-----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, U1sllAhoeeE+oC2KV8TraRRbjU6qlkrktub2INCOmbY7uy2tY80ncRLimUGRVk3k azp5vclflUCftMLlgvE+kA== 0000912057-02-016418.txt : 20020424 0000912057-02-016418.hdr.sgml : 20020424 ACCESSION NUMBER: 0000912057-02-016418 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000630 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: 02620014 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 a2076808z10-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 June 30, 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 August 14, 2000, the Registrant had 13,468,609 shares of Common Stock, $0.01 par value outstanding. ================================================================================ This amendment on Form 10-Q/A amends the 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 June 30, 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 filing for that period. Daw Technologies, Inc. TABLE OF CONTENTS PART I FINANCIAL INFORMATION................................................................................. 1 Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 2000 and December 31, 1999 (unaudited)............... 1 Condensed Consolidated Statements of Operations - Three months and six months ended June 30, 2000 and 1999 (unaudited)............................................................................. 2 Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 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................................................................................ 13 Signatures...................................................................................................... 20
PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Daw Technologies, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share data)
June 30, Dec. 31, 2000 1999 --------- ---------- ASSETS (As Restated) (As Restated) CURRENT ASSETS Cash and cash equivalents $ 1,843 $ 296 Accounts receivable, net 8,201 7,372 Costs and estimated earnings in excess of billings on contracts in progress 7,023 3,581 Inventories, net 2,197 2,612 Deferred income taxes 316 425 Other current assets 2,957 3,149 --------- -------- Total current assets 22,537 17,435 PROPERTY AND EQUIPMENT, NET 2,463 3,110 DEFERRED INCOME TAXES 3,364 3,364 OTHER ASSETS 899 966 --------- --------- $29,263 $24,875 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Checks written in excess of cash in bank $ - $ 248 Accounts payable and accrued liabilities 9,035 8,871 Billings in excess of costs and estimated earnings on contracts in progress 2,680 1,624 Line of credit 4,209 5,258 Current portion of long-term obligations 303 461 ---------- ---------- Total current liabilities 16,227 16,462 LONG TERM OBLIGATIONS, less current portion 78 110 COMMITMENTS AND CONTINGENCIES - - REDEEMABLE PREFERRED STOCK 3% Series A Redeemable Convertible Preferred Stock, authorized 10,000,000 shares of $0.01 par value; 480 shares issued and outstanding at June 30, 2000 (none at December 31, 1999) 4,225 - SHAREHOLDERS' EQUITY Common stock, authorized 50,000,000 shares of $0.01 par value; issued and outstanding 13,468,609 shares at June 30, 2000 and 12,513,114 at December 31, 1999 135 125 Additional paid-in-capital 19,622 16,579 Warrants 350 - Accumulated deficit (10,981) (8,284) Accumulated other comprehensive loss (393) (117) --------- ----------- Total shareholders' equity 8,733 8,303 --------- --------- $ 29,263 $ 24,875 ======== ========
See accompanying notes to condensed financial statements. 1 Daw Technologies, Inc. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share data)
Three months ended Six months ended June 30, June 30, 2000 1999 2000 1999 (As Restated) (As Restated) ------------ ------------- ------------- ------------- Revenues $ 14,637 $ 9,980 $ 29,777 $ 22,460 Cost of goods sold 12,491 9,933 26,619 20,836 ------------ ------------- ------------- ------------- Gross profit 2,146 47 3,158 1,624 Operating expenses Selling, general and administrative 1,310 1,896 2,379 3,684 Research and development - 58 - 118 Depreciation and amortization 107 112 264 232 ------------ ------------- ------------- ------------- 1,417 2,066 2,643 4,034 ------------ ------------- ------------- ------------- Earnings (loss) from operations 729 (2,019) 515 (2,410) Other income (expense) Interest expense (223) (186) (415) (287) Other, net 11 (84) 70 (93) ------------ ------------- ------------- ------------- (212) (270) (345) (380) ------------ ------------- ------------- ------------- Earnings (loss) before income taxes 517 (2,289) 170 (2,790) Income taxes (benefit) 251 (847) 251 (1,032) ------------ ------------- ------------- ------------- NET EARNINGS (LOSS) $ 266 $ (1,442) $ (81) $ (1,758) ============ ============= ============= ============= Earnings (loss) per common share (NOTE 7) Basic $ (0.18) $ (0.12) $ (0.20) $ (0.14) Diluted (0.18) (0.12) (0.20) (0.14) Weighted-average common and dilutive common equivalent shares outstanding Basic 13,185,866 12,479,711 12,875,237 12,490,968 Diluted 13,185,866 12,479,711 12,875,237 12,490,968
See accompanying notes to condensed financial statements. 2 Daw Technologies, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands, except share data)
Six months ended June 30, 2000 1999 (As Restated) ------------ ------------ Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net loss $ (81) $ (1,758) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 697 781 Loss on disposal of property and equipment 2 - Provision for allowance on accounts receivable - - Deferred income taxes 110 (1,032) Changes in assets and liabilities Account receivables (966) 573 Costs and estimated earnings in excess of billings on contracts in progress (3,573) (3,002) Inventories 402 188 Other current assets 121 (26) Other assets (6) 100 Accounts payable and accrued liabilities 212 2,411 Billings in excess of costs and estimated earnings on contracts in progress 1,111 701 ------------ ------------ Net cash used in operating activities (1,971) (1,064) ------------ ------------ Cash flows from investing activities Purchase of property and equipment (137) (51) Proceeds from disposition of property and equipment 154 - ------------ ------------ Net cash provided by (used in) investing activities 17 (51) ------------ ------------
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)
Six months ended June 30, 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 (1,049) 207 Proceeds from issuance of common stock, preferred stock and warrants 5,035 22 Payments on long-term obligations (191) (293) ---------------------------- Net cash provided by (used in) financing activities 3,547 (64) Effect of exchange rate changes on cash and cash equivalents (46) - ------------- ------------- Net increase (decrease) in cash and cash equivalents 1,547 (1,179) Cash and cash equivalents at beginning of period 296 2,140 ------------- ------------- Cash and cash equivalents at end of period $ 1,843 $ 961 ============= ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for Interest $ 415 $ 287 Income taxes - -
Non-cash activities: The Company accrued dividends of $25 on its 3% Series A convertible preferred stock. The Company recorded an imputed dividend of $2,593 from the beneficial conversion feature on its 3% Series A convertible preferred stock. The Company completed its acquisition of another company by issuing 618,439 shares of Common Stock. See accompanying notes to condensed financial 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. and Subsidiaries (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 and six months ended June 30, 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 and six months ended June 30, 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. 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 Daw Technologies, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 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 quarterly periods. The following is a summary of the effects of such restatements on the Company's consolidated financial statements as of June 30, 2000 and for the three and six months ended June 30, 2000:
As Previously As Reported Restated -------- -------- Consolidated balance sheet: Current assets $ 25,447 $ 22,537 Property and equipment - net, at cost 2,794 2,463 Total assets 32,504 29,263 Current liabilities 16,383 16,227 Redeemable preferred stock - 4,225 Total shareholders' equity 16,043 8,733 Consolidated statement of shareholders' equity: Common stock $ 135 $ 135 Additional paid-in capital and warrants 21,602 19,972 Accumulated deficit (5,694) (10,981) Accumulated other comprehensive loss - (393) Total shareholders' equity 16,043 8,733
Three months ended Six months ended June 30, 2000 June 30, 2000 ------------------------------------------------------------- As As Previously As Previously As Reported Restated Reported Restated -------- -------- -------- -------- Consolidated statement of operations: Revenue, net $15,011 $14,637 $29,686 $29,777 Cost of goods sold 12,251 12,491 25,353 26,619 Gross profit 2,760 2,146 4,333 3,158 Total operating expenses 1,761 1,417 3,233 2,643 Other expense, net (212) (212) (347) (345) Income (loss) before income taxes 787 517 753 170 Net income (loss) 536 266 502 (81) Net income (loss) available to common shareholders 511 (2,352) 502 (2,698) Net income (loss) per common share - diluted $ 0.03 $ (0.18) $ 0.03 $ (0.20)
6 Daw Technologies, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 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. 3. LINE OF CREDIT The Company maintains a revolving line of credit with a domestic bank for the lesser of $5.0 million, or the available borrowing base. The interest rate is computed at the bank's prime rate plus 5 percent per annum and requires monthly payments of interest. The Company had approximately $4.2 million in borrowings against the line at June 30, 2000 ($5.3 million 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 June 30, 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. 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 was completed on April 22, 2000, the second closing date. At the first closing date, the Company delivered 27,023 shares of common stock. On May 12, 2000, the Company issued an additional 618,439 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, equals 645,462 shares. 5. SEGMENT INFORMATION The Company has two reportable segments for the three and six months ended June 30, 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. 7 Daw Technologies, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 5. SEGMENT INFORMATION (CONTINUED) Segment information for the cleanrooms and related products and other manufactured goods are as follows:
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------------ ------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Revenues Cleanrooms and related products $ 9,915 $ 7,037 $ 20,851 $ 16,760 Other manufactured goods 4,722 2,943 8,926 5,700 ------- -------- -------- -------- Totals $14,637 $ 9,980 $ 29,777 $ 22,460 ======= ======== ======== ======== Earnings (loss) from operations Cleanrooms and related products $ 1,060 $ (2,327) $ 2,221 $ (3,127) Other manufactured goods (331) 308 (1,706) 717 ------- -------- -------- -------- Totals $ 729 $ (2,019) $ 515 $ (2,410) ======= ======== ======== ========
------------------------------- JUNE DECEMBER 30, 31, 2000 1999 -------------- -------------- Total assets Cleanrooms and related products $ 18,591 $15,535 Other manufactured goods 2,622 2,284 Manufacturing and corporate 8,050 7,056 -------- ------- Totals $ 29,263 $24,875 ======== =======
8 Daw Technologies, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 6. CAPITAL TRANSACTIONS On April 28, 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 and warrants, which are convertible into shares of the Company's common stock. The Preferred Shares do not have voting rights. The Series A Preferred is currently convertible into shares of Common Stock at a rate equal to a fraction, the numerator of which is equal to $10,000 plus all accrued dividends, and the denominator of which is equal to the lesser of (i) $1.32 and (ii) 80% of the average of the five lowest consecutive per share market values during the twenty-five trading days proceeding the conversion date. The net cash received by the Company was $4,575,000. During the six months ended June 30, 2000, the Company issued 301,550 shares of common stock in connection with the exercise of options related to its 1993 Stock Option Plan. 9 Daw Technologies, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 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:
Three months ended Six months ended June 30, June 30, 2000 1999 2000 1999 ------------- -------------- ------------- ------------- Net earnings (loss) $ 266 $ (1,442) $ (81) $ (1,758) Dividends on preferred stock (25) - (25) - Imputed dividend from beneficial conversion feature (2,593) - (2,593) - ------------- -------------- ------------- ------------- Net earnings (loss) applicable to common stock $ (2,352) $ (1,442) $ (2,699) $ (1,758) ============= ============== ============= ============= Common shares outstanding entire period 12,832,454 12,479,711 12,513,114 12,479,711 Net weighted average common shares issued during period 353,412 - 362,123 11,257 ------------- -------------- ------------- ------------- Weighted average number of common shares used in basic EPS 13,185,866 12,479,711 12,875,237 12,490,968 Dilutive effect of stock options - - - - Dilutive effect of warrants - - - - Dilutive effect of preferred stock - - - - ------------- -------------- ------------- ------------- Weighted average number of common shares and dilutive potential common shares used in diluted EPS 13,185,866 12,479,711 12,875,237 12,490,968 ============= ============== ============= =============
For the loss periods ended June 30, 2000 and 1999, all of the preferred shares, options and warrants that were outstanding were not included in the computation of diluted EPS because to do so would have been anti-dilutive. 10 Daw Technologies, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 8. INVENTORIES Inventories consist of the following:
June 30, December 31, ----------------- ------------------ 2000 1999 ----------------- ------------------ Raw materials $ 1,699 $ 523 Work in process 798 2,389 ----------------- ------------------ 2,497 2,912 Less allowance for obsolescence 300 300 ----------------- ------------------ Total $ 2,197 $ 2,612 ================= ==================
9. COMPREHENSIVE INCOME (LOSS) The following table reports comprehensive income (loss) for the three and six months ended June 30, 2000 and 1999:
Three months ended June 30, 2000 1999 -------------- ----------------- Net income (loss) $ 266 $ - Foreign currency translation adjustment (225) - -------------- ----------------- Comprehensive income (loss) $ 41 $ - ============== ================= Six months ended June 30, 2000 1999 -------------- ----------------- Net loss $ (81) $ - Foreign currency translation adjustment (276) - -------------- ----------------- Comprehensive loss $ (357) $ - ============== =================
10. RECLASSIFICATION Certain reclassifications have been made to the 1999 financial statements to conform with the 2000 presentation. 11 Daw Technologies, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 11. SUBSEQUENT EVENTS On July 10, 2000, the Company sold the assets associated with its sleeper cab manufacturing business to Western Star Trucks US Inc. for approximately $1 million. In addition, the Company retained certain accounts receivables associated with its sleeper cab manufacturing line and will continue to receive payments on such receivables in the ordinary course of business. Western Star Trucks US Inc. has entered into an agreement with the Company for a limited specified time period to provide labor and management services to continue to operate the sleeper cab operations in Salt Lake City. Western Star Trucks US Inc. has also entered into a short-term lease for the factory space currently occupied by the sleeper cab operation. The Company's contract manufacturing group, (Advanced Manufacturing), will also be providing manufacturing and powder coat paint services to supply the operation with raw materials for the assembly operation for the duration of the agreement. 12 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 consolidated financial statements and notes thereto included elsewhere herein, the audited consolidated Financial Statements and "Managements Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's report on Form 10-K/A for the year ended December 31, 1999. All data in the tables are in thousands, except for percentages and per-share data. The Company's principal line of business is as a provider of ultra-clean manufacturing environments or 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. 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 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. Various industry analysts have reported that in 1999 chip sales increased by 20%, which indicates that the recent downturn may be ending. In addition, analysts predict that chip sales for 2000 may increase by an additional 30 to 40%. The Company can provide no assurance that chip sales will, in fact, continue to increase during 2000 or thereafter. The Company's operating results were 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. Management believes the downturn is over and the industry is on the road to recovery. The length and duration of the recovery is still subject to significant uncertainty. The extended 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. Additionally, during the first six months 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. While cleanroom contract bidding continues at a higher rate than any time in the previous three years, the actual award of contracts does not occur evenly from quarter to quarter. During the six months ended June 30, 2000, actual cleanroom contract awards were approximately $26.0 million. The Company's cleanroom contract backlog at June 30, 2000 was $15.1 million compared to $15.0 million at June 30, 1999. 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 13 worldwide, however, beginning in the fourth quarter of 1999 and continuing in the first six months of 2000, construction of some of these delayed fabs were initiated. 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. 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. Although revenues to date from this line of business have been limited, this product shows promise of providing increased revenue and gross profit over the next two years. The Company also applied wall panel systems technology used in cleanrooms to develop a stronger, more durable, and lighter weight sleeper cab for the transportation industry. This technology may eventually be applied to other products in the transportation industry. Even though the Company realized certain revenues from the sleeper cab product, in July of 2000 the Company sold the assets associated with its sleeper cab manufacturing business to Western Star Trucks US Inc. for approximately $1,000,000. In addition, the Company retained certain accounts receivables associated with its sleeper cab manufacturing line and will continue to receive payments on such receivables in the ordinary course of business. The Company will continue to use its resources to pursue other contract manufacturing products. 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 sale of the Company's sleeper cab business, which accounted for substantially all of the 25% of its revenue from sources outside of the semiconductor industry during its last fiscal year, represents a setback in the Company's pursuit of that objective. However, the Company has entered into several other contract manufacturing agreements whereby the Company manufactures products owned and marketed by third parties that will offset some of the lost revenues from the sale of its sleeper cab operations. In addition, management believes that the strength of the recovery in the cleanroom industry will also offset the decrease in revenues from the sleeper cab operations. Contract manufacturing agreements may change from time to time based on profitability, manufacturing capacity and other related factors. The Company's revenue and operating results can 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. 14 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 the Company's 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 foreign 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. 15 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. In addition to the problems with the spreadsheet maintained by Daw Europe, there were also problems in the consolidation 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 various 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 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 some 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. 16 RESULTS OF OPERATIONS (Data in the tables are in thousands) Selected Financial Information
Three months ended Six months ended June 30, June 30, 2000 1999 2000 1999 ------------ ------------- ------------- ------------- Revenues...................................... $ 14,637 $ 9,980 $ 29,777 $ 22,460 Gross profit................................... 2,146 47 3,158 1,624 Operating expenses.......................... 1,417 2,066 2,643 4,034 Net earnings (loss)........................... $ 266 $ (1,442) $ (81) $ (1,758)
---------------------------------- JUNE 30, DECEMBER 31, 2000 1999 -------------- -------------- BALANCE SHEET DATA: Cash and cash equivalents................. $ 1,843 $ 296 Working capital........................... 6,310 973 Total assets.............................. 29,263 24,875 Total liabilities......................... 16,305 16,572 Redeemable preferred stock................ 4,225 - Total shareholders' equity.................. 8,733 8,303
Revenues for the second quarter of 2000 increased by 46.7% to $14.6 million compared to $10.0 million for the second quarter of 1999. Revenues for the six months ended June 30, 2000 increased by 32.6% to $29.8 million compared to $22.5 million for the six months ended June 30, 1999. The increase in revenues is attributed to an increase in capital spending by the semiconductor industry following an extended industry downturn during the last three years. The capital spending increase resulted in more cleanroom-related contract awards during the fourth quarter of 1999 and the first quarter of 2000. As a result, the increase has resulted in more contracts during the first two quarters of 2000 compared with the first two quarters of 1999. Gross profit for the second quarter of 2000 increased by 4,466.0% to $2.1 million from a gross profit of $47,000 for the second quarter of 1999 and increased as a percentage of revenue to 14.7% for the second quarter of 2000 from 0.5% for the second quarter of 1999. Gross profit for the six months ended June 30, 2000 increased by 94.5% to $3.2 million from a gross profit of $1.6 million for the six months ended June 30, 1999 and increased as a percentage of contract revenue to 10.6% for the six months ended June 30, 2000 from 7.2% for the six months ended June 30, 1999. The extended downturn in capital spending by the semiconductor industry resulted in a price competitive bidding environment. As a result, the Company changed its strategy to purchase rather than manufacture some of its own component parts, enabling the Company to offer its customers a wider range of cleanroom solutions at lower prices. This strategy has enabled the Company to increase its cleanroom revenues and gross profit margins during the first and second quarters of 2000. 17 With the Company's efforts to develop a portion 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, 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 second quarter of 2000 decreased by 30.9% to $1.3 million compared to $1.9 million for the second quarter of 1999, and decreased as a percentage of contract revenue to 8.9% for the second quarter of 2000 from 19.0% for the second quarter of 1999. For the six months ended June 30, 2000, selling, general and administrative decreased by 35.4% to $2.4 million compared to $3.7 million for the six months ended June 30, 1999, and decreased as a percentage of contract revenue to 8.0% for the six months ended June 30, 2000 from 16.4% for the six months ended June 30, 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. Research and development expense for the second quarter of 2000 decreased 100.0% to zero compared to $58,000 for the second quarter of 1999. Research and development expense for the six months ended June 30, 2000 decreased 100.0% to zero compared to $118,000 for the six months ended June 30, 1999. As a result of the Company's strategy to purchase rather than manufacture many of its own component parts, there has been a natural reduction in its research and development expenses. The Company may fund future research and development projects to improve existing products or develop new products in its diversification program. Depreciation and amortization expense, not included in cost of goods sold, for the second quarter of 2000 decreased 4.5% to $107,000 compared to $112,000 for the second quarter of 1999. Depreciation and amortization expense for the six months ended June 30, 2000 increased 13.8% to $264,000 compared to $232,000 for the six months ended June 30, 1999. Interest expense for the second quarter of 2000 increased 19.9% to $223,000 compared to $186,000 for the second quarter of 1999. Interest expense for the six months ended June 30, 2000 increased 44.6% to $415,000 compared to $287,000 for the six months ended June 30, 1999. The increases in interest expense during both the three and the six months ended June 30, 2000 compared to the three and six months ended June 30, 1999 are the result of an increase in borrowings at higher interest rates against the Company's line of credit through June 30, 2000 compared with borrowings through the same period during 1999. LIQUIDITY AND CAPITAL RESOURCES Working capital at June 30, 2000 was $6.3 million compared to $973,000 at December 31, 1999. This includes cash and cash equivalents of $1.8 million at June 30, 2000 and $296,000 at December 31, 1999. The Company's operations used $2.0 million of cash during the six months ended June 30, 2000, compared to $1.1 million of cash used in operations during the six months ended June 30, 1999. During the six months ended June 30, 2000, the Company experienced increases in costs and estimated earnings 18 in excess of billings on contracts in progress, accounts receivable, accounts payable and accrued liabilities and billings in excess of costs and estimated earnings on contracts in progress. These increases were primarily due to an increase in work in process resulting from work on a higher number of cleanroom projects. In addition, the Company experienced decreases in the line of credit, deferred income taxes and inventories during the six months ended June 30, 2000. The Company maintains a revolving line of credit with a domestic bank for the lesser of $5,000,000, or the available borrowing base. The interest rate is computed at the bank's prime rate plus 5 percent per annum and requires monthly payments of interest. The Company had approximately $4.2 million in borrowings against the line at June 30, 2000 (approximately $5.3 million 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 June 30, 2000. The line of credit is collateralized by certain domestic and foreign 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. On April 28, 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. The net cash received by the Company was $4,575,000. Management believes that existing cash balances, borrowings available under the existing line of credit or future credit facilities, and cash generated from operations 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. FACTORS AFFECTING FUTURE RESULTS The Company's future operations will be impacted by, among other factors, 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 the need for additional capital, the availability and price of such capital, pricing pressures, cancellations of existing contracts, timing of significant customer orders, increased competition, and changes in semiconductor and cleanroom technology. THIS REPORT CONTAINS CERTAIN "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. 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, 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) 20 -----END PRIVACY-ENHANCED MESSAGE-----