACTIVITIES -
Net loss $ (4,085,752) $(2,259,669)
Non-cash items included in net loss:
Depreciation and amortization 197,734 200,584
Amortization of goodwill 550,000 -
Warrants issued in lieu of consulting fees 88,550 544,833
Common stock issued to vendors 40,800 -
Common stock issued pursuant to personal guarantee 1,241,741 -
Settlement of trade payables - (431,776)
Decrease in accounts receivable - trade 45,690 20,049
Decrease in accounts receivable from employees 3,342 -
(Increase) decrease in inventory (21,492) 20,354
Increase in prepaid expenses (63,412) (63,055)
Decrease in escrow deposits 141,009 -
(Decrease) in accounts payable (59,862) (1,257,601)
(Decrease) increase in accrued expenses (454) 95,023
(Decrease) increase in customer deposits (2,756) -
------------- -----------
Net cash used in operating activities (1,924,862) (3,131,258)
CASH F LOWS FROM INVESTING ACTIVITIES -
Purchase of equipment (61,341) (2,195)
------------- -----------
Net cash used in investing activities (61,341) (2,195)
CASH F LOWS FROM FINANCING ACTIVITIES -
Proceeds from issuance of shares 106,300 7,200,671
Proceeds from issuance of warrants - 230,882
Repayment of long-term leases and other obligations (46,652) (28,372)
(Decrease) increase in short-term borrowing - (286,000)
------------- -----------
Net cash provided by financing activities 59,648 7,117,181
------------- -----------
Net (decrease) increase in cash (1,926,555) 3,983,728
CASH BEGINNING OF PERIOD 2,683,480 31,087
------------- -----------
CASH END OF PERIOD $ 756,925 $ 4,014,815
============= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 11,780 $ 54,202
NON-CASH TRANSACTIONS:
Common stock issued in connection with:
Settlement of customer deposits and payables $ - $ 300,000
The accompanying notes are an integral part of these statements.
Dauphin Technology, Inc.
NOTES TO CONDENSED CONSOLIDATED 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 62,364,461 for the six-month period June 30, 2001 and
57,005,361 for the six-month period June 30, 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 June 30, 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 CONDENSED CONSOLIDATED 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 ($0.03 per share) for the six-months
ended June 30, 2000.
3. RISKS AND UNCERTAINTIES
-----------------------
The Company has incurred a net operating loss in each year since its founding
and as of June 30, 2001 has an accumulated deficit of $50,427,467. 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.
June 30, 2001 June 30, 2000
------------- -------------
Revenue
Dauphin $ 10,435 $ 16,041
ADD 1,265,743 -
Inter-company elimination (448,937) -
------------ ------------
Total $ 827,241 $ 16,041
============ ============
Operating (Loss)
Dauphin $ (4,049,983) $ (2,219,277)
ADD (137,682) -
- -
Inter-company elimination - -
------------ ------------
Total $ (4,187,665) $ (2,219,277)
============ ============
June 30, 2001 December 31, 2000
------------- -----------------
Assets
Dauphin $ 16,540,216 $ 18,393,220
ADD 6,786,346 6,735,372
Inter-company elimination (14,883,870) (13,967,815)
------------ ------------
Total $ 8,442,692 $ 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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Unaudited)
6. EQUITY TRANSACTIONS
-------------------
2001 Events
In April 2001, the Company issued 30,000 shares of common stock and warrants to
purchase 70,000 shares of common stock at an exercise price of $1.36 per share,
as payment for certain promotional and consulting services.
During the second quarter of 2001, employees exercised 4,000 stock options at a
price of $.50 per share.
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.
Personal Guarantee
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.
The 1,550,000 shares of common stock held in escrow were returned to the Company
and cancelled. However, Best S.A. executed the personal guarantee of the
Chairman of the Board and CEO and retained the 1,032,118 shares. On December 20,
2001, the Board of Directors approved the issuance of 1,032,118 shares to the
Chairman of the Board and CEO of the Company to replace the shares that Best
S.A. retained. As a consequence, the Company amended the second and third
quarter financial statements filed on Form 10-Q to reflect the expense
associated with the execution and reimbursement for the personal guarantee of
the Chairman's shares aggregating additional expense and additional contributed
capital of $1,271,741. The shares outstanding have been retroactively restated.
7. SUBSEQUENT EVENTS
-----------------
Effective July 1, 2001, the Company completed the acquisition of substantially
all of the assets of Suncoast Automation, Inc., a wholly owned subsidiary of
ProtoSource Corporation, pursuant to an Asset Purchase Agreement. The purchase
price was 766,058 shares of the Company's common stock valued at $1.1 million
based on the closing bid price of $1.47 per share on June 29, 2001. The shares
issued were restricted stock. The Company plans to file a registration statement
prior to the 30th day following the filing of its Form 10 Q for the period ended
June 30, 2001.
8. 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 JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000
- -------------------------------------------------------------------------------
Revenues for the three months ended June 30, 2001 and 2000 were approximately
$382,000 and $11,000, respectively. Revenues in the second quarter of 2001 were
$376,000 of consulting fees from the Company's design engineering subsidiary and
$6,000 from the sale of the Orasis(R) hand-held computer and accessories.
Revenues in the second quarter of 2000 were comprised of $11,000 from the sale
of the Orasis(R) hand-held computer and accessories. Cost of revenues decreased
from $358,000 in the second quarter of 2000 to $315,000 for the three months
ended June 30, 2001. Included in the cost of revenue for 2000 are charges
related to the settlement of trade payables. Cost of revenues for 2001 consists
primarily of design services payroll and related costs. Gross profit margins are
not comparable for the period due to the mix in revenues and the charges related
to the settlement in trade payables in 2000.
Selling, general and administrative expenses increased to approximately
$2,380,000 in 2001 from $727,000 in 2000. The increase from 2000 to 2001 was due
to the amortization of goodwill and other expenses of the design engineering
subsidiary, issuance of common stock for reimbursement pursuant to a personal
guarantee, and costs associated with the Company's 2000 Annual Report and
Shareholders Meeting.
Research and Development costs increased to approximately $778,000 during the
three-month period ended June 30, 2001 from $166,000 over 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
the further development of the Orasis(R).
Interest expense decreased to approximately $5,000 for the second quarter of
2001 from $24,000 as of the corresponding period in 2000. This decrease is
primarily attributed to the fact that the Company has paid off substantially all
of its debt during the first quarter of 2000. In 2001, the interest is primarily
related to certain capital leases on various equipment.
Net loss
The consolidated loss after tax increased for the three-month period ended June
30, 2001 to approximately ($3,071,000) or ($0.05) per share from ($1,250,000) or
($0.02) per share in 2000. The increase in net loss for 2001 was primarily
attributed to the amortization of goodwill associated with the acquisition of
Advanced Digital Designs, Inc., the issuance of common stock for reimbursement
pursuant to a personal guarantee and the increase in research and development
costs regarding the set-top box. Loss per common share is calculated based on
the monthly weighted average number of common shares outstanding, which were
62,930,854 for the three-month period ended June 30, 2001, and 57,734,598 for
the three-month period ended June 30, 2000.
SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000
- ---------------------------------------------------------------------------
Revenue for the Company increased from approximately $16,000 in the first six
months of 2000 to $827,000 in the first six months of 2001. Revenues in the
first six months of 2001 were $817,000 of consulting fees from the Company's
design engineering subsidiary and $10,000 from the sale of the Orasis(R)
hand-held computer and accessories. Revenues in the first six months of 2000
were comprised of $16,000 from the sale of the Orasis(R) hand-held computer and
accessories. Consulting fees are generated by the Company's subsidiary, Advanced
Digital Designs, Inc. ("ADD") and for 2001 are for the full six months. There
were no revenues from ADD in 2000 since the acquisition was as of August 18,
2000. Cost of revenues increased to $643,000 in the first six months of 2001
from $123,000 for the six months ended June 30, 2000. Included in the cost of
revenue for 2000 are charges related to the settlement of trade payables. Cost
of revenues for 2001 consists primarily of design services payroll and related
costs from the Company's subsidiary, ADD. Gross profit margins are not
comparable for the period due to the mix in revenues and the charges related
to the settlement in trade payables in 2000.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
THE RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (Continued)
---------------------------------
Selling, general and administrative expenses increased to approximately
$3,131,000 for the six months ended June 30, 2001 as compared to $1,861,000 for
2000. Selling, general and administrative expenses during the six months ended
June 30, 2000 consisted of professional fees and financial services expenses
related to the private placement and common stock purchase agreement. For the
six months ended June 30, 2001, these costs were partially offset by the
amortization of goodwill in connection with the acquisition of Advanced Digital
Designs, Inc., increases in expenses for the design engineering operations and
expenses associated with the issuance of common stock for reimbursement pursuant
to a personal guarantee.
Research and Development costs increased to approximately $1,241,000 for the
first six months of 2001 as compared to $251,000 for the first six months of
2000. Research and Development costs primarily consist of costs related to the
development of the set-top box, with a small portion related to the further
development of the Orasis(R).
Interest expense decreased to approximately $12,000 for the six months ended
June 30, 2001 from $54,000 for the six months ended June 30, 2000. Interest
expense is primarily related to certain capital leases on various equipment.
Net loss
The consolidated loss after income tax was approximately ($4,086,000) or ($0.07)
per share for the six months ended June 30, 2001. The consolidated loss after
income tax for the six months ended June 30, 2000 was ($2,260,000) or ($0.04)
per share. 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 and
administrative expenses. Loss per common share is calculated based on the
monthly weighted average number of shares outstanding which were 62,364,461 for
the six-month period ended June 30, 2001 and 57,005,361 for the six-month period
ended June 30, 2000.
Balance Sheet
Total assets for the Company were approximately $8,443,000 at June 30, 2001, a
decrease of approximately $2,718,000 from December 31, 2000. The decrease was
primarily attributable to the net cash used in operations of approximately
$1,925,000, the purchase of approximately $61,000 of equipment, payment of
capital leases of $47,000, offset by the proceeds from the exercise of stock
warrants and options of $106,000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company has incurred a net operating loss in each year since its founding
and as of June 30, 2001 has an accumulated deficit of approximately $50,427,000.
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.
For the six months ended June 30, 2001, the Company used $1,925,000 of cash in
operating activities, used $61,000 in investing activities and generated $60,000
of cash from financing activities that produced a decrease in cash of $1,926,000
for the six months. The net loss of $4,086,000 was partially offset by the
non-cash items of depreciation and amortization and the issuance of common stock
for reimbursement pursuant to a personal guarantee. Investing activities
consisted of the purchase of testing equipment. Financing activities consisted
of the exercise of warrants and stock options, offset by the payment of
long-term lease obligations. As of June 30, 2001,
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
THE RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Continued)
-------------------------------------------
the Company had a current asset to current liabilities ratio of 3.66 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, which expires December 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.
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
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Item 2. Changes in the Rights of the Company's Security Holders. None
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Item 3. Default by the Company on its Senior Securities. None
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Item 4. Submission of Matters to a Vote of Securities Holders. None
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Item 5. Other Information. None
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Item 6(a). Exhibits. None
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Item 6(b). Reports on Form 8-K.
--------------------
On July 16, 2001, the Company filed Form 8-K to report the
acquisition of substantially all of the assets of Suncoast
Automation, Inc., a wholly owned subsidiary of ProtoSource
Corporation, pursuant to an Asset Purchase Agreement by and among
the Company, its subsidiaries, ProtoSource Corporation and Suncoast
Automation, Inc. The purchase price was 766,058 shares of the
Company's $0.001 par value common stock and valued at $1.1 million
based on the closing bid price of the Company's shares of $1.47 per
share on June 29, 2001. The shares issued were restricted stock,
which the Company plans to file a registration statement prior to
the 30th day following the filing of this Form 10 Q.
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
13