-----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, Ryf+oaS/2Z+tnQqFw1tXieFhCiFXUDTAYFn4G/gY7ZBuvUNSTIyFKbfuMtvlil6x bWothva1U+EAcipoMWV/7Q== 0000912057-02-016420.txt : 20020424 0000912057-02-016420.hdr.sgml : 20020424 ACCESSION NUMBER: 0000912057-02-016420 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000930 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: 02620015 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 a2076809z10-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 September 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 organization) 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 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 November 11, 2000, the Registrant had 13,580,932 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 September 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 - September 30, 2000 and December 31, 1999 (unaudited).......... 1 Condensed Consolidated Statements of Operations - Three months and nine months ended September 30, 2000 and 1999 (unaudited)............................................................... 2 Condensed Consolidated Statements of Cash Flows - Nine months ended September 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)
Sept. 30, Dec. 31, 2000 1999 ASSETS (As Restated) (As Restated) ------------- ------------- CURRENT ASSETS Cash and cash equivalents $ 4,703 $ 296 Accounts receivable, net 6,233 7,372 Costs and estimated earnings in excess of billings on contracts in progress 6,067 3,581 Inventories, net 1,801 2,612 Deferred income taxes 316 425 Other current assets 2,762 3,149 -------- -------- Total current assets 21,882 17,435 PROPERTY AND EQUIPMENT, NET 1,996 3,110 DEFERRED INCOME TAXES 3,091 3,364 OTHER ASSETS 861 966 -------- -------- $ 27,830 $ 24,875 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Checks written in excess of cash in bank $ - $ 248 Accounts payable and accrued liabilities 8,152 8,871 Billings in excess of costs and estimated earnings on contracts in progress 2,687 1,624 Line of credit 3,505 5,258 Current portion of long-term obligations 186 461 -------- -------- Total current liabilities 14,530 16,462 LONG TERM OBLIGATIONS, less current portion 48 110 COMMITMENTS AND CONTINGENCIES - - REDEEMABLE PREFERRED STOCK 3% Series A Redeemable Convertible Preferred stock, authorized 10,000,000 shares of $0.01 par value; 472 shares issued and outstanding at September 30, 2000 (none at December 31, 1999) 4,155 - SHAREHOLDERS' EQUITY Common stock, authorized 50,000,000 shares of $0.01 par value; issued and outstanding 13,580,932 shares at September 30, 2000 and 12,513,114 at December 31, 1999 135 125 Additional paid-in-capital 19,693 16,579 Warrants 350 - Accumulated deficit (10,688) (8,284) Accumulated other comprehensive loss (393) (117) -------- -------- Total shareholders' equity 9,097 8,303 -------- -------- $27,830 $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 Nine months ended September 30, September 30, 2000 1999 2000 1999 (As Restated) (As Restated) ------------- ----------- ------------- ------------- Revenues $ 11,198 $ 12,433 $ 40,975 $ 34,893 Cost of goods sold 9,702 11,659 36,321 32,495 ------------ ----------- ------------ ------------ Gross profit 1,496 774 4,654 2,398 Operating expenses Selling, general and administrative 888 1,685 3,267 5,369 Research and development - 5 - 123 Depreciation and amortization 101 102 365 334 ------------ ----------- ------------ ------------ 989 1,792 3,632 5,826 ------------ ----------- ------------ ------------ Earnings (loss) from operations 507 (1,018) 1,022 (3,428) Other income (expense) Interest expense (151) (106) (566) (393) Other, net 310 (5) 381 (98) ------------ ----------- ------------ ------------ 159 (111) (185) (491) ------------ ----------- ------------ ------------ Earnings (loss) before income taxes 666 (1,129) 837 (3,919) Income tax expense (benefit) 336 - 587 (1,032) ------------ ----------- ------------ ------------ NET EARNINGS (LOSS) $ 330 $ (1,129) $ 250 $ (2,887) ============ =========== ============ ============ Earnings (loss) per common share (NOTE 7) Basic $ 0.02 $ (0.09) $ (0.18) $ (0.23) Diluted 0.02 (0.09) (0.18) (0.23) Weighted-average common and dilutive common equivalent shares outstanding Basic 13,496,689 12,513,114 13,097,898 12,498,431 Diluted 14,484,938 12,513,114 13,097,898 12,498,431
See accompanying notes to condensed financial statements. 2 Daw Technologies, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands, except share data)
Nine months ended September 30, 2000 1999 (As Restated) ------------ ----------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net earnings (loss) $ 250 $ (2,887) Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities Depreciation and amortization 988 1,159 Gain on disposal of property and equipment (744) - Provision for losses on accounts receivable 36 (224) Deferred income taxes 382 (1,032) Changes in assets and liabilities Account receivables 908 (398) Costs and estimated earnings in excess of billings on contracts in progress (2,660) (2,066) Inventories 428 419 Other current assets 292 (649) Other assets (5) 140 Accounts payable and accrued liabilities 163 4,413 Billings in excess of costs and estimated earnings on contracts in progress 1,135 766 --------- ----------- Net cash provided by (used in) operating activities 1,173 (359) --------- ----------- Cash flows from investing activities Purchase of property and equipment (162) (88) Proceeds from disposition of property and equipment 183 - Proceeds from sale of net assets 526 - --------- ----------- Net cash provided by (used in) investing activities 547 (88) --------- -----------
(continued) See accompanying notes to condensed financial statements. 3 Daw Technologies, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (Unaudited) (in thousands, except share data)
Nine months ended September 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 (1,753) 158 Proceeds from issuance of preferred and common stock 5,036 22 Payments on long-term obligations (376) (357) --------- --------- Net cash provided by (used in) financing activities 2,659 (177) Effect of exchange rate changes on cash and cash equivalents 28 - --------- ---------- Net increase (decrease) in cash and cash equivalents 4,407 (624) Cash and cash equivalents at beginning of period 296 2,140 --------- ---------- Cash and cash equivalents at end of period $ 4,703 $ 1,516 ========= ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for Interest $ 566 $ 393 Income taxes - -
Non-cash activities: The Company accrued dividends of $61 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 converted $71 of its 3% Series A convertible preferred stock into Common Stock. Capital lease obligations of $39 for property and equipment acquisitions were incurred. 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 nine months ended September 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 nine months ended September 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 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 September 30, 2000 and for the three and nine months ended September 30, 2000:
As Previously As Reported Restated ---------- ---------- Consolidated balance sheet: Current assets $ 24,535 $ 21,882 Property and equipment - net, at cost 2,347 1,996 Total assets 30,834 27,830 Current liabilities 14,086 14,530 Redeemable preferred stock - 4,155 Total shareholders' equity 16,700 9,097 Consolidated statement of shareholders' equity: Common stock $ 136 $ 135 Additional paid-in capital and warrants 21,601 20,043 Accumulated deficit (5,037) (10,688) Accumulated other comprehensive loss - (393) Total shareholders' equity 16,700 9,097
Three months ended Nine months ended September 30, 2000 September 30, 2000 ------------------------ ------------------------ As As Previously As Previously As Reported Restated Reported Restated ---------- ---------- ---------- ---------- Consolidated statement of operations: Revenue, net $ 12,734 $ 11,198 $ 42,420 $ 40,975 Cost of goods sold 10,580 9,702 35,934 36,321 Gross profit 2,154 1,496 6,486 4,654 Total operating expenses 1,319 989 4,552 3,632 Other income (expense), net 159 159 (187) (185) Income (loss) before income taxes 994 666 1,747 837 Net income (loss) 658 330 1,159 250 Net income (loss) available to common shareholders 597 294 1,098 (2,404) Net income (loss) per common share - diluted $ 0.03 $ 0.02 $ 0.06 $ (0.18)
6 2. EARNINGS (LOSS) PER SHARE Basic earnings (loss) per common share (Basic EPS) is based on the weighted average number of common shares outstanding during each period. Diluted earnings (loss) per common share is based on shares outstanding (computed as under Basic EPS) and potentially dilutive common shares. Potential common shares included in the dilutive earning per share calculation include stock options and warrants granted. Potential common shares are not included in the diluted loss per share calculation because to do so would be antidilutive. 3. LINE OF CREDIT The Company maintains a revolving line of credit with a domestic bank for the lesser of $4.6 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 $3.5 million in borrowings against the line at September 30, 2000 ($5.3 million at December 31, 1999). The line of credit expired December 31, 1999 and was first extended to August 31, 2000 and subsequently to December 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 September 30, 2000. The line of credit is collateralized by certain domestic receivables, fixed assets 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 nine months ended September 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. 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 Segment information for the cleanrooms, and related products and other manufactured goods are as follows:
For The Three Months For The Nine Months Ended September 30, Ended September 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 (As Restated) (As Restated) ------------- ------------- ------------- ------------- Revenues Cleanrooms and related products $ 8,967 $ 9,010 $ 29,818 $ 25,770 Other manufactured goods 2,231 3,423 11,157 9,123 ------------- ------------- ------------- ------------- Totals $ 11,198 $ 12,433 $ 40,975 $ 34,893 ============= ============= ============= ============= Earnings (loss) from operations Cleanrooms and related products $ 759 $ (644) $ 2,980 $ (3,771) Other manufactured goods (252) (374) (1,958) 343 ------------- ------------- ------------- ------------- Totals $ 507 $ (1,018) $ 1,022 $ $(3,428) ============= ============= ============= =============
----------------------------- September December 31, 30, 1999 2000 (As (As Restated) Restated) -------------- ------------- Total assets Cleanrooms and related products $ 18,508 $ 15,535 Other manufactured goods 1,672 2,284 Manufacturing and corporate 7,650 7,056 -------------- ------------ Totals $ 27,830 $ 24,875 ============== ============
8 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, 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. Eight shares of said preferred stock were converted to 112,323 shares of common stock on September 7, 2000 leaving 472 preferred shares outstanding as of September 30, 2000. During the nine months ended September 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 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 Nine months ended September 30, September 30, 2000 1999 2000 1999 (As Restated) (As Restated) -------------- -------------- -------------- ------------- Net earnings (loss) $ 330 $ (1,129) $ 250 $ (2,887) Dividends on preferred stock (36) - (61) - Imputed dividend from beneficial conversion feature - - (2,593) - -------------- -------------- -------------- ------------- Net earnings (loss) applicable to common stock $ 294 $ (1,129) $ (2,404) $ (2,887) ============== ============== ============== ============= Common shares outstanding entire period 13,468,609 12,513,114 12,513,114 12,498,431 Net weighted average common shares issued during period 28,080 - 584,784 - -------------- -------------- -------------- ------------- Weighted average number of common shares used in basic EPS 13,496,689 12,513,114 13,097,898 12,498,431 Dilutive effect of stock options 55,159 - - - Dilutive effect of warrants - - - - Dilutive effect of preferred stock 933,090 - - - -------------- -------------- -------------- ------------- Weighted average number of common shares and dilutive potential common shares used in diluted EPS 14,484,938 12,513,114 13,097,898 12,498,431 ============== ============== ============== =============
For the loss periods ended September 30, 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. 10 8. INVENTORIES
Inventories consist of the following: September 30, December 31, 2000 1999 (As Restated) (As Restated) --------------- -------------- Raw materials $ 1,570 $ 523 Work in process 531 2,389 --------------- -------------- 2,101 2,912 Less allowance for obsolescence 300 300 --------------- -------------- Total $ 1,801 $ 2,612 =============== ==============
9. SALE OF SLEEPER CAB MANUFACTURING BUSINESS 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 receivable associated with its sleeper cab manufacturing 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 Daw Technologies for a limited specified time period, not to extend beyond year-end 2000, 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 agreement all at a set markup. In connection with the sleeper cab manufacturing business, the Company had recognized costs and begun setup for sleeper cab operations in South Carolina. Due to the sale of the sleeper cab manufacturing business, the Company discontinued operations in this location creating a loss for the quarter of approximately $450,000 that was offset by the gain from the sale of this business as reflected in other income on the Statement of Operations. 11 10. COMPREHENSIVE INCOME (LOSS) The following table reports comprehensive income (loss) for the three and nine months ended September 30, 2000 and 1999:
Three months ended Nine months ended September 30, September 30, 2000 1999 2000 1999 (As Restated) (As Restated) -------------- -------------- ------------- ------------- Net income $ 330 $ - $ 250 $ - Foreign currency translation adjustment - - (276) - -------------- -------------- ------------- ------------- Comprehensive income (loss) $ 330 $ - $ (26) $ - ============== ============== ============= =============
11. RECLASSIFICATIONS Certain reclassifications have been made to the 1999 financial statements to conform with the 2000 presentation. 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, the Company has been consistently disappointed by continued declines. Management believes the most recent 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. REVENUE BACKLOG 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 nine 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 nine months ended September 30, 2000, actual cleanroom contract awards were approximately $40.9 million. The Company's cleanroom contract backlog as of November 14, 2000 was $24.4 million compared to $11.4 million at September 30, 1999. 13 COST REDUCTIONS 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. However, beginning in the fourth quarter of 1999 and continuing in the first nine months of 2000, construction of some of these delayed fabs was initiated. In response to the most recent down cycle, management has taken steps to reduce the Company's cost structure, including an approximate 26% cut in wages in 1999 as compared to 1998 and an additional 22% in the first nine months of 2000 as compared to 1999. 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. DIVERSIFICATION In the development of ultra-clean environments, the Company has been able to develop several related technologies and has become very efficient in light-weight construction, air handling, filtering, powder painting, and environmental controls. These related technologies have enabled the Company to diversify in new areas outside of ultra-clean environments, which so closely depends upon the semiconductor industry. The development of the light-weight sleeper cab business unit that was sold for a gain is an example of the technology opportunities available to the Company. Air doors and light-weight trailers are also areas the Company is developing. In addition to diversification in cleanroom-related technologies, the Company has developed a lower class of cleanroom used in the biochemical, pharmaceutical, and medical hospital applications. The Company's European operation is currently under contract for the construction of several Class 3 cleanroom facilities. Management is not only committed to growth within the semiconductor cleanroom industry but also is pursuing several other related ventures. DAW TECHNOLOGY MANUFACTURED PRODUCTS Daw Technologies continues to provide some of the most accepted floor, wall, and ceiling products in the cleanroom industry. The Company continues to accept orders for its high quality products on a regular basis. However, due to price competitiveness in the international markets, it has become necessary to offer customers alternative product solutions in the bid process. The Company has been able to identify alternative third-party products that meet the specifications of the semiconductor industry and compare in the level of quality that the Daw products provide. COMPANY PRACTICES AND PROCEDURES 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. Under-billings are reflected in an asset account (costs and estimated earnings in excess of billings on contracts in progress), and over-billings 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. 14 The Company generates revenue primarily in two geographic regions; North America and Europe. Although the 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 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 15 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 Nine months ended September 30, September 30, 2000 1999 2000 1999 (As Restated) (As Restated) ------------- ------------- ------------- ------------- Revenues...................................... $ 11,198 $ 12,433 $ 40,975 $ 34,893 Gross profit.................................. 1,496 774 4,654 2,398 Operating expenses............................ 989 1,792 3,632 5,826 Net earnings (loss)........................... $ 330 $ (1,129) $ 250 $ (2,887)
------------------------------------ SEPTEMBER 30, DECEMBER 31, 2000 1999 (As Restated) (As Restated) ---------------- ------------------ BALANCE SHEET DATA: Cash and cash equivalents................. $4,703 $296 Working capital........................... 7,352 973 Total assets.............................. 27,830 24,875 Total liabilities......................... 14,578 16,572 Preferred stock........................... 4,155 - Total shareholders' equity.................. 9,097 8,303
Revenue for the three months ended September 30, 2000 decreased by 9.9% to $11.2 million compared to $12.4 million for the three months ended September 30, 1999. Revenue for the nine months ended September 30, 2000 increased by 17.4% to $41.0 million compared to $34.9 million for the nine months ended September 30, 1999. As noted above, the Company's revenues fluctuate substantially from quarter to quarter depending on such factors as the timing of significant customer orders, the timing of revenue and cost recognition, and fluctuations in capital spending by the semiconductor industry. However, the sale of the sleeper cab business unit on July 10, 2000 did contribute to a decrease in revenue of approximately $1.8 million for the three months ended September 30, 2000 as compared to the average revenue recognized for the sleeper cab business unit during the first two quarters of 2000. The increase in revenues for the nine months ended September 30, 2000 is generally attributed to an increase in capital spending by the semiconductor industry following an extended industry downturn during the last three years. The semiconductor industry capital spending increase resulted in more cleanroom-related contract awards during the fourth quarter of 1999 and the first three quarters of 2000. As a result, the increase has resulted in more recognition of revenue during the first three quarters of 2000 compared with the first three quarters of 1999. 17 Gross profit for the three months ended September 30, 2000 increased by 93.3% to $1.5 million from $774,000 for the three months ended September 30, 1999 and increased as a percentage of revenue to 13.4% for the three months ended September 30, 2000 from 6.2% for the three months ended September 30, 1999. Gross profit for the nine months ended September 30, 2000 increased by 94.1% to $4.7 million from $2.4 million for the nine months ended September 30, 1999 and increased as a percentage of revenue to 11.4% for the nine months ended September 30, 2000 from 6.9% for the nine months ended September 30, 1999. The increase in gross profit is the result of a combination of higher margins realized on certain contracts in process through various gains in efficiencies as part of the bidding process. Selling, general and administrative expenses for the three months ended September 30, 2000 decreased by 47.3% to $888,000 compared to $1.7 million for the three months ended September 30, 1999, and decreased as a percentage of revenue to 7.9% for the three months ended September 30, 2000 from 13.6% for the three months ended September 30, 1999. For the nine months ended September 30, 2000, selling, general and administrative expenses decreased by 39.2% to $3.3 million compared to $5.4 million for the nine months ended September 30, 1999, and decreased as a percentage of revenue to 8.0% for the nine months ended September 30, 2000, from 15.4% for the nine months ended September 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 three months ended September 30, 2000 decreased to zero compared to $5,000 for the three months ended September 30, 1999. Research and development expense for the nine months ended September 30, 2000 decreased to zero compared to $123,000 for the nine months ended September 30, 1999. The Company continues to improve current Daw products and may fund future research and development projects to develop new products in its diversification program. Depreciation and amortization expense for the three months ended September 30, 2000 decreased slightly to $101,000 compared to $102,000 for the three months ended September 30, 1999. Depreciation and amortization expense for the nine months ended September 30, 2000 increased 9.3% to $365,000 compared to $334,000 for the nine months ended September 30, 1999. Interest expense for the three months ended September 30, 2000 increased 42.5% to $151,000 compared to $106,000 for the three months ended September 30, 1999. Interest expense for the nine months ended September 30, 2000 increased 44.0% to $566,000 compared to $393,000 for the nine months ended September 30, 1999. The increase in interest expense is the result of an increase in borrowings during the quarter and nine months, higher interest rates against the Company's line of credit and additional fees associated with the extension of the line of credit. LIQUIDITY AND CAPITAL RESOURCES Working capital at September 30, 2000 was $7.4 million compared to $973,000 at December 31, 1999. This includes cash and cash equivalents of $4.7 million at September 30, 2000 and $296,000 at December 31, 1999. The Company's operations provided $1.2 million of net cash during the nine months ended September 30, 2000, compared to using $359,000 of net cash in operations during the nine months ended September 30, 1999. During the nine months ended September 30, 2000, the Company experienced an increase in costs and estimated earnings in excess of billings on contracts in progress, and 18 billings in excess of costs and estimated earnings on contracts in progress. In addition, the Company experienced a decrease in its receivables, accounts payable and accrued liabilities, inventories and line of credit during the nine months ended September 30, 2000. The Company maintains a revolving line of credit with a domestic bank for the lesser of $4.6 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 accrued interest only. The Company had approximately $3.5 million in borrowings against the line at September 30, 2000 ($5.3 million at December 31, 1999). The line of credit expired December 31, 1999 and was first extended to August 31, 2000 and subsequently to December 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 September 30, 2000. The line of credit is collateralized by certain domestic receivables, fixed assets 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. 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 the next twelve months. 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) -----END PRIVACY-ENHANCED MESSAGE-----