10-K/A 1 a2076806z10-ka.txt FORM 10-K/A ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (AMENDMENT NO. 1) /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1999 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. DAW TECHNOLOGIES, INC. ------------------------------- (Exact name of registrant as specified in its charter) UTAH 0-21818 87-0464280 ---------------------------- ---------------------- ---------------------- (State or other jurisdiction (Commission File No.) (IRS Employer of incorporation) Identification No.) 2700 SOUTH 900 WEST SALT LAKE CITY, UTAH 84119 ------------------------------------ (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (801) 977-3100 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Title of Class -------------- Common Stock, $0.01 Par Value Indicate by check mark whether the Registrant (1) has filed all 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 / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on the NASDAQ National Market System on April 11, 2000, was approximately $14,166,439. Shares of Common Stock held by each officer and director and by each person who may be deemed to be an affiliate have been excluded. As of April 14, 2000, the Registrant had 12,832,454 shares of Common Stock outstanding. ================================================================================ This amendment on Form 10-K/A amends Items 6, 7, 8 and 14 of the Annual Report for Daw Technologies, Inc. (the "Company") on Form 10-K previously filed for the year ended December 31, 1999. This Annual Report on Form 10-K/A is filed in connection with the Company's restatement of its financial statements for the quarters ended March 31, 2000, June 30, 2000, September 30, 2000, March 31, 2001 and June 30, 2001 as well as for the years ended December 31, 1999 and December 31, 2000. Financial statement information and related disclosures included in this amended filing reflect, where appropriate, changes as a result of the restatements. All other information contained in this Annual Report on Form 10-K/A is as of the date of the original filing. TABLE OF CONTENTS ITEM 6. SELECTED FINANCIAL DATA....................................................................................2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................3 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...............................................................10 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K...........................................11
Information contained in this Report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1996, which can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "anticipate," "estimate," or "continue," or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are subject to risks and uncertainties that include, but are not limited to, those identified in this report, described from time to time in the Company's other Securities and Exchange Commission filings, or discussed in the Company's press releases. Actual results may vary materially from expectations. 1 PART 2 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial data of the Company. The summary financial data in the table is derived from the financial statements of the Company. The data should be read in conjunction with the financial statements, related notes and other financial information included therein (in thousands, except per share data).
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------- 1999(1) 1998 1997 1996 1995 ---------- ---------- ---------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Revenues................................ $ 44,011 $ 53,078 $ 52,541 $ 112,826 $ 70,635 Cost of goods sold...................... 44,050 51,223 47,272 97,364 63,484 ---------- ---------- ---------- ----------- ----------- Gross profit (loss)..................... (39) 1,855 5,269 15,462 7,151 ---------- ---------- ---------- ----------- ----------- Selling, general and administrative expenses................................ 7,348 6,513 8,373 10,274 6,333 Research and development................ 214 293 246 282 255 Depreciation and amortization........... 704 563 431 400 219 Restructuring charges................... 1,839 - - - - ---------- ---------- ---------- ----------- ----------- Total operating expenses................ 10,105 7,369 9,050 10,956 6,807 ---------- ---------- ---------- ----------- ----------- Earnings (loss) from operations......... (10,144) (5,514) (3,781) 4,506 344 Other income (expense), net............. (677) (483) (344) 352 119 ---------- ---------- ---------- ----------- ----------- Earnings (loss) before income taxes..... (10,821) (5,997) (4,125) 4,858 463 Income taxes (benefit).................. (1,092) (2,075) (1,866) 1,548 176 ---------- ---------- ---------- ----------- ----------- NET EARNINGS (LOSS) .................... $ (9,729) $ (3,922) $ (2,259) $ 3,310 $ 287 ========== ========== ========== =========== =========== Earnings (loss) per common share Basic............................... $ (0.78) $ (0.32) $ (0.18) $ 0.27 $ 0.02 Diluted............................. $ (0.78) $ (0.32) $ (0.18) $ 0.27 $ 0.02 Weighted-average common and dilutive common equivalent shares outstanding Basic............................... 12,502 12,440 12,416 12,350 12,148 Diluted............................. 12,502 12,440 12,416 12,393 12,365 DECEMBER 31, ------------------------------------------------------------------- 1999 1998 1997 1996 1995 ---------- ---------- ---------- ----------- ----------- BALANCE SHEET DATA: Cash and cash equivalents................ $ 296 $ 2,140 $ 5,802 $ 3,258 $ 5,885 Working capital.......................... 973 10,674 15,248 17,112 15,431 Total assets............................. 24,875 30,841 32,364 49,495 40,072 Total liabilities........................ 16,572 12,714 11,664 26,557 20,633 Total shareholders' equity............... 8,303 18,127 20,700 22,938 19,409
(1) Amounts for 1999 are presented as restated. See Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations--Restatements. 2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere herein. All data in the tables are in thousands, except for percentages and per-share data. GENERAL The Company's principal line of business is providing an integrated systems solution of cleanrooms and cleanroom component systems for the semiconductor industry. In recent years, the Company has typically had one to three significant customers, each of whom accounted for approximately 10% or more of the Company's annual revenues; these customers do not necessarily remain significant in subsequent years. The semiconductor industry has been historically cyclical in nature and continues to be adversely affected by the industry downturn that began in the latter part of 1996. Capital spending by semiconductor manufacturers has generally followed chip sales. As chip sales increased from around $50 billion per year in the late 1980s to a peak of $150 billion in 1995, capital spending on equipment and facilities by the chip manufacturers surged to $45 billion from about $12 billion during the same period of time. As chip sales have declined over the past three years to about $122 billion in 1999, capital spending on new equipment and facilities plunged to less than $30 billion in 1998. The Company's recovery cycle in relation to the award of cleanroom projects lags behind the semiconductor manufacturers' recovery in relation to chip sales. The Company's operating results have been severely impacted by the reduced capital spending of the semiconductor industry during the past three years. While the industry has shown signs of recovery from time to time over the past three years, it has been consistently disappointed by continued declines. The downturn in 1999 generally resulted in fewer contracts available to bid, a significant increase in price competition on contracts that were awarded, and reduced margins on such contracts. However, beginning in the fourth quarter of 1999, the Company experienced growth in new contract awards resulting in an increase in the Company's backlog from $12.8 million at December 31, 1998 to $19.7 million at December 31, 1999. Additionally, during the first quarter of 2000, the Company has experienced a significant increase in contract bidding and contract awards at significantly higher gross margins than at any time during the three-year industry downturn. In response to the current downturn, management has continued to take steps to reduce the Company's cost structure including an approximate 26% cut in wages in 1999 as compared to 1998. Previously, in 1998, the Company reduced its work force by more than fifty percent. During 2000, management will closely monitor the Company's cost structure and take appropriate actions as considered necessary, but will continue to develop state-of-the-art cleanroom technology, provide world-class support to the Company's customers, and continue its diversification strategy. In response to reduced revenue generated by the sale of cleanrooms, the Company has recently undertaken several initiatives to expand its revenue base beyond the semiconductor industry and to reduce its reliance on this historically cyclical business. The Company has developed an air entrance system used by large national retail chains in their new "superstores". Air entrances are used in lieu of conventional swinging and sliding doors to help the store maintain comfort in the front of the store, reduce liability and increase and optimize the traffic flow in and out of the store. The Company's air entrance system was developed by applying its advanced cleanroom air movement and filtration technology resulting in a technically superior air entrance system. This product also shows great promise of providing increased gross profit over the next two years. Additionally, the Company has entered into several contract manufacturing agreements whereby the Company manufactures products owned and marketed by third parties. During the first quarter of 1998, the Company announced its entrance into the transportation industry where it started producing sleeper cabs for heavy-duty trucks. By applying similar wall panel systems technology used in cleanrooms the Company produces a stronger, more durable, and lighter weight product than traditional sleeper cabs. This technology may eventually be applied to other products in the transportation industry. It is the Company's objective to develop and maintain 40% of its revenues from sources outside of the semiconductor industry by applying its product and engineering expertise in custom metal fabrication, airflow systems and panel production to similar type products used in other industries. 3 The Company's revenue and operating results fluctuate substantially from quarter to quarter depending on such factors as the timing of customer orders, the timing of revenue and cost recognition, variations in contract mix, changes in customer buying patterns, fluctuations in the semiconductor equipment market, utilization of capacity, manufacturing productivity and efficiency, availability of key components and trends in the economies of the geographical regions in which the Company operates. The Company uses the percentage-of-completion method of accounting for its long-term cleanroom contracts. The Company recognizes revenue in proportion to the costs incurred to date in relation to the total anticipated costs. Revenue recognized may not be the same as progress billings to the customer. Underbillings are reflected in an asset account (costs and estimated earnings in excess of billings on contracts in progress), and overbillings are reflected in a liability account (billings in excess of costs and estimated earnings on contracts in progress). Non-cleanroom revenue is generally recognized when the products are shipped to the customer. The Company generates revenue in two geographic regions; North America and Europe. Although risk of fluctuations in currency value does not affect such dollar-denominated contracts, changes in the relative value of the dollar could make the Company less competitive in various markets. Contracts to be performed in Europe may be denominated in local currency, and the Company bears the risk of changes in the relative value of the dollar and the local currencies. Devaluation of world currencies against the U.S. dollar has created extreme price competitiveness from Korean, Japanese, and German manufacturers and integrators of systems. The Company has in the past and may in the future attempt to hedge against currency fluctuations on contracts denominated in local currencies. There can be no assurance, however, that such hedging will fully insulate the Company from fluctuations or will not expose the Company to additional risks of loss. The Company's business and operations have not been materially affected by inflation during the periods for which financial information is presented. RESTATEMENTS In November 2001, the Company determined that the consolidated financial information in the Company's Annual Reports on Form 10-K for the years ended December 31, 1999 and December 31, 2000 as well as the unaudited interim financial statements reported in the Company's Quarterly Reports on Form 10-Q for the periods ended March 31, 2000, June 30, 2000, September 30, 2000, March 31, 2001 and June 30, 2001 had been incorrectly compiled and reported primarily because of errors in the financial information reported by the Company's European operations. Prior to October 1999, most of the accounting for the Company's European operations was done at the Company's headquarters in the United States. In October 1999, the Company formed a wholly owned European subsidiary in Scotland known as Daw Technologies (Europe) Ltd. ("Daw Europe") to manage not only the UK subsidiary, but all of the Company's European operations. At that time, all European accounts were transferred to Daw Europe to manage, and Daw Europe personnel took over all of the accounting for all of the Company's foreign operations. Daw Europe's business grew very rapidly between 1999 and 2001, with annualized revenue almost doubling during that two-year period. During this period of rapid growth, Daw Europe was allowed significant autonomy, and its responsibilities included maintaining all of the financial records for not only the UK subsidiary, but all of the Company's operations throughout Europe and the Middle East. As it turns out, the accounting systems and personnel in the Daw Europe office were unable to keep pace with the rapid growth and growing complexity of the European business, including the fact that most of this revenue growth occurred outside of the United Kingdom. As a result, various problems occurred with respect to Daw Europe's accounting and financial reporting. One of the problems that developed involved the Company's recognition of revenue on construction projects. In accordance with generally accepted accounting principles, Daw recognizes revenue on its long term construction projects based on the percentage of completion method of accounting. The primary accounting system used by Daw Europe did not include a revenue recognition feature that would allow it to accurately recognize revenue on its various 4 projects based on percentage of completion. Daw Europe personnel therefore created a financial spreadsheet to help account for the recognition of revenue on its numerous European projects. This method of tracking and accounting for contracts in progress resulted in some problems, including the following: 1. Some of the formulas in the Daw Europe spreadsheet did not properly calculate atypical situations, such as costs exceeding budget. 2. When the numbers derived from formulas seemed incorrect, accounting personnel in Daw Europe would, in some instances, override formulas in the spreadsheet by inputting numbers directly into the spreadsheet. This damaged the underlying integrity and reliability of the spreadsheet. 3. Budget estimates were not updated in the spreadsheets for currency fluctuations, and currency rates were only changed in the Daw Europe accounting system periodically. 4. The Daw Europe spreadsheet was not always properly updated to reflect changes to contract terms. In addition to the problems with the spreadsheet maintained by Daw Europe, there were also problems in the consolidation process of European accounts with the United States accounts. For example, European costs incurred through the United States accounts were, in some instances, not properly considered in the consolidation process, thus resulting in an understatement of costs and liabilities. Also, the Company noted that certain projects in Israel were either not recorded or were not properly recorded on the financial records of Daw Europe. When Daw Europe recorded transactions associated with the Company's projects in Israel, instead of always obtaining objective accounting documentation, the accounting personnel, in some instances, relied on informal data and statements by project managers. Some of this informally gathered information proved to be incomplete and subsequently required an adjustment. Finally, the restated financial statements also contain certain reclassifications and other adjustments such as: (a) foreign currency translation and transactions gains/losses related to foreign operations, (b) intercompany errors and (c) amortization of leasehold improvements. The Company's financial statements for 1999, 2000 and the first two quarters of 2001 have been restated to correct the errors noted above. In the opinion of management, all material adjustments necessary to correct the financial statements have been recorded. The impact of these adjustments on the Company's 1999 financial results and financial condition as originally reported is summarized below (in thousands, except per share data): 5 CONSOLIDATED STATEMENT OF OPERATIONS DATA
Year Ended December 31, 1999 ------------------------------------- As Previously As Reported Restated Change ---------- --------- --------- Revenues $ 45,206 $ 44,011 $ (1,195) Cost of goods sold 43,576 44,050 474 Gross profit 1,630 (39) (1,669) Operating expenses 9,870 10,105 235 Loss from operations (8,240) (10,144) (1,904) Other income (expense), net (493) (677) (184) Net loss (7,641) (9,729) (2,088) Loss per common share Basic $ (0.61) $ (0.78) $ (0.17) Diluted (0.61) (0.78) (0.17) Weighted-average common and dilutive common equivalent shares outstanding Basic 12,502 12,502 - Diluted 12,502 12,502 -
CONSOLIDATED BALANCE SHEET DATA December 31, 1999 ------------------------------------- As Previously As Reported Restated Change ---------- --------- --------- Current assets $ 18,343 $ 17,435 $ (908) Property and equipment - net, at cost 3,402 3,110 (292) Other assets 4,330 4,330 - --------- --------- --------- Total assets $ 26,075 $ 24,875 $ (1,200) ========= ========= ========= Current liabilities $ 15,457 $ 16,462 $ 1,005 Long-term obligations 110 110 - Shareholders' equity 10,508 8,303 (2,205) --------- --------- --------- Total liabilities and shareholders' equity $ 26,075 $ 24,875 $ (1,200) ========= ========= =========
6 RESULTS OF OPERATIONS Revenue from operations
1999 Change 1998 Change 1997 ---- ------ ---- ------ ---- Cleanrooms and related products $30,775 (33.5)% $ 46,298 (11.9)% $ 52,541 Other products 13,236 95.2% 6,780 100.0% - Total revenue 44,011 (17.1)% 53,078 1.0% 52,541
Revenue from cleanrooms and related products decreased 33.5% in 1999 to $30.8 million from $46.3 million in 1998. The decrease was due to the continued downturn in the semiconductor industry's capital expenditures for new fab facilities as more fully discussed above. During 1998, cleanroom contract revenue decreased by 11.9% to $46.3 million from $52.5 million in 1997. This decrease is primarily related to the downturn in the semiconductor industry as discussed above. Revenue from other products increased to $13.2 million in 1999 from $6.8 million in 1998. During 1998, revenue from other products was $6.8 million as compared to zero in 1997. The increase is due to the start-up and continuation of new lines of business, including the Company's line of sleeper cabs, contract manufacturing, and other product sales that were non-existent in 1997. NORTH AMERICA - Cleanroom revenue for the year ended December 31, 1999 decreased by 22.1% to $18.3 million from $23.5 million for the year ended December 31, 1998. As a percentage of total cleanroom revenue, North America revenue increased to 59.6% in 1999 compared to 50.8% in 1998. The decrease in North America contract revenue is primarily related to the continued downturn in the semiconductor industry as more fully discussed above. Revenue from other products was primarily attributable to sales of sleeper cabs and various contract manufactured products sold only in North America in 1999 and 1998. Cleanroom revenue for the year ended December 31, 1998 decreased by 25.1% to $23.5 million from $31.4 million for the year ended December 31, 1997. As a percentage of total revenue, North America revenue decreased to 50.8% in 1998 compared to 59.8% in 1997. The decrease is the result of fewer contracts received in North America due to the decline in capital spending by the semiconductor industry. ASIA/PACIFIC RIM - Cleanroom revenue for the year ended December 31, 1999 decreased by 72.4% to $2.7 million from $9.8 million for the year ended December 31, 1998. As a percentage of total cleanroom revenue Asia/Pacific revenue decreased to 8.8% in 1999 compared to 21.2% in 1998. The decrease in revenue and percentage was directly related to the continued downturn in the semiconductor industry in the Asia/Pacific Rim and the Company's decision to pull out of this region. The Company has transferred ownership of its Asia branch to a former employee. Cleanroom revenue for December 31, 1998 increased by 2.7% to $9.8 million from $9.5 million for the year ended December 31, 1997. As a percentage of total cleanroom revenue, Asia/Pacific revenue increased to 21.2% in 1998 compared to 18.2% in 1997. The increase in revenue and percentage was primarily due to the award of a significant project in China. The contract was subsequently placed on indefinite suspension due to the uncertainty of the Asian market. EUROPE - Cleanroom revenue for the year ended December 31, 1999 decreased by 25.4% to $9.7 million from $13.0 million for the year ended December 31, 1998. As a percentage of total cleanroom revenue, European revenue increased to 31.6% in 1999 compared to 28.0% in 1998. Although the worldwide downturn in the semiconductor industry continued in 1999, it does not appear to have affected the European segment as dramatically as the Asian and North American markets. Cleanroom revenue for 1998 increased by 12.0% to $13.0 million from $11.6 million for the year ended December 31, 1997. As a percentage of total cleanroom revenue, Europe revenue increased to 28.0% in 1998 compared to 22.0% in 1997. While the semiconductor industry has experienced a worldwide downturn, it did not 7 appear to have affected the European segment as dramatically as the Asian and North American markets. Additionally, the Company was able to win contracts in new countries that it had not contracted business in previously. GROSS PROFIT(LOSS)
1999 Change 1998 Change 1997 ---- ------ ---- ------ ---- Gross profit (loss) $ (39) (102.1)% $ 1,855 (64.8)% $ 5,269 Percentage of revenues 0.0% 3.5% 10.0%
Gross profit (loss) for the year ended December 31, 1999 decreased by 102.1% to a negative $39,000 from a positive $1.9 million for the year ended December 31, 1998. Gross profit decreased as a percentage of revenue to 0.0% for 1999 compared to a positive 3.5% for 1998. The Company believes the decrease in gross margin is due to more competitive bidding pressures driving gross margins down. The downturn in the semiconductor industry generally resulted in fewer contracts available to bid, a significant increase in price competition on contracts that were awarded, and reduced margins on contracts. The downturn has resulted in fewer contracts awarded to the Company and those that were awarded were done so after a highly competitive bidding process placing significant downward pressure on pricing, resulting in lower margins. Gross profit for 1998 decreased by 64.8% to $1.9 million from $5.3 million in 1997, and decreased as a percentage of contract revenue to 3.5% in 1998 from 10.0% in 1997. The decrease in gross profit was the direct result of the substantial reductions in contracts awarded from 1997 to 1998 as the semiconductor industry entered its second year of its downturn. As the downturn gained momentum throughout 1998, the Company had fewer contracts to which it could allocate its fixed manufacturing overhead costs established in prior years as a result of anticipated contract awards. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
1999 Change 1998 Change 1997 ---- ------ ---- ------ ---- Selling, general and administrative expenses $ 7,348 12.8% $ 6,513 (22.2)% $ 8,373 Percentage of revenues 16.7% 12.3% 15.9%
Selling, general and administrative expenses for 1999 increased 12.8% to $7.3 million, from $6.5 million, and increased as a percentage of revenue to 16.7% for the year ended December 31, 1999 compared to 12.3% for the year ended December 31, 1998. The increase in selling, general and administrative expenses in 1999 compared with 1998 was primarily the result of a difference in the calculation of the manufacturing overhead expense "allocation" to direct cost of goods sold. The Company allocates a portion of its overhead costs associated with the direct manufacture of its products to costs of goods sold. While combined selling, general and administrative expenses for payroll and other overhead expenses decreased by approximately $2.0 million from 1998 to 1999, the overhead "allocation" costs (associated with the direct manufacture of its products to costs of goods sold and then reclassified as direct costs) was approximately $2.9 million more in 1998 than 1999. Selling, general and administrative expenses for 1998 decreased 22.2% to $6.5 million, or 12.3% of revenue, from $8.4 million, or 15.9% of revenue, in 1997. The decrease in selling, general and administrative expenses was the result of an aggressive cost reduction program as well as significant headcount reductions completed during the fourth quarter of 1998 during which approximately 300 employees were laid off, reducing payroll and related expenses. RESEARCH AND DEVELOPMENT
1999 Change 1998 Change 1997 ---- ------ ---- ------ ---- Research and Development expense $ 214 (27.0)% $ 293 19.1% $ 246 Percentage of revenues 0.5% 0.6% 0.5%
8 Research and development expense decreased slightly in actual dollars spent from 1998 to 1999. Research and development expense increased slightly from 1997 to 1998. This increase was the result of more research and development projects associated with the Company's diversification efforts. DEPRECIATION AND AMORTIZATION
1999 Change 1998 Change 1997 ---- ------ ---- ------ ---- Depreciation and Amortization expense $ 704 25.0% $ 563 30.6% $ 431 Percentage of revenues 1.6% 1.1% 0.8%
Depreciation and amortization expense, not allocated to cost of goods sold, during 1999 increased by 25.0% to $704,000, or 1.6% of revenue, from $563,000, or 1.1% of revenues, in 1998. This increase was the result of an acceleration in the depreciable life in leasehold improvements associated with the Company's primary building lease. Depreciation and amortization expense in 1998 increased by 30.6% to $563,000, or 1.1% of revenues, from $431,000, or 0.8% of revenues, in 1997. This increase was the result of a full year depreciation expense on leasehold improvements, furniture, fixtures, computer equipment and software purchased during 1998. OTHER INCOME (EXPENSE)
1999 Change 1998 Change 1997 ---- ------ ---- ------ ---- Other income (expense), net $ (677) 40.2% $ (483) 40.4% $ (344) Percentage of revenues 1.5% 0.9% 0.7%
Other expense, net increased in 1999 to $677,000 from $483,000 in 1998. This increase was largely due to an increase in interest expense in 1999 resulting from an increase in the average line of credit rate on the Company's revolving line of credit over 1998. RESTRUCTURING CHARGES Restructuring charges in 1999 were $1.8 million or 4.2% of revenue. Restructuring charges were largely due to the disposition of the Company's Asia/Pacific office, and the write-down of inventory associated with a proposed divestiture of the Company's cleanroom component manufacturing division. INCOME TAX EXPENSE (BENEFIT)
1999 Change 1998 Change 1997 ---- ------ ---- ------ ---- Income tax expense (benefit) $(1,092) (47.4)% $ (2,075) (11.2)% $ (1,866) Percentage of revenues (2.5)% (3.9)% (3.6)%
The changes in the effective tax rates for all periods relate primarily to the amount of deferred tax assets recorded and the amount of offsetting valuation allowances provided against such assets. (see Note J of Notes to the Consolidated Financial Statements). In addition, the increase from 1997 to 1998 was partially the result of tax benefits the Company was able to utilize from its foreign sales corporation. LIQUIDITY AND CAPITAL RESOURCES Working capital at December 31, 1999 was $973,000 compared to $10.7 million at December 31, 1998. This included cash and cash equivalents of $296,000 and $2.1 million at December 31, 1999 and 1998 respectively. Receivables, including retentions, (see Note D of Notes to Financial Statements) decreased to $7.4 million at December 31, 1999 compared to $8.9 million at December 31, 1998. This decrease was the result of lower revenues from fewer contracts during 1999 compared to 1998. Day's sales outstanding (the ratio between receivables, excluding retention, and average daily revenue taken over the year) increased to 60 days at December 31, 1999, from 54 days at December 31, 1998. 9 The Company's operations used $1.4 million of cash during 1999, compared to using $6.9 million of cash in 1998. During 1999, the Company experienced a decrease in receivables of $1.1 million as a result of the decline in revenues, an increase in accounts payable and accrued expenses of approximately of $4.2 million, an increase in inventories of $1.4 million, and a decrease in costs and estimated earnings in excess of billings on contracts in progress of $4.0 million. The Company maintained a revolving line of credit with a domestic bank for the lesser of $6.0 million or the available borrowing base for the period ended December 31, 1999 and $6.0 million for the period ended December 31, 1998. The interest rate is computed at the bank's prime rate plus 5% (13.5 percent at December 31, 1999) and requires monthly payments of interest. Subsequent to year end the bank lowered its interest rate computation to the bank's prime rate plus 3%, but has informed the Company that it will restore the rate to prime plus 5% again as of May 31, 2000. The line of credit was scheduled to expire June 30, 1999 and was extended to August 31, 2000. The line of credit is collateralized by certain domestic receivables and inventories. The line of credit agreement contains restrictive covenants imposing limitations on payments of cash dividends, purchases or redemptions of capital stock, indebtedness and other matters. At times during 1999 and at December 31, 1999, the Company was out of compliance on certain indebtedness covenants. Subsequent to year end, the Company signed an extension of the line of credit through August 31, 2000 which included a waiver for the non-compliance with the covenants as of December 31, 1999. The Company is currently reviewing several financing alternatives. During 1999, the Company used $189,000 for the purchase of property and equipment and realized $116,000 from the sale of property and equipment. The Company anticipates that its capital expenditures in 2000 for routine additions and replacements of property, and equipment will be less than $500,000. These purchases will be financed through long-term debt or capital leases. Management believes that existing cash balances, borrowings available under the line of credit, cash generated from operations, and proceeds from a scheduled $5.0 million private equity placement, will be adequate to meet the Company's anticipated cash requirements through December 31, 2000. YEAR 2000 ISSUES In 1998 and 1999 the Company developed a comprehensive plan to address year 2000 issues. The areas of focus were as follows: i) the Company's information technology systems; ii) the Company's non-information technology systems (i.e. machinery, equipment and devices which utilize built in or embedded technology); and iii) third party suppliers and customers. The Company did not suffer any negative effects from the advent of the year 2000 regarding the Company's information technology system, non-information technology systems or third party suppliers and customers. IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS None. FACTORS AFFECTING FUTURE RESULTS The Company's operations are subject to risks and uncertainties that could result in actual operating results differing materially from anticipated operating results and past operating results and trends. These risks and uncertainties include pricing pressures, cancellations of existing contracts, timing of significant customer orders, increased competition, and changes in semiconductor and cleanroom technology. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Company's restated financial statements and notes are included herein beginning on page F-1. The supplementary data is included herein immediately following the signature page of this report on Form 10-K/A. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents Filed as Part of this Report: (1) FINANCIAL STATEMENTS. The following financial statements are filed with this report beginning on page F-1: -- Report of Independent Certified Public Accountants -- Consolidated Balance Sheets as of December 31, 1999 and 1998 -- Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997 -- Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 -- Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 -- Notes to Consolidated Financial Statements -- Report of Independent Certified Public Accountants on Schedule -- Schedule II - Valuation and Qualifying Accounts All other schedules have been omitted because the information is not required, or if required the information required therein is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements or notes thereto. (b) Reports on Form 8-K: None. (c) Exhibits: The following exhibits required by Item 601 of Regulation S-K are filed herewith or have been filed previously with the Commission as indicated below: 11 EXHIBIT INDEX
REGULATION S-K EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE NO. --------------- ------------------------------------------------------------ ------------------------------- 3.1 Restated Articles of Incorporation* Form 10-KSB for the year ended December 31, 1994, Exhibit No. 3.1 3.2 Bylaws of the Company* Form 10-KSB for the year ended December 31, 1992, Exhibit No. 3.2 10.1 Agreement and Plan of Merger* Form 8-K dated October 1992, Exhibit 10.1 10.2 1993 Stock Option Plan* Form 10-KSB for the year ended December 31, 1993, Exhibit 10.4 10.3 Amendment No. 1 to 1993 Stock Option Plan* Form 10-Q for quarter ended June 30, 1997, Exhibit 10.1 10.4 Amendment No. 2 to 1993 Stock Option Plan* Form 10-K for the year ended December 31, 1997, Exhibit 10.4 10.5 Revolving Domestic Line of Credit Agreement as Amended by Form 10-K for the year ended the Fifth Extension Agreement* December 31, 1999, Exhibit 10.5 10.6 Lease Agreement for Salt Lake City facility* Form 10-KSB for the year ended December 31, 1993, Exhibit 10.6 10.7 Amendment to Lease Agreement* Form 10-K for the year ended December 31, 1996, Exhibit 10.5 21 Subsidiaries of the Registrant* Form 10-K for the year ended December 31, 1999, Exhibit 21 23.1 Consent of Independent Certified Public Accountants Filed herewith.
------------------------- * These exhibits are incorporated herein by reference. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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, on April 24, 2002. DAW TECHNOLOGIES, INC. By: /s/ Donald K. Mccauley -------------------------------------------- Donald K. McCauley Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) 13 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Daw Technologies, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Daw Technologies, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. 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 audits 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 consolidated financial position of Daw Technologies, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. As discussed in Note Y to the financial statements, the accompanying consolidated balance sheet as of December 31, 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for the year then ended, have been restated. /s/ GRANT THORNTON LLP Salt Lake City, Utah April 7, 2000, except for Note Y for which the date is April 5, 2002 F-1 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
ASSETS December 31, -------------------------- 1999 (as restated) 1998 ------------- ---------- CURRENT ASSETS Cash and cash equivalents $ 296 $ 2,140 Accounts receivable, net 7,372 8,904 Costs and estimated earnings in excess of billings on contracts in progress 3,581 7,546 Inventories, net 2,612 1,233 Deferred income taxes 425 655 Other current assets 3,149 2,391 ---------- ---------- Total current assets 17,435 22,869 PROPERTY AND EQUIPMENT, NET 3,110 4,859 DEFERRED INCOME TAXES 3,364 1,921 OTHER ASSETS 966 1,192 ---------- ---------- $ 24,875 $ 30,841 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Checks written in excess of cash in bank $ 248 $ - Accounts payable and accrued liabilities 8,871 4,749 Billings in excess of costs and estimated earnings on contracts in progress 1,624 1,635 Lines of credit 5,258 5,254 Current portion of long-term obligations 461 557 ---------- ---------- Total current liabilities 16,462 12,195 LONG-TERM OBLIGATIONS, less current portion 110 519 COMMITMENTS AND CONTINGENCIES - - SHAREHOLDERS' EQUITY Preferred stock, authorized 10,000,000 shares of $0.01 par value; none issued and outstanding - - Common stock, authorized 50,000,000 shares of $0.01 par value; issued and outstanding 12,513,114 shares in 1999 and 12,479,711 shares in 1998 125 125 Additional paid-in capital 16,579 16,557 Retained earnings (deficit) (8,284) 1,445 Accumulated other comprehensive loss (117) - ---------- ---------- Total shareholders' equity 8,303 18,127 ---------- ---------- $ 24,875 $ 30,841 ========== ==========
The accompanying notes are an integral part of these statements. F-2 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data)
Year ended December 31, ------------------------------------------------ 1999 1998 1997 (as restated) -------------- -------------- -------------- Revenues $ 44,011 $ 53,078 $ 52,541 Cost of goods sold 44,050 51,223 47,272 -------------- -------------- -------------- Gross profit (loss) (39) 1,855 5,269 Operating expenses Selling, general and administrative 7,348 6,513 8,373 Research and development 214 293 246 Depreciation and amortization 704 563 431 Restructuring charges 1,839 - - -------------- -------------- -------------- 10,105 7,369 9,050 -------------- -------------- -------------- Loss from operations (10,144) (5,514) (3,781) Other income (expense) Interest expense (658) (459) (295) Other, net (19) (24) (49) -------------- -------------- -------------- (677) (483) (344) -------------- -------------- -------------- Loss before income taxes (10,821) (5,997) (4,125) Income tax expense (benefit) (1,092) (2,075) (1,866) -------------- -------------- -------------- Net LOSS $ (9,729) $ (3,922) $ (2,259) ============== =============== ============== Loss per common share Basic $ (0.78) $ (0.32) $ (0.18) Diluted (0.78) (0.32) (0.18) Weighted-average common and dilutive common equivalent shares outstanding Basic 12,501,980 12,440,121 12,415,957 Diluted 12,501,980 12,440,121 12,415,957
The accompanying notes are an integral part of these statements. F-3 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except share data) Years ended December 31, 1999, 1998 and 1997
(As Restated) Addi- (As Restated) Accumulated tional Retained other (As Common paid-in earnings comprehensive Restated) stock capital (deficit) loss Total ----------- ---------- ------------ --------------- --------- Balances as of January 1, 1997 $ 124 $ 15,188 $ 7,626 $ - $ 22,938 Common stock issued pursuant to the purchase of 43,738 shares pursuant to employee stock purchase plan - 84 - - 84 Common stock purchased and retired - 36,304 shares - (63) - - (63) Net loss for 1997 - - (2,259) - (2,259) ---------- ---------- ---------- ---------- -------- Balances as of December 31, 1997 124 15,209 5,367 - 20,700 Common stock issued pursuant to the purchase of 44,711 shares pursuant to employee stock purchase plan and 27,023 shares issued pursuant to the acquisition of another company 1 1,348 - - 1,349 Net loss for 1998 - - (3,922) - (3,922) ---------- ---------- ---------- ---------- -------- Balances as of December 31, 1998 125 16,557 1,445 - 18,127 Common stock issued pursuant to the purchase of 33,403 shares pursuant to employee stock purchase plan - 22 - - 22 Comprehensive income (loss) Net loss for 1999 - - (9,729) - (9,729) Foreign currency translation adjustments - - - (117) (117) -------- Total comprehensive loss - - - - (9,846) ---------- ---------- ---------- ---------- -------- Balances as of December 31, 1999 $ 125 $ 16,579 $ (8,284) $ (117) $ 8,303 ========== ========== ========== ========== ========
The accompanying notes are an integral part of these statements. F-4 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except share data)
Year ended December 31, --------------------------------------- 1999 1998 1997 (as restated) ------------- --------- -------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net loss $ (9,729) $ (3,922) $ (2,259) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization 2,021 1,808 1,724 (Gain) loss on disposition of property and equipment 147 - (7) Provision for losses on accounts receivable 362 100 180 Deferred income taxes (1,213) (2,089) (390) Changes in assets and liabilities Account receivables 1,081 3,468 14,742 Costs and estimated earnings in excess of billings on contracts in progress 3,882 (3,844) 3,467 Inventories (1,379) 190 220 Other current assets (795) (224) (148) Accounts payable and accrued liabilities 4,220 (1,042) (5,082) Billings in excess of costs and estimated earnings on contracts in progress 3 (1,370) (4,500) Other assets 31 10 (6) --------- --------- -------- Net cash provided by (used in) operating activities (1,369) (6,915) 7,941 --------- --------- -------- Cash flows from investing activities Purchase of property and equipment (189) (167) (349) Proceeds from disposition of property and equipment 116 - 21 --------- --------- -------- Net cash used in investing activities (73) (167) (328) --------- --------- --------
(continued) F-5 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (in thousands, except share data)
Year ended December 31, --------------------------------------- 1999 1998 1997 (as restated) ------------- --------- -------- Cash flows from financing activities Increase in checks written in excess of cash in bank 248 - - Net change in lines of credit 4 4,024 (4,466) Payments for purchase and retirement of common stock - - (63) Proceeds from issuance of stock 22 49 84 Payments on long-term obligations (657) (653) (624) --------- --------- -------- Net cash provided by (used in) financing activities (383) 3,420 (5,069) Effect of exchange rate change on cash and cash equivalents (19) - - --------- --------- -------- Net increase (decrease) in cash and cash equivalents (1,844) (3,662) 2,544 Cash and cash equivalents at beginning of year 2,140 5,802 3,258 --------- --------- -------- Cash and cash equivalents at end of year $ 296 $ 2,140 $ 5,802 ========= ========= ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for Interest $ 654 $ 459 $ 295 Income taxes - 11 438
NONCASH INVESTING AND FINANCING ACTIVITIES During 1998, the Company issued 27,023 shares of common stock in connection with the acquisition of the net assets of another company (Note T). This transaction resulted in an increase to the following balance sheet accounts: Inventories $ 60 Other current assets 23 Property and equipment 50 Other assets 1,258 Accounts payable (91) --------- Common stock $ 1,300 =========
Capital lease obligations of $152 for property and equipment acquisitions were incurred during 1999. The accompanying notes are an integral part of these statements. F-6 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. 1. BUSINESS ACTIVITY Daw Technologies, Inc. and Subsidiaries (the Company) is a supplier of ultra-clean manufacturing environments, or cleanrooms, to the semiconductor industry. The Company designs, engineers, manufactures, installs and services all principal component systems for advanced cleanrooms. The Company also manufactures and sells other products that are manufactured similar to cleanrooms, and provides contract manufacturing services on an OEM basis for various customers. 2. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts and operations of the Company and its wholly owned subsidiaries, Daw Technologies, Europe Ltd., which was organized in June 1999, and Translite Systems, Inc., which was organized in October 1999, (inactive). All material intercompany accounts and transactions have been eliminated in consolidation. 3. METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS Revenue recorded for contracts in the accompanying financial statements is recognized using the percentage-of-completion method and, therefore, takes into account the costs, estimated earnings and revenue to date on contracts not yet completed. The revenue recognized is that portion of the total contract price that cost incurred to date bears to anticipated final total cost, based on current estimates of cost to complete. Revenue from cost-plus-fixed-fee contracts is recognized on the basis of costs incurred during the period plus the fee earned, measured by the cost-to-cost method. Contract costs include all direct and allocable indirect labor, benefits, materials unique to or installed in the project, subcontractor cost allocations, including employee benefits and equipment expense. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is recognized in the financial statements. As long-term contracts extend over one year, revisions in cost and earnings estimates during the course of the work are reflected in the accounting period in which the facts which require the revision become known. Costs attributable to contract claims or disputes are carried in the accompanying balance sheets only when realization is probable. These costs are recorded at the lesser of actual costs incurred or the amount expected to be realized. It is reasonably possible that estimates by management related to contracts can change in the future. F-7 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 3. METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS - CONTINUED The current asset, "costs and estimated earnings in excess of billings on contracts in progress," represents revenues recognized in excess of amounts billed (under-billings), and the current liability, "billings in excess of costs and estimated earnings on contracts in progress," represents billings in excess of revenues recognized (over-billings). The amount of revenue recognized is not related to the progress billings to customers. 4. OTHER REVENUE RECOGNITION The Company recognizes revenues on its other product sales and contract manufacturing services when the product is shipped and title passes to the customer. 5. DEPRECIATION AND AMORTIZATION Property and equipment are stated at cost. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leased property under capital leases and leasehold improvements are amortized over the shorter of the lives of the respective leases or over the service lives of the asset. The straight-line method of depreciation is followed for financial reporting purposes. Accelerated methods of depreciation are used for tax purposes. 6. INCOME TAXES The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized. Research tax credits are recognized as utilized. 7. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments with an original maturity of three months or less when purchased to be cash equivalents. F-8 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 8. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined principally by the first-in, first-out method. 9. NET EARNINGS (LOSS) PER SHARE The Company follows the provisions of Statement of Financial Accounting Standards No. 128 "Earnings Per Share" (SFAS No. 128). SFAS No. 128 requires the presentation of basic and diluted EPS. Basic EPS are calculated by dividing earnings (loss) available to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted EPS are similarly calculated, except that the weighted-average number of common shares outstanding includes common shares that may be issued subject to existing rights with dilutive potential. 10. RESEARCH AND DEVELOPMENT COSTS The Company conducts research and development to develop new products or product improvements not directly related to a specific project. Research and development costs have been charged to expense as incurred. 11. CONCENTRATIONS The Company's financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and receivables. The Company provides credit according to the terms of the individual project contracts, in the normal course of business, primarily to semi-conductor manufacturers. Approximately 49 percent (41 percent in 1998) of receivables are with three different customers. In addition, approximately 30 percent (25 percent in 1998) of receivables are due from entities located outside of North America, primarily Europe and Asia. Of the total receivables, approximately 30 percent are denominated in foreign currencies (5 percent at December 31, 1998). The Company routinely evaluates the financial strength of its customers and monitors each account to minimize the risk of loss. F-9 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 11. CONCENTRATIONS - CONTINUED The Company maintains cash and cash equivalents at several financial institutions. Accounts at each domestic institution are insured by the FDIC up to $100. Uninsured domestic balances were approximately $2,125 at December 31, 1998 (none in 1999). The Company also maintains cash and cash equivalents in foreign accounts. These uninsured balances are approximately $288 at December 31, 1999 ($1,494 in 1998). 12. RETENTIONS RECEIVABLE Many of the Company's contracts require retentions, typically 5-10 percent of the amount billed, to be withheld from each progress payment by the customer until the project reaches substantial completion. 13. INTANGIBLE ASSETS Intangible assets are amortized on the straight-line method over the estimated useful life or the terms of the respective agreement or patent, whichever is shorter. The original estimated useful lives range from 2-15 years. On an ongoing basis, management reviews the valuation and amortization of intangible assets to determine possible impairment by comparing the carrying value to the undiscounted estimated future cash flows of the related assets and necessary adjustments, if any, are recorded. 14. ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of the Company's cash and cash equivalents, contracts receivable and accounts payable, accrued liabilities and lines of credit approximate their fair values due to their short-term nature. F-10 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 16. STOCK OPTIONS The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options rather than adopting the alternative fair value accounting provided for under FASB Statement 123, "Accounting for Stock-Based Compensation" (SFAS 123). 17. RECLASSIFICATIONS Certain reclassifications have been made to the 1998 and 1997 financial statements to conform with the 1999 presentation. NOTE B - CAPITAL TRANSACTIONS During 1999, 1998 and 1997, the Company received $22, $49 and $84 from the issuance of 33,403, 44,711 and 43,738 shares of common stock, respectively. In 1998, the Company also issued 27,023 shares of common stock to acquire the net assets of Intelligent Enclosures Corporation (Note T). The Company purchased and retired 36,304 shares of common stock during 1997. During 1996, the shareholders of the Company approved an employee stock purchase plan. The maximum number of shares of common stock that may be issued under the plan is 750,000 shares. Employees are eligible upon completion of 90 days employment. Eligible employees may designate from 2 percent to 15 percent (up to $25) of eligible compensation to be withheld for the purchase of stock. Price per share is 85 percent of the lower closing trading price of the stock on the applicable offering commencement date or offering termination date. Offering periods are six months in length beginning on May 1 and November 1 of each year. Employees purchased 33,403, 44,711 and 43,738 shares under the plan in 1999, 1998 and 1997, respectively. F-11 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE C - INTERNATIONAL OPERATIONS Financial information summarized by geographic area for the years ended December 31, 1999, 1998 and 1997, is as follows:
North 1999 America Europe Asia/Pacific Consolidated -------------------------------------------- ----------- ----------- -------------- -------------- Net revenues - unaffiliated customers $ 31,169 $ 9,749 $ 3,093 $ 44,011 Loss from operations (6,319) (1,386) (2,439) (10,144) Identifiable assets 18,443 6,432 - 24,875 North 1998 America Europe Asia/Pacific Consolidated -------------------------------------------- ----------- ----------- -------------- -------------- Net revenues - unaffiliated customers $ 30,507 $ 12,965 $ 9,606 $ 53,078 Loss from operations (4,316) (42) (1,156) (5,514) Identifiable assets 21,352 6,453 3,036 30,841 North 1997 America Europe Asia/Pacific Consolidated -------------------------------------------- ----------- ----------- -------------- -------------- Net revenues - unaffiliated customers $ 31,413 $ 11,574 $ 9,554 $ 52,541 Loss from operations (283) (2,668) (830) (3,781) Identifiable assets 18,655 8,262 5,447 32,364
Foreign currency transaction losses totaling approximately $192 for 1999 ($203 for 1998) are included in other income. Foreign currency transactions for 1997 were not significant. NOTE D - ACCOUNTS RECEIVABLE Accounts receivable consist of the following:
1999 1998 --------- --------- Trade accounts receivable $ 1,662 $ 1,397 Contract receivables 5,822 7,140 Retentions receivable 188 982 --------- --------- 7,672 9,519 Less allowance for doubtful accounts 300 615 --------- --------- Accounts receivable $ 7,372 $ 8,904 ========= =========
F-12 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE E - INVENTORIES Inventories consist of the following:
1999 1998 --------- --------- Raw materials $ 523 $ 1,533 Work in process 2,389 - --------- --------- 2,912 1,533 Less allowance for obsolescence 300 300 --------- --------- Total $ 2,612 $ 1,233 ========= =========
NOTE F - OTHER CURRENT ASSETS Other current assets consist of the following:
1999 1998 --------- --------- Income taxes receivable $ 222 $ 360 Refundable foreign taxes 2,703 1,666 Miscellaneous receivables and deposits 137 188 Prepaid expenses 87 177 --------- --------- $ 3,149 $ 2,391 ========= =========
NOTE G - PROPERTY AND EQUIPMENT Property and equipment and estimated useful lives consist of the following:
Years 1999 1998 --------------- --------- --------- Equipment 5-10 $ 2,093 $ 4,221 Furniture and fixtures 3-5 1,322 2,734 Leasehold improvements life of lease 2,626 2,605 Equipment under capital leases 5-10 3,720 4,067 Vehicles 3-5 246 317 --------- --------- 10,007 13,944 Less accumulated depreciation and amortization including $3,227 and $3,002 for equipment under capital leases at 1999 and 1998, respectively 6,897 9,085 --------- --------- $ 3,110 $ 4,859 ========= =========
F-13 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE H - CONTRACTS IN PROGRESS Costs incurred to date and estimated earnings and the related progress billings to date on contracts in progress are as follows:
1999 1998 --------- --------- Total costs and estimated earnings $ 193,794 $ 118,265 Progress billings to date 191,837 112,354 --------- --------- $ 1,957 $ 5,911 ========= =========
The above are included in the balance sheets under the following captions:
1999 1998 --------- --------- Costs and estimated earnings in excess of billings on contracts in progress $ 3,581 $ 7,546 Billings in excess of costs and estimated earnings on contracts in progress (1,624) (1,635) --------- --------- $ 1,957 $ 5,911 ========= =========
NOTE I - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following:
1999 1998 --------- --------- Trade accounts payable $ 6,334 $ 2,847 Other accrued liabilities 1,392 219 Employees salaries, incentive pay, vacation and payroll taxes 836 1,017 Reserve for contract estimates and warranties 309 666 --------- --------- $ 8,871 $ 4,749 ========= =========
F-14 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE J - INCOME TAXES Components of income taxes (benefit) are as follows:
1999 1998 1997 --------- --------- --------- Current Federal $ 106 $ 12 $ (1,171) State 15 2 (305) Foreign - - - --------- --------- --------- 121 14 (1,476) Deferred Federal (1,511) (1,809) (379) State 298 (280) (11) --------- --------- --------- (1,213) (2,089) (390) --------- --------- --------- Income taxes (benefit) $ (1,092) $ (2,075) $ (1,866) ========= ========= =========
The income tax expense (benefit) reconciled to the tax computed at the statutory Federal rate of 34 percent is as follows:
1999 1998 1997 --------- --------- --------- Tax (benefit) at federal statutory rate $ (3,679) $ (2,039) $ (1,403) Nondeductible expenses 5 12 11 State income taxes, net of federal income tax benefit (324) (198) (234) Foreign sales corporation exemption - - (167) Change in valuation allowance 2,887 - - All other, net 19 150 (73) --------- --------- --------- $ (1,092) $ (2,075) $ (1,866) ========= ========= ==========
Deferred income taxes related to the following:
1999 1998 --------- --------- Current deferred tax assets Allowance for doubtful accounts $ 112 $ 230 Accrued expenses and reserves 313 425 --------- --------- $ 425 $ 655 ========= =========
F-15 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE J - INCOME TAXES - CONTINUED
1999 1998 --------- --------- Long-term deferred tax assets (liabilities) Excess book depreciation and amortization $ (37) $ (79) Foreign tax credit carryforwards 162 162 Alternative minimum tax credit carryforwards 198 199 Net operating loss carryforward 5,928 1,639 Valuation allowance (2,887) - --------- --------- $ 3,364 $ 1,921 ========= =========
The foreign tax credit carry forward of $162 expires during 2001. Management believes it is more likely than not that the Company will have sufficient foreign and domestic income to utilize the credits before expiration. The Company has sustained net operating losses in each of the periods presented. As of December 31, 1999, the Company had net operating loss carryforwards for tax reporting purposes of approximately $16,100 expiring in various years through 2019. Since realization of these net operating loss carryforwards is uncertain a valuation allowance has been recorded to reduce the net deferred tax asset to an amount which management believes is more likely than not to be utilized. The increase in the valuation allowance was $2,887 for the year ended December 31, 1999 and $0 for 1998 and 1997. NOTE K - LINES OF CREDIT During 1999 and 1998, the Company maintained a revolving line of credit with a domestic bank for the lesser of $6,000 or the available borrowing base. The interest rate is computed at 13 percent and requires monthly payments of interest. The Company had $5,258 in borrowings against the line at December 31, 1999 ($5,254 at December 31, 1998). The line of credit expired October 31, 1999 and was extended to December 31, 1999. The line of credit is collateralized by certain domestic receivables and inventories. The line of credit agreement contains restrictive covenants imposing limitations on payments of cash dividends, purchases or redemptions of capital stock, indebtedness and other matters. At times during 1999 and at December 31, 1999, the Company was out of compliance on certain indebtedness covenants. Subsequent to year end the Company signed an extension of the line of credit through August 31, 2000 which included a waiver for the non-compliance with the covenants as of December 31, 1999. The Company is currently reviewing several financing alternatives. F-16 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE L - LONG-TERM OBLIGATIONS The Company has entered into capital leases with various financial institutions and leasing organizations that carry interest rates ranging from 4 percent to 11.5 percent. The leases are collateralized by equipment. Payments approximate $44 monthly including interest. The following is a schedule by year of future minimum lease payments under capital leases, together with the present value of the net lease payments as of December 31, 1999:
Year ending December 31, ------------------------ 2000 $ 499 2001 55 2002 32 2003 19 2004 18 --------- Total minimum leases payments 623 Less amount representing interest 52 --------- Present value of net minimum lease payments 571 Less current portion 461 --------- Long-term portion $ 110 =========
NOTE M - OPERATING LEASES The Company leases buildings, machinery and equipment under operating leases. The building leases expire in 2000 and 2005. The machinery and equipment leases expire through 2000. The following is a schedule, by year, of future minimum rental payments as of December 31, 1999:
Year ending December 31, ------------------------ 2000 $ 1,372 2001 734 2002 647 2003 633 2004 633 Thereafter 303 --------- $ 4,322 =========
F-17 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE M - OPERATING LEASES - CONTINUED The building leases provide for payment of property taxes, insurance, and maintenance costs by the Company. Rental expense for operating leases totaled $2,314, $2,212 and $1,670 for 1999, 1998 and 1997, respectively. The Company has an option to renew one building lease for four additional five year periods upon expiration of the current term in 2005. NOTE N - BENEFIT PLANS 1. SAVINGS PLAN The Company has established a 401(k) savings plan covering all non-union employees 21 years of age and older. The Company, at its discretion, matches 50 percent of employee contributions up to a maximum matching contribution of 3 percent of the employee's annual salary. Contributions are made at the discretion of the Board of Directors. The Company's contributions to the plan were $147, $189 and $176 for the years ended December 31, 1999, 1998 and 1997, respectively. 2. MULTI-EMPLOYER PENSION PLANS The Company contributes to several multi-employer pension plans for employees covered by collective bargaining agreements. Employees covered by these plans are engaged solely in on-site installation of cleanrooms. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. The Company's contributions to the multi-employer pension plans totaled approximately $128, $269 and $303, respectively, for the years ended December 31, 1999, 1998 and 1997. Information with respect to the Company's proportionate share of the excess, if any, of the actuarially computed value of vested benefits over the total pension plans' net assets is not available from the plans' administrators. The Multi-Employer Pension Plan Amendments Act of 1980 (The "Act") significantly increased the pension responsibilities of participating employers. Under the provision of the Act, if the plans terminate or the Company withdraws, the Company could be subject to a withdrawal liability. Management has no intention of undertaking any action which could subject the Company to any withdrawal liability which would have a material effect on the Company's financial condition. F-18 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE O - LEGAL PROCEEDINGS AND CLAIMS The Company is engaged in various lawsuits and claims, either as plaintiff or defendant, in the normal course of business. In the opinion of management, based upon advice of counsel, the ultimate outcome of these lawsuits will not have a material impact on the Company's financial position or results of operations. NOTE P - PRIMARY CUSTOMERS The Company has typically had one to three customers in each year which accounted for more than 10 percent each of revenues; these customers do not necessarily remain significant in subsequent years. These major customers are typically general contractors of fabrication facilities. The Company's major customers and revenue received therefrom are as follows:
1999 1998 1997 --------- --------- --------- Company A $ 10,625 $ 6,580 $ - Company B 5,337 - - Company C 4,508 7,912 - Company D - - 7,241
NOTE Q - RELATED PARTY TRANSACTIONS Daw Incorporated is a regional interior specialties contracting company based in Utah. Certain stockholders of Daw Incorporated own approximately 34 percent of the Company's common stock. The Company purchased goods and services from Daw Incorporated totaling $71, $447, and $223 in 1999, 1998 and 1997, respectively. A member of the board of directors works for a law firm which provided legal services to the Company approximating $19, $171 and $138 in 1999, 1998 and 1997, respectively. F-19 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE R - WARRANTS AND OPTIONS During 1996, the Board of Directors and the shareholders amended the Company's 1993 Stock Option Plan (Plan) to increase the number of shares reserved for issuance by 250,000. In addition, the amendment extended the life of the Plan for one year, and eliminated the limit on the number of options that can be granted in any given year. Also, the amendment limits to 100,000 the number of options that can be granted to any one individual in any given year. The Plan is a non-qualified plan, and the options granted thereunder are non-qualified stock options. Under the amended Plan, 1,250,000 shares of common stock were reserved for issuance upon exercise of options. The Plan provides that options to purchase a maximum of 1,075,000 shares may be granted to eligible employees (including employees who are directors or officers) and options to purchase a maximum of 175,000 shares may be granted to non-employee directors. The exercise price for stock options granted under the Plan may not be less than 100 percent of the fair market value of a share of common stock on the date the option is granted. Options granted under the Plan after October 24, 1996 expire through 2008. Options granted prior to or on October 24, 1996 expire through 2011. The Company granted options to purchase 311,500 shares and 55,000 shares in 1998 and 1997, (none in 1999), respectively, of the Company's common stock. The options were granted to the following:
1999 1998 1997 ---------- ----------- ----------- Directors - 20,000 20,000 Executive officers, including officers who are directors - 60,000 30,000 Other employees - 231,500 5,000 ---------- ----------- ----------- - 311,500 55,000 ========== =========== ===========
On February 24, 1998, certain options with an exercise price greater than $1.40 were adjusted to $1.40, which was the market price of the Company's stock on that date. At that date, vesting was extended by one year for those options adjusted. These adjustments resulted in a new measurement date under interpretations to Accounting Principles Board Opinion No. 25. F-20 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE R - WARRANTS AND OPTIONS - CONTINUED The Company has adopted only the disclosure provisions of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS 123). Therefore, the Company continues to account for stock based compensation under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for the stock based compensation been determined based upon the fair value of the awards at the grant date consistent with the methodology prescribed by FAS 123, the Company's net loss and loss per share would have been increased to the following pro forma amounts:
1999 1998 1997 ---------- -------- -------- Net loss As reported $ (9,729) $(3,922) $(2,259) Pro forma (9,903) (4,074) (2,458) Loss per share-basic As reported (0.78) (0.32) (0.18) Pro forma (0.79) (0.33) (0.20) Loss per share-diluted As reported (0.78) (0.32) (0.18) Pro forma (0.79) (0.33) (0.20)
These pro forma amounts may not be representative of future disclosures because they do not take into effect pro forma compensation cost related to grants made before 1995. The fair value of these options was estimated at the date of grant using the modified Black-Scholes American option-pricing model with the following weighted-average assumptions for 1998 and 1997: expected volatility 53 percent for 1998 and 1997; risk-free interest rate of 6.05 percent for 1998 and 1997; and expected life of 9.6 years for 1997 and 1996. The weighted-average fair value of options granted was $1.17 and $1.60 in 1998 and 1997, respectively. Option pricing models require the input of highly subjective assumptions including the expected stock price volatility. Also, the Company's employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. Management believes the best input assumptions available were used to value the options and that the resulting option values are reasonable. F-21 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE R - WARRANTS AND OPTIONS - CONTINUED Changes in the Company's stock options and warrants are as follows:
Shares Weighted- ------------------------------ Exercise average Stock price exercise price Warrants options per share per share -------------- ------------- ---------------- -------------- Outstanding at January 1, 1997 6,600 736,500 $ 2.50 - 3.50 $ 3.41 Granted - 55,000 1.94 - 3.00 2.24 Exercised - - - - Canceled or expired (6,600) (98,500) 2.50 - 3.50 3.30 -------------- ------------- Outstanding at December 31, 1997 - 693,000 1.94 - 3.50 3.32 Granted - 311,500 0.84 - 2.66 2.28 Exercised - - - - Canceled or expired - (135,500) 1.38 - 3.50 3.05 -------------- ------------- Outstanding at December 31, 1998 - 869,000 0.84 - 3.50 1.99 Granted - - - - Exercised - - - - Canceled or expired - (127,500) 1.40 - 2.66 1.78 -------------- ------------- Outstanding at December 31, 1999 - 741,500 0.84 - 3.50 2.03 ============== ============= Exercisable at December 31, 1999 - 636,000 0.84 - 3.50 1.99 ============== ============= Exercisable at December 31, 1998 - - - - ============== ============= Exercisable at December 31, 1997 - 535,500 3.00 - 3.50 3.44 ============== =============
A summary of the status of the options outstanding under the Company's stock option plan at December 31, 1999 is presented below:
Outstanding Exercisable ---------------------------------------- ------------------------- Weighted- Weighted- Weighted- average average average remaining exercise exercise Number contractual price Number price Range of exercise prices outstanding life (years) exercisable ------------------------ ------------ ------------ ---------- ----------- ----------- $ 0.84 - $ 1.25 40,000 8.82 $ 0.97 30,000 $ 0.92 $ 1.26 - $ 1.50 391,000 5.94 1.40 370,750 1.40 $ 1.51 - $ 2.00 - - - - - $ 2.01 - $ 2.50 20,000 7.89 2.22 20,000 2.22 $ 2.51 - $ 3.00 150,500 8.41 2.66 75,250 2.66 $ 3.00 - $ 3.50 140,000 5.94 3.41 140,000 3.41 ------------ ----------- $ 0.84 - $ 3.50 741,500 6.65 $ 2.03 636,000 $ 1.99 ============ ===========
F-22 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE S - EARNINGS (LOSS) PER COMMON SHARE The following data show the shares used in computing earnings (loss) per common share including dilutive potential common stock:
1999 1998 1997 ------------ ------------- -------------- Common shares outstanding entire period 12,479,711 12,407,977 12,400,543 Net weighted average common shares issued during period 22,269 32,144 15,414 ------------ ------------- -------------- Weighted average number of common shares used in basic EPS 12,501,980 12,440,121 12,415,957 Dilutive effect of stock options - - - Dilutive effect of warrants - - - ------------ ------------- -------------- Weighted average number of common shares and dilutive potential common shares used in diluted EPS 12,501,980 12,440,121 12,415,957 ============ ============= ==============
For the years ended December 31, 1999, 1998 and 1997, all of the options and warrants that were outstanding, as described in Note R, were not included in the computation of diluted EPS because to do so would have been anti-dilutive. NOTE T - BUSINESS ACQUISITION On April 22, 1998, the first closing date, the Company acquired the net assets of Intelligent Enclosures Corporation. The transaction was accounted for as a purchase and the transaction is to be completed on April 22, 2000, the second closing date. At the first closing date, the Company delivered 27,023 shares of common stock. At the second closing date, the Company will issue additional shares of common stock at the average per share closing price for the 20 consecutive trading days prior to the second closing date, which in addition to the original 27,023 shares will equal $1,300. F-23 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE U - SEGMENT INFORMATION The Company has two reportable segments for the year ended December 31, 1999, namely 1) cleanrooms and related products and 2) other manufactured goods. Prior to 1998, the Company operated in one segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance of each segment based on earnings or loss from operations. The Company's reportable segments are similar in manufacturing processes and are tracked similarly in the accounting system. The manufacturing process for each segment uses the same manufacturing facilities and overhead is allocated similarly to each segment. It is not practical to determine the total assets per segment and depreciation by segment because each segment uses the same manufacturing facility. Identifiable assets by segment are reported below. The Company allocates certain general and administrative expenses, consisting primarily of facilities expenses, utilities, and manufacturing overhead. Segment information for the cleanrooms and related products and other manufactured goods are as follows:
1999 1998 1997 ----------- ----------- ----------- Revenues Cleanrooms and related products $ 30,775 $ 46,298 $ 52,541 Other products 13,236 6,780 - ----------- ----------- ----------- Totals $ 44,011 $ 53,078 $ 52,541 =========== =========== =========== Operating profit (loss) Cleanrooms and related products $ (856) $ (6,005) $ (3,781) Other products (9,288) 491 - ----------- ----------- ----------- Totals $ (10,144) $ (5,514) $ (3,781) =========== =========== =========== Total assets Cleanrooms and related products $ 15,535 $ 15,053 $ 16,174 Other products 2,284 1,397 - Manufacturing and corporate assets 7,056 14,391 16,190 ----------- ----------- ----------- Totals $ 24,875 $ 30,841 $ 32,364 =========== =========== ===========
F-24 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE V - REVENUES Revenues by country are based on the location of the project for long-term projects and by the location of the customer for other manufactured products and are as follows:
1999 1998 1997 ----------- ----------- ---------- Canada $ 11,827 $ 6,666 $ - United Kingdom 5,893 6,692 2,068 Peoples Republic of China 382 7,092 2,389 Italy 42 3,568 - Taiwan 2,711 2,319 3,910 Malaysia - - 2,669 Israel 3,366 2,058 4,449 France 448 644 4,999 All others - 198 644 ----------- ----------- ---------- Total export revenues 24,669 29,237 21,128 United States 19,342 23,841 31,413 ----------- ----------- ---------- Total revenues $ 44,011 $ 53,078 $ 52,541 =========== =========== ==========
NOTE W - RESTRUCTURING CHARGES During December 1999, in order to reduce costs, the Company implemented a restructuring of its operations which resulted in the Company recording a one-time restructuring charge totaling $1,839. This one-time charge resulted from the disposition of the Company's Asia/Pacific office ($796) and the write down of inventory due to the Company's plans to pursue a foundry strategy for the manufacture of cleanroom components ($1,043). F-25 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE X - QUARTERLY FINANCIAL RESULTS (UNAUDITED) Quarterly financial results for the years ended December 31, 1999, 1998 and 1997 are as follows:
Net earnings Earnings Net (loss) per Gross (loss) from earnings common 1999 Revenues profit (loss) operations (loss) share-basic ----------------------- -------------- ------------- ---------------- ------------- ------------- First quarter $ 12,480 $ 1,577 $ (390) $ (316) $ (0.03) Second quarter 9,980 47 (2,019) (1,442) (0.12) Third quarter 12,433 774 (1,018) (1,129) (0.09) Fourth quarter 9,118 (2,437) (6,717) (6,842) (0.54) -------------- ------------- ---------------- ------------- ------------- $ 44,011 $ (39) $ (10,144) $ (9,729) $ (0.78) ============== ============= ================ ============= ============= 1998 ----------------------- First quarter $ 11,441 $ 486 $ (1,298) $ (831) $ (0.07) Second quarter 12,888 (1,768) (3,719) (2,403) (0.19) Third quarter 14,332 952 (878) (748) (0.06) Fourth quarter 14,417 2,185 381 60 - -------------- ------------- ---------------- ------------- ------------- $ 53,078 $ 1,855 $ (5,514) $ (3,922) $ (0.32) ============== ============= ================ ============= ============= 1997 ----------------------- First quarter $ 16,795 $ 2,583 $ 327 $ 182 $ 0.02 Second quarter 16,463 2,398 97 15 - Third quarter 11,453 2,036 46 48 - Fourth quarter 7,830 (1,748) (4,251) (2,504) (0.20) -------------- ------------- ---------------- ------------- ------------- $ 52,541 $ 5,269 $ (3,781) $ (2,259) $ (0.18) ============== ============= ================ ============= =============
NOTE Y - RESTATEMENT OF FINANCIAL STATEMENTS In November 2001, the Company determined that the consolidated financial information in the Company's Annual Reports on Form 10-K for the years ended December 31, 1999 and December 31, 2000 as well as the unaudited interim financial statements reported in the Company's Quarterly Reports on Form 10-Q for the periods ended March 31, 2000, June 30, 2000, September 30, 2000, March 31, 2001 and June 30, 2001 had been incorrectly compiled and reported primarily because of errors in the financial information reported by the Company's European operations. The errors generally resulted from the following items: - Foreign currency translation and transaction gains/loss related to foreign operations were not properly considered and accounted for. F-26 Daw Technologies, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1999, 1998 and 1997 (in thousands, except share data) NOTE Y - RESTATEMENT OF FINANCIAL STATEMENTS - CONTINUED - Errors in recognizing revenue and costs on various construction projects using percentage of completion accounting. These errors consisted of not recognizing a loss on a project in the period when it was determined; unsupported budgeted revenues, costs and progress billing information contained in the Company's revenue recognition spreadsheets which in turn resulted in errors in the calculation and recognition of revenue and costs; and failure to properly accrue known costs on projects when incurred which resulted in improper revenue recognition. - Errors resulting from differences in intercompany accounts that when reconciled resulted in expenses that should have been recorded in the financial statements. - Adjustments to properly amortize leasehold improvements over the lesser of the estimated useful life or the life of the lease. Previously, the leasehold improvements were being amortized over a period in excess of the original life of the lease. - Certain reclassifications to balance sheet captions were made based upon analyzing the accounts. The Company's financial statements for 1999, 2000 and the first two quarters of 2001 have been restated to correct the errors noted above. In the opinion of management, all material adjustments necessary to correct the financial statements have been recorded. The impact of these adjustments on the Company's 1999 financial results and financial condition as originally reported is summarized below (in thousands, except per share data):
As Previously As Reported Restated ---------- ---------- Consolidated balance sheet: Current assets $ 18,343 $ 17,435 Property and equipment - net, at cost 3,402 3,110 Total assets 26,075 24,875 Current liabilities 15,457 16,462 Total shareholders' equity 10,508 8,303 Consolidated statement of operations: Revenue, net $ 45,206 $ 44,011 Cost of goods sold 43,576 44,050 Gross profit (loss) 1,630 (39) Operating expenses 9,870 10,105 Loss from operations (8,240) (10,144) Other income (expense), net (493) (677) Net loss (7,641) (9,729) Net loss per common share basic and diluted $ (0.61) $ (0.78)
F-27 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE Board of Directors Daw Technologies, Inc. and Subsidiaries In connection with our audit of the consolidated financial statements of Daw Technologies, Inc. and Subsidiaries referred to in our report dated April 7, 2000, except for Note Y for which the date is April 5, 2002, which is included in the annual report to shareholders and Form 10-K, we have also audited Schedule II - valuation and qualifying accounts for each of the three years in the period ended December 31, 1999. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ Grant Thornton LLP Salt Lake City, Utah April 7, 2000, except for Note Y for which the date is April 5, 2002 S-1 DAW TECHNOLOGIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
--------------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E --------------------------------------------------------------------------------------------------------------------------------- ADDITIONS --------------------------------------------------------------------------------------------------------------------------------- (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS - END OF DESCRIPTION PERIOD EXPENSES DESCRIBE WRITE-OFFS PERIOD --------------------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts Year ended December 31, 1999 $ 615 $ 360 $ - $ 675 $ 300 Year ended December 31, 1998 403 100 150(A) (38) 615 Year ended December 31, 1997 376 180 - (153) 403 Allowance for contract estimates and warranties Year ended December 31, 1999 $ 666 $ - $ - $ 357 $ 309 Year ended December 31, 1998 366 - 300(A) - 666 Year ended December 31, 1997 575 654 - (863) 366 Allowance for inventory obsolescence Year ended December 31, 1999 $ 300 $ - $ 1,043(B) $ 1,043 $ 300 Year ended December 31, 1998 - - 300(A) - 300 Year ended December 31, 1997 - - - - - Allowance for contract repayment Year ended December 31, 1999 $ 53 $ - $ - $ - $ 53 Year ended December 31, 1998 803 - (750)(A) - 53 Year ended December 31, 1997 803 - - - 803 Valuation allowance for deferred taxes Year ended December 31, 1999 $ - $2,887 $ - $ - $ 2,887 Year ended December 31, 1998 - - - - - Year ended December 31, 1997 - - - - -
(A) Reclassification (B) Restructuring charge S-2