-----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, WRhLM3ZhdByFNdNBZKGknMIJ3vX4vYgAiLN9mNKAkhwU72yPc+58C9PN9UwTuKnZ nhcvwI+rgeZ2nI+1OcWvWg== 0000912057-02-016422.txt : 20020424 0000912057-02-016422.hdr.sgml : 20020424 ACCESSION NUMBER: 0000912057-02-016422 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 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: 02620039 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 a2077544z10-qa.txt 10-Q/A - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO QUARTERLY REPORT ON FORM 10-Q/A (X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2001 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 May 15, 2001, the Registrant had 15,047,176 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 and Item 6 of Part II of the Quarterly Report for Daw Technologies, Inc. (the "Company") on Form 10-Q previously filed for the quarter ended March 31, 2001. 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 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, 2000 and for the three months ended March 31, 2000, contained herein should be read in conjunction with the applicable amended filings for those periods. Daw Technologies, Inc. INDEX PART I FINANCIAL INFORMATION................................................................................. 1 Item 1. Financial Statements Condensed Consolidated Balance Sheets - March 31, 2001 and December 31, 2000 (unaudited)......................................................................... 1 Condensed Consolidated Statements of Operations - Three months ended March 31, 2001 and 2000 (unaudited)........................................................................................... 2 Condensed Consolidated Statements of Cash Flows - Three months ended March 31, 2001 and 2000 (unaudited)........................................................................................... 3 Notes to Condensed Consolidated Financial Statements (unaudited)...................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................................ 11 PART II OTHER INFORMATION...................................................................................... 16 Item 6. Exhibits and Reports on Form 8-K..................................................................... 16 Signatures..................................................................................................... 17
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Daw Technologies, Inc. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (unaudited)
March 31, December 31, ASSETS 2001 2000 -------------- -------------- CURRENT ASSETS: (as restated) (as restated) Cash and cash equivalents $ 1,391 $ 2,175 Restricted cash 728 - Accounts receivable, net 13,716 7,347 Costs and estimated earnings in excess of billings on contracts in progress 3,389 6,109 Inventories, net 2,453 1,977 Deferred income taxes 425 425 Other current assets 2,920 2,827 -------------- -------------- Total current assets 25,022 20,860 PROPERTY AND EQUIPMENT, NET 1,938 2,034 DEFERRED INCOME TAXES 3,364 3,364 OTHER ASSETS 778 835 -------------- -------------- $ 31,102 $ 27,093 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Checks written in excess of cash $ - $ 22 Accounts payable and accrued liabilities 11,575 8,868 Billings in excess of costs and estimated earnings on contracts in progress 3,294 1,994 Line of credit 3,033 2,603 Current portion of capital lease obligations 195 88 -------------- -------------- Total current liabilities 18,097 13,575 CAPITAL LEASE OBLIGATIONS, less current portion 121 99 COMMITMENTS AND CONTINGENCIES REDEEMABLE PREFERRED STOCK: 3% Series A Redeemable Convertible Preferred Stock, authorized 10,000,000 shares of $0.01 par value; 416 and 465 shares issued and outstanding, respectively 3,662 4,093 SHAREHOLDERS' EQUITY: Common stock, authorized 50,000,000 shares of $0.01 par value; 14,917,593 and 13,696,071 shares issued and outstanding, respectively 149 137 Additional paid-in capital 20,205 19,760 Common stock warrants 350 350 Accumulated deficit (10,969) (10,560) Accumulated other comprehensive loss (513) (361) -------------- -------------- Total shareholders' equity 9,222 9,326 -------------- -------------- $ 31,102 $ 27,093 ============== ==============
See accompanying notes to condensed consolidated financial statements. 1 Daw Technologies, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share data) (unaudited)
Three months ended March 31, ----------------------------------- 2001 2000 (as restated) (as restated) Revenue, net $ 14,889 $ 15,140 Cost of goods sold 13,322 14,128 ------------ ------------- Gross profit 1,567 1,012 ------------ ------------- Operating expenses: Selling, general and administrative 1,044 1,069 Research and development 87 - Depreciation and amortization 95 157 ------------ ------------- Total operating expenses 1,226 1,226 ------------ ------------- Income (loss) from operations 341 (214) Other income (expense): Interest expense (140) (192) Other, net (364) 60 ------------ ------------- Other expense, net (504) (132) ------------ ------------- Loss before provision for income taxes (163) (346) Provision for income taxes 199 - ------------ ------------- NET LOSS $ (362) $ (346) ============ ============= Net loss per common share: Basic $ (0.03) $ (0.03) Diluted (0.03) (0.03) Weighted-average common shares outstanding: Basic 14,404,394 12,595,011 Diluted 14,404,394 12,595,011
See accompanying notes to condensed consolidated financials statements. 2 Daw Technologies, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except share data) (unaudited)
Three months ended March 31, -------------------------------- 2001 2000 ------------- ------------- (as restated) (as restated) Increase (decrease) in cash and cash equivalents Cash flows from operating activities: Net loss $ (362) $ (346) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 237 375 Loss on disposition of property and equipment 90 - Provision for losses on accounts receivable 78 - Changes in current assets and liabilities: Restricted cash (728) - Accounts receivable (6,516) (2,062) Costs and estimated earnings in excess of billings on contracts in progress 2,424 (1,223) Inventories (500) 327 Other assets (89) 196 Accounts payable and accrued liabilities 2,935 2,317 Billings in excess of costs and estimated earnings on contracts in progress 1,370 710 ------------- ------------- Net cash provided by (used in) operating activities (1,061) 294 ------------- ------------- Cash flows from investing activities: Purchase of property and equipment (63) (103) ------------- ------------- Net cash used in investing activities (63) (103) ------------- -------------
See accompanying notes to condensed consolidated financial statements. 3 Daw Technologies, Inc. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (in thousands, except share data) (unaudited)
Three months ended March 31, ------------------------------------ 2001 2000 -------------- ------------- (as restated) (as restated) Increase (decrease) in cash and cash equivalents Cash flows from financing activities: Decrease in checks written in excess of cash in bank $ (22) $ (248) Net change in line of credit 430 210 Proceeds from issuance of stock - 436 Payments on capital lease obligations - (58) -------------- ------------- Net cash provided by financing activities 408 340 -------------- ------------- Effect of foreign exchange rates on cash and cash equivalents (68) 3 -------------- ------------- Net increase (decrease) in cash and cash equivalents (784) 534 Cash and cash equivalents at beginning of period 2,175 296 -------------- ------------- Cash and cash equivalents at end of period $ 1,391 $ 830 ============== ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 140 $ 192 NONCASH INVESTING AND FINANCING ACTIVITIES During the three months ended March 31, 2001, 49 shares of Series A Redeemable Convertible preferred stock with a carrying value of $431 were converted into 1,192,936 shares of common stock. During the three months ended March 31, 2001, 28,586 shares of common stock with a carrying value of $27 were issued as part of a preferred stock dividend.
See accompanying notes to condensed consolidated financial statements. 4 Daw Technologies, Inc. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share data) (unaudited) 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS AND RESTATEMENT The accompanying unaudited condensed consolidated financial statements have been prepared by Daw Technologies, Inc. (the "Company" or "Daw") in accordance with accounting principles generally accepted in the United States for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included. All such adjustments are of a normal recurring nature. These financial statements and footnote disclosures in this Form 10-Q/A for the three months ended March 31, 2001 should be read in conjunction with the Company's annual report on Form 10-K/A, as amended for the year ended December 31, 2000. The results of operations for the three months ended March 31, 2001 may not be indicative of the results that may be expected for the year ending December 31, 2001. 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: - Foreign currency translation and transaction gains/loss related to foreign operations were not properly considered and accounted for. - Errors in recognizing revenue and costs on various construction projects using percentage of completion accounting. These errors consisted of not recognizing a loss on a project in the period when it was determined; unsupported budgeted revenues, costs and progress billing information contained in the Company's revenue recognition spreadsheets which in turn resulted in errors in the calculation and recognition of revenue and costs; and failure to properly accrue known costs on projects when incurred which resulted in improper revenue recognition. - Errors resulting from differences in intercompany accounts that when reconciled resulted in expenses that should have been recorded in the financial statements. - Adjustments to properly amortize leasehold improvements over the lesser of the estimated useful life or the life of the lease. Previously, the leasehold improvements were being amortized over a period in excess of the original life of the lease. - Certain reclassifications to balance sheet captions were made based upon analyzing the accounts. 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 The effect of the restatements for the years ended December 31, 1999 and 2000 is described in amended filings on Form 10-K/A or Form 10-Q/A for the applicable quarter periods. The following is a summary of the effects of such restatements on the Company's consolidated financial statements as of and for the three months ended March 31, 2001:
As Previously As Reported Restated -------- -------- Consolidated balance sheet: Current assets $ 32,079 $ 25,022 Total assets 39,624 31,102 Current liabilities 20,328 18,097 Redeemable preferred stock - 3,662 Total shareholders' equity 19,207 9,222 Consolidated statement of operations: Revenue, net $ 14,030 $ 14,889 Gross profit 1,507 1,567 Total operating expenses 1,103 1,226 Other expense, net (91) (504) Income (loss) before income taxes 313 (163) Net income (loss) 196 (362) Net income (loss) available to common shareholders 164 (409) Net income (loss) per common share basic and diluted $ 0.01 $ (0.03) Consolidated statement of shareholder' equity: Common stock $ 149 $ 149 Additional paid-in capital and warrants 21,594 20,555 Accumulated deficit (2,536) (10,969) Accumulated other comprehensive loss - (513) Total shareholders' equity 19,207 9,222
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts and operations of the Company and its wholly owned subsidiaries, Daw Technologies France, which was organized in 2000, Daw Technologies Europe Ltd., which was organized in 1999, and Translite Systems, Inc., (inactive) which was organized in 1999. All significant intercompany balances and transactions have been eliminated in consolidation. TRANSLATION OF FOREIGN CURRENCIES The functional currency for the Company's foreign operations is the British Sterling. The financial statements of the Company's foreign subsidiaries are translated into U.S. Dollars in accordance with Statement of Financial Accounting Standards No. 52 "FOREIGN CURRENCY TRANSLATION". Assets and liabilities of the foreign subsidiaries are translated into the U.S. Dollar at the exchange rate at the end of each reporting period. Income and expense items are translated at the weighted average exchange rates for the period. Translation gains and losses are reflected as a separate component of shareholders' equity as accumulated other comprehensive loss. Foreign currency transaction gains and losses are reported in the accompanying consolidated statements of operations. 6 ACCOUNTING FOR LONG-TERM CONTRACTS Revenue recorded for contracts in the accompanying financial statements is recognized using the percentage-of-completion method and, therefore, takes into account the costs, estimated earnings and revenue to date on contracts not yet completed. The revenue recognized is that portion of the total contract price that cost incurred to date bears to anticipated final total cost, based on current estimates of costs to complete. Revenue from cost-plus-fixed-fee contracts is recognized on the basis of costs incurred during the period plus the fee earned, measured by the cost-to-cost method. Contract costs include all direct and allocable indirect labor, benefits, materials unique to or installed in the project, subcontractor cost allocations, including employee benefits and equipment expense. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is recognized in the financial statements. As long-term contracts extend over one year, revisions in cost and earnings estimates during the course of the work are reflected in the accounting period in which the facts become known which require the revision. Costs attributable to contract claims or disputes are carried in the accompanying balance sheets only when realization is probable. These costs are recorded at the lesser of actual costs incurred or the amount expected to be realized. It is reasonably possible that estimates by management related to contracts can change in the future. The current asset, costs and estimated earnings in excess of billings on contracts in progress, represents revenue recognized in excess of amounts billed (unbilled revenue). The current liability, billings in excess of costs and estimated earnings on contracts in progress, represents billings in excess of revenue recognized (unearned revenue). The amount of revenue recognized is not related to the progress billings to customers. OTHER REVENUE RECOGNITION The Company recognizes revenue on its other product sales and contract manufacturing services when the product is shipped and title passes to the customer or when the services are performed. CASH AND CASH EQUIVALENTS The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. 7 ACCOUNTS RECEIVABLE Accounts receivable consist of the following:
March 31, December 31, 2001 2000 ----------- ------------- Contract receivables $ 13,851 $ 7,534 Retention receivables 253 142 ----------- ------------- 14,104 7,676 Less allowance for doubtful accounts (388) (329) ----------- ------------- Total $ 13,716 $ 7,347 =========== =============
Many of the Company's contracts require retentions, typically 5-10 percent of the amount billed, to be withheld from each progress payment by the customer until the project reaches substantial completion. Earned, but unbilled retention amounts are included in retention receivables. INCOME TAXES The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized. Research tax credits are recognized as utilized. NET LOSS PER COMMON SHARE The Company follows the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128 "EARNINGS PER SHARE". SFAS No. 128 requires the presentation of basic and diluted earnings per share ("EPS"). Basic EPS is calculated by dividing net loss available to common shareholders by the weighted-average number of common shares outstanding during each period. Diluted EPS is similarly calculated, except that the weighted-average number of common shares reflects the potential dilution that could occur if outstanding stock options, warrants and preferred stock conversion features were exercised. The following data show the amounts used in computing net loss per common share, including the effect on net loss for preferred stock dividends. The following data also show the weighted average number of shares and rights to acquire shares with dilutive potential: 8
For the three months ended March 31, ---------------------------- 2001 2000 ------------ ------------ Net loss $ (362) $ (346) Dividends on preferred stock (47) - ------------ ------------ Net loss applicable to common shareholders $ (409) $ (346) ============ ============ Weighted average number of common shares used in basic EPS 14,404,394 12,595,011 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 14,404,394 12,595,011 ============ ============
For the three month periods ended March 31, 2001 and 2000 all of the stock options, warrants and preferred stock that were outstanding were not included in the computation of diluted EPS because to do so would have been anti-dilutive. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS Certain reclassifications have been made to the 2000 financial statements to conform with the 2001 presentation. 4. LINE OF CREDIT During the three months ended March 31, 2001, the Company maintained a revolving line of credit with a domestic bank for the lesser of $3,750 or the available borrowing base. The interest rate is variable and is computed at prime plus 4.5% (13.0% as of March 31, 2001). The line of credit requires monthly payments of interest. The Company had $3,033 in borrowings against the line of credit at March 31, 2001 ($2,603 at December 31, 2000). The line of credit originally matured on October 31, 1999 and has been extended through April 30, 2001. The line of credit allows for borrowings equal to 75% of the Company's eligible accounts receivable as determined by the bank. Borrowings are secured by all assets of the Company. The line of credit agreement contains restrictive covenants imposing limitations on payments of cash dividends, purchases or redemptions of capital stock, indebtedness and other matters. At times during 2000 and the three months ended March 31, 2001 and at both December 31, 2000 and March 31, 2001, the Company was not in compliance with certain debt covenants. Subsequent to March 31, 2001 the Company signed an extension of the line of credit through July 31, 2001, which included a waiver for the non-compliance with the covenants as of April 30, 2001. The Company is currently reviewing several financing alternatives. 9 5. SEGMENT INFORMATION The Company had two reportable segments for the three months ended March 31, 2001 and 2000, namely 1) cleanrooms and related products and 2) other manufactured goods and services. The Company evaluates performance of each segment based on net loss from operations. The Company's reportable segments are similar in manufacturing processes and are tracked similarly in the accounting system. The manufacturing process for each segment uses the same manufacturing facilities and overhead is allocated similarly to each segment. It is not practical to determine the total assets per segment and depreciation by segment because each segment uses the same manufacturing facility. Identifiable assets by segment are reported below. The Company allocates certain general and administrative expenses, consisting primarily of facilities expenses, utilities, and manufacturing overhead. Segment information for the cleanrooms and related products and other manufactured goods and services are as follows:
Three months ended March 31, 2001 2000 ----------- -------------- Revenue, net Cleanrooms and related products $ 11,873 $ 10,936 Other manufactured goods and services 3,016 4,204 ----------- -------------- Totals $ 14,889 $ 15,140 =========== ============== Income (loss) from operations Cleanrooms and related products $ 565 $ 1,161 Other manufactured goods and services (224) (1,375) ----------- -------------- Totals $ 341 $ (214) =========== ==============
As of As of March 31, December 31, 2001 2000 ----------- -------------- Total assets Cleanrooms and related products $ 20,041 $ 19,528 Other manufactured goods and services 2,976 1,712 Manufacturing and corporate assets 8,085 5,853 ----------- -------------- Totals $ 31,102 $ 27,093 =========== ==============
10 6. COMPREHENSIVE LOSS The Following table reports comprehensive loss for the three months ended March 31, 2001 and 2000:
Three months ended March 31, 2001 2000 ---------- ----------- Net loss $ (362) $ (346) Foreign currency translation adjustment (152) (51) ---------- ----------- Comprehensive loss $ (514) $ (397) ========== ===========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere herein. All data in the tables are in thousands, except for percentages and share data. The Company's principal line of business is the design, manufacture and installation of cleanroom components and integrated cleanroom systems, primarily for the semiconductor industry. The Company also designs, manufactures and installs cleanroom components and integrated cleanroom systems for other industries, such as the pharmaceutical, flat panel display, disk drive, biotechnology and food processing industries. The Company is a global leader in the cleanroom installation business. In addition, the Company designs and manufactures environmentally controlled "mini-environments," which range in size from the size of a desk to the size of a bus. These mini-environments typically house expensive automation and robotic equipment used in the semiconductor manufacturing process or in pharmaceutical research and development. Finally, the Company offers manufacturing and specialized painting services on a contract basis, primarily to local and regional manufacturers and fabricators. 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, the Company's European operations were accounted for 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 United Kingdom subsidiary, but all of the Company's European operations. At that time, all European accounts were transferred to Daw Europe, who took over all of the accounting for all of the Company's foreign operations. The accounting systems and personnel in the Daw Europe office were unable to keep pace with the rapid growth experienced between 1999 and 2001 along with the 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. 11 One of the problems that developed involved the Company's recognition of revenue on construction projects. Daw recognizes revenue on its construction projects using a percentage of completion methodology based on estimates of percentage of completion. 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 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 various problems, including the following: - Some of the formulas in the spreadsheet did not properly calculate atypical situations, such as costs exceeding budget. - When the numbers derived from formulas seemed incorrect, accounting personnel 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. - Budget estimates were not updated in the spreadsheets for currency fluctuations, and currency rates were only changed in the accounting system periodically. - The spreadsheet was not always properly updated to reflect changes to contract terms. In addition to the problems with the spreadsheet maintained by Daw Europe, there were also problems in the consolidation process of European accounts with the United States. accounts. For example, European costs incurred through the United States accounts were not properly considered in the consolidation process, thus resulting in an understatement of costs and liabilities. Also, the Company noted that certain projects in Israel were either not recorded or were not properly recorded on the financial records of Daw Europe. When Daw Europe recorded transactions associated with the Company's projects in Israel, instead of obtaining objective accounting documentation, the accounting personnel, in some instances, relied on informal data and statements by project managers. Some of this informally gathered information proved to be incomplete and subsequently required an adjustment. Finally, the restated financial statements also contain certain reclassifications and other adjustments such as: (a) foreign currency translation and transactions gains/losses related to foreign operations, (b) intercompany errors and (c) amortization of leasehold improvements. A summary of the effect of the restatements in the financial statements is describe in Note 1 to the condensed consolidated financial statements. 12 RESULTS OF OPERATIONS (Data in the tables are in thousands) Selected Financial Information
Three months ended March 31, -------------------------- 2001 2000 ---------- ---------- Revenue, net.............................. $ 14,889 $ 15,140 Gross profit.............................. 1,567 1,012 Operating expenses........................ 1,226 1,226 Net loss.................................. $ (362) $ (346)
March 31, December 31, 2001 2000 --------- ------------ BALANCE SHEET DATA: Cash and cash equivalents.................. $ 1,391 $ 2,175 Working capital............................ 6,925 7,285 Total assets............................... 31,102 27,093 Total liabilities.......................... 18,218 13,674 Redeemable preferred stock................. 3,662 4,093 Total stockholders' equity................. 9,222 9,326
DISCUSSION Revenue for the first quarter of 2001 decreased by 1.7% to $14.9 million compared to $15.1 million for the first quarter of 2000. Revenue from cleanroom and related products increased $937,000, or 7.9%, to $11.9 million for the first quarter of 2001 from $10.9 million during the first quarter of 2000. Additionally, the sale of other manufactured products decreased by $1,188,000. Revenue from other manufactured goods and services decreased to $3.0 million for the period ended March 31, 2001, as compared with $4.2 million for the period ended March 31, 2000. Gross profit for first quarter of 2001 increased by 54.8% to $1.6 million from $1.0 million for the first quarter of 2000 and increased to 10.5% as a percentage of revenue for the first quarter of 2001 compared to 6.7% for the first quarter of 2000. The increase in gross profit in the first quarter of 2001 as compared to the first quarter of 2000 reflects cost cutting measures implemented by the Company and the fact that most of the Company's construction contracts during that period of time were smaller projects with higher margins. With the Company's efforts to develop a portion of its revenue 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 continues to experience cost inefficiencies due to ramp-up costs. However, it continues to be the Company's objective to identify, manufacture and sell other products that have high gross profit margin potential. 13 Selling, general and administrative expenses for the first quarter of 2001 decreased 2.3% to $1.0 million, or 7.0% of revenue, compared to $1.1 million, or 7.1% of revenue for the first quarter of 2000. 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 variable costs and payroll and related expenses as a result of cost cutting measures implemented by the Company. Research and development expenses for the first quarter of 2001 increased to $87,000, compared to $0 for the first quarter of 2000. This increase is primarily attributable to the Company's efforts to design advanced cleanroom component systems to better position itself for what it believes will be the next generation of cleanroom design, primarily for the semiconductor industry. The Company continues to fund research and development to improve its existing products and develop new products in its diversification program. Interest expense for the first quarter of 2001 decreased to $140,000, compared to $192,000 for the first quarter of 2000. This decrease was directly related to decreased borrowings against the Company's credit line during the first quarter of 2001, compared to borrowings during the first quarter of 2000. Other expense, net was $364,000 for the three months ended March 31, 2001 compared to other income, net of $60,000 for the three months ended March 31, 2000. Other expense in 2001, resulted primarily from foreign currency transaction losses of its foreign subsidiaries. The provision for income taxes for the first quarter of 2001 resulted from the Company's foreign operations. The Company had income before provision for income taxes of approximately $475,000 from its foreign operations during the first quarter of 2001. LIQUIDITY AND CAPITAL RESOURCES Working capital at March 31, 2001 was $6.9 million, compared to $7.3 million at December 31, 2000. This includes cash and cash equivalents of $1.4 million at March 31, 2001 and $2.2 million at December 31, 2000. The Company's operations used $1.1 million of cash during the first quarter of 2001, compared to providing $294,000 of cash from operations during the first quarter of 2000. During the first quarter of 2001, the Company experienced a net increase in receivables of $6.5 million, mostly attributable to the Company's European operations, and a decrease in costs and estimated earnings in excess of billings on contracts in progress of $2.4 million. In addition, accounts payable and accrued liabilities increased by $2.9 million and billings in excess of costs and estimated earnings on contracts in progress increased by $1.4 million, also mostly attributable to the Company's European operations. During the three months ended March 31, 2001, the Company maintained a revolving line of credit with a domestic bank for the lesser of $3,750 or the available borrowing base. The interest rate is floating and is computed at prime plus 4.5 percent (13.0% as of March 31, 2001). The line of credit requires monthly payments of interest. The Company had $3,033 in borrowings against the line at March 31, 2001 ($2,603 at December 31, 2000). The line of credit originally expired October 31, 1999 and was extended to December 31, 2000. During the three months ended March 31, 2001, the Company signed an extension of the line of credit through April 30, 2001. The line of credit allows for borrowings equal to 75% of the Company's eligible accounts receivable as determined by the bank. Borrowings are secured by all assets of the Company. The line of credit agreement contains restrictive covenants imposing limitations on payments of cash dividends, purchases or redemptions of capital stock, indebtedness and other matters. At times during 2000 and the three months ended March 31, 2001 and at both December 31, 2000 and March 31, 2001, the Company was not in compliance with certain indebtedness covenants. Subsequent to March 31, 2001 the Company signed an extension of the line of credit through July 31, 2001, which included a waiver for the non-compliance with the covenants as of April 30, 2001. The Company is currently reviewing several financing alternatives. 14 Management believes that existing cash balances, borrowings available under the line of credit and cash generated from operations, will be adequate to meet the Company's anticipated cash requirements through December 31, 2001. However, in the event the Company experiences adverse operating performance, above-anticipated capital expenditure requirements, or is unable to renew or replace its existing line of credit, additional financing may be required. There can be no assurance that such additional financing, if required, would be available on favorable terms, if at all. INFORMATION CONTAINED IN THIS REPORT CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE," OR "CONTINUE," OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT INCLUDE, BUT ARE NOT LIMITED TO, THOSE IDENTIFIED IN THIS REPORT, DESCRIBED FROM TIME TO TIME IN THE COMPANY'S OTHER SECURITIES AND EXCHANGE COMMISSION FILINGS, OR DISCUSSED IN THE COMPANY'S PRESS RELEASES. ACTUAL RESULTS MAY VARY MATERIALLY FROM EXPECTATIONS. 15 PART II - OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. None - (b) Reports on Form 8-K. A report on Form 8-K was filed on February 22, 2001 reporting that the Company had released a news release announcing the appointment of Michael J. Shea as President of the Company and Robert G. Chamberlain as Co-Chairman of the Board of Directors. A report on Form 8-K was filed on March 26, 2001 reporting that the Company had released a news release announcing the Company's financial results for the fourth quarter of 2000 and for fiscal year 2000. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 22, 2002. DAW TECHNOLOGIES, INC. By: /s/ Donald K. McCauley -------------------------------------------------- Donald K. McCauley Executive Vice President, Chief Financial Officer, Principal Financial and Accounting Officer 17 -----END PRIVACY-ENHANCED MESSAGE-----