General

Dawn Technologies, Inc. (the "Company") was incorporated in the state of Delaware in 1987. As used herein, the Company refers to Dawn Technologies, Inc. and its wholly owned subsidiaries, Dawn Special Systems Corp. and Dawn Products Corp. The Company's corporate office is located at 433 South Main St., West Hartford, CT., 06110 and its telephone number is (860) 561-3979. The Company is primarily involved in the manufacture and assembly of component parts made to customer specifications and the repair and resale of certified spare computer parts.

Business Development

During 1996 Dennis DiDonato and Nicholas Garruto, previously co-chief executive officers resigned as officers of the Company. Mr. DiDonato also resigned as a director. Mr. David Sklar was appointed to President and Chief Executive Officer. Mr. William Winakor was appointed to Executive Vice President and Chief Operating Officer. Mr. John Scanlon was appointed to Treasurer and Chief Financial Officer. Mr. Scanlon is a certified public accountant in public practice who has agreed to join the Company on a part time basis to fulfill the duties of the Chief Financial Officer and Treasurer.

During 1996 the Company began to diversify its work scope to include the manufacture and the Overhaul and Repair of jet engine and aircraft components for the Aerospace industry. The Company received its Overhaul and Repair license from the Federal Aviation Administration (FAA) in November of 1996 and has been aggressively updating its plant and equipment to meet the needs of this work.

As part of its efforts to expand, the Company has entered into contracts in 1997 with Chromolloy of CT to perform part refurbishment on a number of components for jet engine models and with BE Aerospace for the manufacture of airline seat components used on the Boeing 777 aircraft.

The Company repairs and refurbishes computer parts for resale as spare parts to International Business Machines Corp. (IBM). During 1996, the Company continued to experience a decrease in sales of refurbished computer spare parts. Although the future is uncertain, the Company continues to pursue sales opportunities with IBM and other computer and office equipment manufactures and services.

During April 1996, a fire occurred at the Company's manufacturing facility in Blakely, Pennsylvania. Damage was extensive to the offices at the facility along with certain production areas. Approximately 15% of the building was destroyed by the fire.

During June 1996, the Company entered into a sublease for an approximately 28,000 square foot modern manufacturing facility in Scranton, Pennsylvania and relocated a majority of its production and support functions to the new facility. The Blakely facility is being utilized for limited production support and storage. 3 3

PART I (Continued)

Principal Products and Services

The Company's principal products are summarized below:

MANUFACTURE AND ASSEMBLY - The Company manufactures mechanical devices for use by the United States Postal Service (USPS) in the automatic sorting of first class mail. The Company also provides spare parts for these items. The Company manufactures parts used by the United States Defense Department (USDD) including equipment used in developing night vision capability and mounting equipment used on certain vehicles. In addition, the Company manufactures certain electromechanical components which are used by IBM in its high speed impact printers. The Company will manufacture various seat components for BE Aerospace to be used on Boeing 777 aircraft. The Company generally machines the metal parts of these products and uses subcontractors for certain plating or treating processes required on these parts. The Company is required to purchase many of the materials used and, accordingly, is required to maintain substantial inventory levels of materials at certain times in order to satisfy production and shipping requirements. Most materials are available from numerous sources and the Company has never experienced any significant difficulty obtaining materials.

The Company attempts to protect itself from price escalations. However, a significant unanticipated increase in material prices could have a material adverse effect on the Company because its contracts are generally fixed price contracts. Any significant restrictions in the supply of materials could adversely affect the ability of the Company to satisfy its delivery obligations.

REPAIR AND RESALE OF SPARE COMPUTER PARTS - The Company repairs computer hardware for resale to IBM as spare parts. In certain cases the Company has pre-arranged agreements with IBM whereby certain computer systems are provided to the Company without charge. In these cases the Company performs refurbishment work, which may include adding certain parts purchased by the Company, and sells the refurbished products to IBM at a price which generally reflects the amount of incremental material and labor added to the product by the Company. The Company has experienced a trend of reduced orders for these items since late 1994.

OVERHAUL AND REPAIR - The Company has begun to perform part refurbishment on a number of components of jet engine models in 1997.

Customers

During 1996 approximately 76% of the Company's sales were to the USPS and approximately 21% of the Company's sales were to IBM. These two customers have historically been the principal customers of the Company and the loss of either of these customers could have a material adverse effect on the Company.

Contracts with the USPS are generally obtained through the competitive bidding process, require six to eighteen months to complete and are subject to cancellation or reduction by the contracting agency, subject to the payment of certain cancellation charges. The current contract with the USPS is expected to be completed in May 1997 and renewal of such arrangements is unlikely. Orders from IBM are negotiated and are subject to thirty day cancellation provisions.

Backlog

At December 31, 1996, the Company's sales order backlog was approximately $1,832,068. These orders will be completed and shipped in 1997. 4 4

PART I (Continued)

Competition

The Company's business is very competitive. These are generally numerous other vendors bidding on the contracts the Company obtains. The Company also knows of several competitors in its computer refurbishment, high impact printer and mail sorting cart product lines. Some of the Company's competitors are larger and have greater financial resources than the Company. The Company believes that contract award decisions by its customers are based both on price and performance, as well as the financial viability of the prospective supplier.

Employees

The Company presently employs approximately 70 people full time. Three of these employees are employed in management, four are office personnel and the remainder are hourly factory employees. The Company's employees are not represented by a union and the Company believes that its relationship with employees is good.

Patents

The Company owns several patents relating to the automatic mail sorters. The Company does not believe these patents are material to its business.