-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vhj7ZtKuTOUITbBN+FCF9vUoSj28QSb0ayzOyeoCFzDKyirtZYQ2xVtVbKt0FQBk UKFmH7EaLn6EJi3yklnyHA== 0000912057-02-016417.txt : 20020424 0000912057-02-016417.hdr.sgml : 20020424 ACCESSION NUMBER: 0000912057-02-016417 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20020424 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAW TECHNOLOGIES INC /UT CENTRAL INDEX KEY: 0000882159 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL BUILDING CONTRACTORS - NONRESIDENTIAL BUILDINGS [1540] IRS NUMBER: 870464280 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-21818 FILM NUMBER: 02619994 BUSINESS ADDRESS: STREET 1: 2700 S 900 W CITY: SALT LAKE CITY STATE: UT ZIP: 84119 BUSINESS PHONE: 8019773100 MAIL ADDRESS: STREET 2: 2700 SOUTH 900 WEST CITY: SALT LAKE CITY STATE: UT ZIP: 84119 FORMER COMPANY: FORMER CONFORMED NAME: PRIMA ACQUISITIONS INC DATE OF NAME CHANGE: 19600201 10-Q/A 1 a2076807z10-qa.txt 10-Q/A - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO QUARTERLY REPORT ON FORM 10-Q/A (X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2000 or ( ) Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 0-21818 ---------------------------- (Commission File No.) DAW TECHNOLOGIES, INC. ----------------------------------------------------------- (Exact name of registrant as specified in its charter) UTAH 87-0464280 - ----------------------------- ----------------------- (State or other jurisdiction (IRS Employer of incorporation or Identification No.) organization) 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 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 ( ) As of May 15, 2000, the Registrant had 12,832,454 shares of Common Stock, $0.01 par value outstanding. - ------------------------------------------------------------------------------- This amendment on Form 10-Q/A amends Items 1 and 2 of Part I of the Quarterly Report for Daw Technologies, Inc. (the "Company") on Form 10-Q previously filed for the quarter ended March 31, 2000. This Quarterly Report on Form 10-Q/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 Quarterly Report on Form 10-Q/A is as of the date of the original filing. The restated financial information as of December 31, 1999 contained herein should be read in conjunction with the applicable amended filings for that period. Daw Technologies, Inc. TABLE OF CONTENTS
PART I FINANCIAL INFORMATION................................................................................. 1 Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 2000 and December 31, 1999 (unaudited).............. 1 Condensed Consolidated Statements of Operations - Three months ended March 31, 2000 and 1999 (unaudited)...................................................................................... 2 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2000 and 1999 (unaudited)............................................................................. 3 Notes to Condensed Consolidated Financial Statements (unaudited)...................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................................ 12 Signatures..................................................................................................... 17
PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Daw Technologies, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except share data)
ASSETS March 31, Dec. 31, 2000 1999 (As Restated) (As Restated) ------------- ------------ CURRENT ASSETS Cash and cash equivalents $ 830 $ 296 Accounts receivable, net 9,431 7,372 Costs and estimated earnings in excess of billings on contracts in progress 4,772 3,581 Inventories, net 2,282 2,612 Deferred income taxes 425 425 Other current assets 2,934 3,149 ------------- ------------ Total current assets 20,674 17,435 PROPERTY AND EQUIPMENT, NET 2,888 3,110 DEFERRED INCOME TAXES 3,364 3,364 OTHER ASSETS 919 966 ------------- ------------ $ 27,845 $ 24,875 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Checks written in excess of cash in bank $ - $ 248 Accounts payable and accrued liabilities 11,200 8,871 Billings in excess of costs and estimated earnings on contracts in progress 2,323 1,624 Line of credit 5,468 5,258 Current portion of long-term obligations 408 461 ------------- ------------- Total current liabilities 19,399 16,462 LONG-TERM OBLIGATIONS, less current portion 105 110 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 12,832,454 shares at March 31, 2000 and 12,513,114 shares on December 31, 1999 128 125 Additional paid-in capital 17,011 16,579 Accumulated deficit (8,630) (8,284) Accumulated other comprehensive loss (168) (117) ------------- ------------- Total shareholders' equity 8,341 8,303 ------------- ------------- $ 27,845 $ 24,875 ============= =============
The accompanying notes are an integral part of these statements. 1 Daw Technologies, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except share data)
Three months ended March 31, 2000 1999 (As Restated) -------------- --------------- Revenues $ 15,140 $ 12,480 Cost of goods sold 14,128 10,903 -------------- --------------- Gross profit 1,012 1,577 Operating expenses Selling, general and administrative 1,069 1,788 Research and development - 60 Depreciation and amortization 157 119 -------------- --------------- 1,226 1,967 -------------- --------------- Loss from operations (214) (390) Other income (expense) Interest expense (192) (101) Other, net 60 (11) -------------- --------------- (132) (112) -------------- --------------- Loss before income taxes (346) (502) Income tax expense (benefit) - (186) -------------- --------------- NET LOSS $ (346) $ (316) ============== =============== Loss per common share Basic $ (0.03) $ (0.03) Diluted (0.03) (0.03) Weighted-average common and dilutive common equivalent shares outstanding Basic 12,595,011 12,479,711 Diluted 12,595,011 12,479,711
The accompanying notes are an integral part of these statements. 2 Daw Technologies, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands, except share data)
Three months ended March 31, 2000 1999 (As Restated) ------------ ------------ Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net loss $ (346) $ (316) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization 375 393 Deferred income taxes - (186) Changes in assets and liabilities Account receivables (2,062) (616) Costs and estimated earnings in excess of billings on contracts in progress (1,223) (1,725) Inventories 327 119 Other current assets 198 94 Other assets (2) 50 Accounts payable and accrued liabilities 2,317 2,158 Billings in excess of costs and estimated earnings on contracts in progress 710 (9) ------------ ------------ Net cash provided by (used in) operating activities 294 (38) ------------ ------------ Cash flows from investing activities Purchase of property and equipment (103) (37) ------------ ------------ Net cash used in investing activities (103) (37) ------------ ------------
(continued) The accompanying notes are an integral part of these statements. 3 Daw Technologies, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (unaudited) (in thousands, except share data)
Three months ended March 31, 2000 1999 (As Restated) ------------- ------------- Cash flows from financing activities Decrease in checks written in excess of cash in bank (248) - Net change in line of credit 210 (879) Proceeds from issuance of preferred and common stock 436 - Payments on long-term obligations (58) (145) ---------------------------- Net cash provided by (used in) financing activities 340 (1,024) Effect of exchange rate changes on cash and cash equivalents 3 - ------------- ------------- Net increase (decrease) in cash and cash equivalents 534 (1,099) Cash and cash equivalents at beginning of period 296 2,140 ------------- ------------- Cash and cash equivalents at end of period $ 830 $ 1,041 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for Interest $ 192 $ 101 Income taxes - -
The accompanying notes are an integral part of these statements. 4 Daw Technologies, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND RESTATEMENT The accompanying unaudited condensed consolidated financial statements have been prepared by Daw Technologies, Inc. (the "Company" or "Daw") in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included. All such adjustments are of a normal recurring nature. These financial statements and footnote disclosures in this Form 10-Q/A for the three months ended March 31, 2000 should be read in conjunction with the Company's annual report on Form 10-K/A, as amended for the year ended December 31, 1999. The results of operations for the three months ended March 31, 2000 may not be indicative of the results that may be expected for the year ending December 31, 2000. In November 2001, the Company determined that the consolidated financial information for the years ended December 31, 1999 and 2000 and the related quarterly information for 2000 and first two quarters of 2001 contained errors which required restatement of previously reported financial information. The errors resulted primarily from the Company not properly reconciling the accounts of its foreign operations. The errors generally resulted from the following items: o Foreign currency translation and transaction gains/loss related to foreign operations were not properly considered and accounted for. o 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. o Errors resulting from differences in intercompany accounts that when reconciled resulted in expenses that should have been recorded in the financial statements. o 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. o Certain reclassifications to balance sheet captions were made. This included the reclassification of preferred stock to redeemable preferred stock and recording preferred stock dividends and the beneficial conversion feature in retained earnings and additional paid in capital. 5 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND RESTATEMENT (CONTINUED) The effect of the restatements for the years ended December 31, 1999 and 2000 is described in amended filings on Form 10-K/A or Form 10-Q/A for the applicable quarter periods. The following is a summary of the effects of such restatements on the Company's consolidated financial statements as of and for the three months ended March 31, 2000:
As Previously As Reported Restated ----------- ----------- Consolidated balance sheet: Current assets $ 22,312 $ 20,674 Property and equipment--net, at cost 3,200 2,888 Total assets 29,795 27,845 Current liabilities 18,781 19,399 Total shareholders' equity 10,909 8,341 Consolidated statement of operations: Revenue, net $ 14,675 $ 15,140 Cost of goods sold 13,102 14,128 Gross profit 1,573 1,012 Total operating expenses 1,472 1,226 Other expense, net (135) (132) Loss before income taxes (34) (346) Net loss (34) (346) Net loss per common share basic and diluted $ (0.00) $ (0.03) Consolidated statement of shareholder' equity: Common stock $ 128 $ 128 Additional paid-in capital 17,011 17,011 Accumulated deficit (6,230) (8,630) Accumulated other comprehensive loss - (168) Total shareholders' equity 10,909 8,341
2. 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. 6 3. LINE OF CREDIT Through March 9, 2000, the Company maintained a revolving line of credit with a domestic bank for the lesser of $6,000, or the available borrowing base. From March 10, 2000, through March 31, 2000, the Company maintained a revolving line of credit with a domestic bank for the lesser of $5,500, or the available borrowing base. On April 1, 2000, the revolving line of credit was reduced to the lesser of $5,000, or the available borrowing base. The interest rate is computed at the bank's prime rate plus 3 percent per annum and requires monthly payments of interest. The Company had $5,468 in borrowings against the line at March 31, 2000 ($5,258 at December 31, 1999). The line of credit expired December 31, 1999 and was extended to August 31, 2000, which included a waiver of the Company's non-compliance with the covenants as of December 31, 1999. The Company was in compliance with the extended line of credit agreement as of March 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. The Company is currently reviewing several financing alternatives. 4. SEGMENT INFORMATION The Company has two reportable segments for the three months ended March 31, 2000, namely 1) cleanrooms and related products and 2) other manufactured goods. 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: 7 4. SEGMENT INFORMATION (CONTINUED)
Three months ended March 31, 2000 1999 ---------- ----------- Revenues Cleanrooms and related products $ 10,936 $ 9,723 Other products 4,204 2,757 ---------- ----------- Totals $ 15,140 $ 12,480 ========== =========== Operating profit (loss) Cleanrooms and related products $ 1,161 $ (799) Other products (1,375) 409 ---------- ----------- Totals $ (214) $ (390) ========== =========== March 31, Dec. 31, 2000 1999 ---------- ----------- Total assets Cleanrooms and related products $ 17,512 $ 15,535 Other products 2,512 2,284 Manufacturing and corporate assets 7,821 7,056 ---------- ----------- Totals $ 27,845 $ 24,875 ========== ===========
5. INVENTORIES Inventories consist of the following:
March 31, December 31, 2000 1999 ---------------- ------------------- Raw materials $ 1,536 $ 523 Work in process 1,046 2,389 ---------------- ------------------- 2,582 2,912 Less allowances for obsolescence 300 300 ---------------- ------------------- $ 2,282 $ 2,612 ================ ===================
8 6. COMPREHENSIVE LOSS The following table reports comprehensive loss for three months ended March 31, 2000
Net loss $ (346) Foreign currency translation adjustment (51) ----------------- Comprehensive loss $ (397) =================
7. EARNINGS (LOSS) PER COMMON SHARE The following data show the shares used in computing earnings (loss) per common share including dilutive potential common stock:
March 31, March 31, 2000 1999 ----------- ----------- Common shares outstanding entire period 12,513,114 12,479,711 Net weighted average common shares issued during period 81,897 - ----------- ----------- Weighted average number of common shares used in basic EPS 12,595,011 12,479,711 Dilutive effect of stock options - - Dilutive effect of warrants - - ----------- ----------- Weighted average number of common shares and dilutive potential common shares used in diluted EPS 12,595,011 12,479,711 =========== ===========
For the periods ended March 31, 2000, and 1999, all of the options and warrants that were outstanding were not included in the computation of diluted EPS because to do so would have been anti-dilutive. 9 8. SUBSEQUENT EVENTS a. 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 was completed on April 22, 2000, the second closing date. At the first closing date, the Company delivered 27,023 shares of common stock. Approximately 30 days after the second closing date, the Company will issue 618,439 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 645,462 shares. b. Subsequent to March 31, 2000, the Company completed a $4.8 million private equity placement through the issuance of 480 shares of the Company's 3% Series A Convertible Preferred Stock, which are convertible into shares of the Company's common stock. 9. RECLASSIFICATIONS Certain reclassifications have been made to the 1999 financial statements to conform with the 2000 presentation. 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL 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. The Company's principal line of business is an integrated systems solution provider 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; however, 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 closely 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 new 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 declined to less than $30 billion in 1998. 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 recent 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 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 $18.5 million at December 31, 1999. Additionally, during the first quarter of 2000, the Company has experienced an increase in contract bidding at higher gross margins than at any time during the three-year industry downturn, resulting in the award of $24.2 million of new cleanroom contracts. The Company's backlog increased from $15.9 million at March 31, 1999 to $21.6 million at March 31, 2000. Although there is uncertainty regarding the condition and prospects of a full recovery in the semiconductor industry, management continues to believe that changes taking place in the industry should result in expanded semiconductor industry capital expenditures. Delays in the ramp-up of 300mm technology have delayed the expected construction of a whole series of 300mm fabs worldwide, although beginning in the fourth quarter of 1999 and continuing in the first quarter of 2000, construction of some of these delayed fabs were initiated. 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 50%. During 2000, management is continuing to closely monitor the Company's cost structure, and is taking appropriate actions as considered necessary, but is continuing to develop state-of-the-art cleanroom technology, providing world-class support to the Company's customers, and continuing its diversification strategy. 11 In response to reduced revenue generated by the sale of cleanrooms, the Company has 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 advanced air entrance system. This product also shows 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, by 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. 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. 12 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 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. 13 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 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. A summary of the effect of the restatements in the financial statements is described in Note 1 to the condensed consolidated financial statements. RESULTS OF OPERATIONS (Data in the tables are in thousands) Selected Financial Information
Three Months Ended March 31, --------------- Statement of Operations Data: 2000 1999 ------------ ------------ Revenues $ 15,140 $ 12,480 Gross profit 1,012 1,577 Net loss (382) (316) March 31, December 31, Balance Sheet Data: 2000 1999 ------------ ------------ Cash and cash equivalents $ 830 $ 296 Working capital 1,275 973 Total assets 27,845 24,875 Total liabilities 19,504 16,572 Total shareholders' equity 8,341 8,303
Revenues for the first quarter of 2000 increased by 21.3% to $15.1 million compared to $12.5 million for the first quarter of 1999. This increase was primarily attributable to an increase in cleanroom and related products contract awards during the fourth quarter of 1999 and the first quarter of 2000. Revenues from cleanroom and related products increased $1.2 million, or 12.5%, to $10.9 million for the first quarter of 2000 from $9.7 million during the first quarter of 1999. Revenues from other manufactured products increased to $4.2 million for the period ended March 31, 2000, as compared with $2.8 million for the period ended March 31, 1999. Gross profit for the first quarter of 2000 decreased by 35.8% to $1.0 million from $1.6 million for the first quarter of 1999 and decreased as a percentage of revenue to 6.7% for the first quarter of 2000 from 12.6% for the first quarter of 1999. The decreased gross profit percentage was due largely to lower than anticipated profits related to other products not related to the semiconductor industry. With the Company's efforts to develop a portion of its revenues from sources outside of the semiconductor 14 industry by applying its product and engineering expertise in custom metal fabrication, airflow systems and panel production, the Company may experience cost inefficiencies due to ramp-up costs. However, it is the Company's objective to identify, manufacture and sell other products that have high gross profit margin potential. Selling, general and administrative expenses for the first quarter of 2000 decreased 41.3% to $1.0 million, or 6.9% of revenue, compared to $1.8 million, or 14.3% of revenue for the first quarter of 1999. The decrease in selling, general and administrative expenses was the result of the Company's continued efforts to manage and reduce its operating cost structure. The reduction was primarily the result of reduced payroll and related expenses and the implementation of other cost cutting measures. Research and development expenses for the first quarter of 2000 decreased 100.0% to zero, compared to $60,000 for the first quarter of 1999. The decrease was primarily the result of the Company's decision to establish a foundry relationship for the supply of its traditional cleanroom component products, similar to the foundry relationship being established by many multinational semiconductor companies for their integrated circuit needs. The Company continues to fund research and development to improve its existing products and develop new products in its diversification program. Interest expense for the first quarter of 2000 increased to $192,000, compared to $101,000 for the first quarter of 1999. This increase was directly related to increased borrowings at higher interest rates against the Company's credit line during the first quarter of 2000, compared to borrowings during the first quarter of 1999. LIQUIDITY AND CAPITAL RESOURCES Working capital at March 31, 2000 was $1,275,000, compared to $973,000 at December 31, 1999. This includes cash and cash equivalents of $830,000 at March 31, 2000 and $296,000 at December 31, 1999. The Company's operations provided $294,000 of cash during the first quarter of 2000, compared to using $38,000 of cash in operations during the first quarter of 1999. During the first quarter of 2000, the Company experienced a net increase in receivables of $2.1 million, an increase in costs and estimated earnings in excess of billings on contracts in progress of $1.2 million, and an increase in accounts payable and accrued liabilities of $2.3 million. In addition, billings in excess of costs and estimated earnings on contracts in progress increased by $710,000. During the first quarter ended March 31, 2000, the Company realized proceeds of $436,000 from the issuance of 301,550 shares of common stock in connection with the exercise of options related to its 1993 Stock Option Plan. Through March 9, 2000, the Company maintained a revolving line of credit with a domestic bank for the lesser of $6,000,000, or the available borrowing base. From March 10, 2000, through March 31, 2000, the Company maintained a revolving line of credit with a domestic bank for the lesser of $5,500,000, or the available borrowing base. On April 1, 2000, the revolving line of credit was reduced to the lesser of $5,000,000 or the available borrowing base. The interest rate is computed at the bank's prime rate plus 3 percent per annum and requires monthly payments of interest. The Company had $5,468,000 in borrowings against the line at March 31, 2000 ($5,258,000 at December 31, 1999). The line of credit expired December 31, 1999 and was extended to August 31, 2000, which included a waiver of the Company's non-compliance with the covenants as of December 31, 1999. The Company was in compliance with the extended line of credit agreement as of March 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. The Company is currently reviewing several financing alternatives. 15 Subsequent to March 31, 2000, the Company completed a $4.8 million private equity placement through the issuance of 480 shares of the Company's 3% Series A Convertible Preferred Stock, which are convertible into shares of the Company's common stock. Management believes that existing cash balances, borrowings available under the existing line of credit or future credit facilities, cash generated from operations, and proceeds from the $4.8 million private equity placement will be adequate to meet the Company's anticipated cash requirements through December 31, 2000. However, in the event the Company experiences adverse operating performance, above-anticipated capital expenditure requirements, or is unable to renew or replace its existing line of credit, additional financing may be required. There can be no assurance that such additional financing, if required, would be available on favorable terms if at all. INFORMATION CONTAINED IN THIS REPORT CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, 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. 16 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) 17 -----END PRIVACY-ENHANCED MESSAGE-----