10-K/A 1 a2076810z10-ka.txt 10-K/A ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (AMENDMENT NO. 1) /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2000 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. DAW TECHNOLOGIES, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) UTAH 0-21818 87-0464280 ---------------------------- --------------------- ------------------- (State or other jurisdiction (Commission File No.) (IRS Employer of incorporation) Identification No.) 2700 SOUTH 900 WEST SALT LAKE CITY, UTAH 84119 ------------------------------------------------------------ (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (801) 977-3100 Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Title of Class -------------- Common Stock, $0.01 Par Value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on the NASDAQ National Market System on April 11, 2001, was approximately $11,260,914. Shares of Common Stock held by each officer and director and by each person who may be deemed to be an affiliate have been excluded. As of April 11, 2001, the Registrant had 15,047,176 shares of Common Stock outstanding. ================================================================================ This amendment on Form 10-K/A amends Items 6, 7, 8 and 14 of the Annual Report for Daw Technologies, Inc. (the "Company") on Form 10-K previously filed for the year ended December 31, 2000. This Annual Report on Form 10-K/A is filed in connection with the Company's restatement of its financial statements for the quarters ended March 31, 2000, June 30, 2000, September 30, 2000, March 31, 2001 and June 30, 2001 as well as for the years ended December 31, 1999 and December 31, 2000. Financial statement information and related disclosures included in this amended filing reflect, where appropriate, changes as a result of the restatements. All other information contained in this Annual Report on Form 10-K/A is as of the date of the original filing. The restated financial information as of and for the year ended December 31, 1999 and for the quarters ended March 31, 2000, June 30, 2000 and September 30, 2000 contained herein should be read in conjunction with the applicable amended filings for those periods. TABLE OF CONTENTS PART II............................................................................................... 2 Item 6. SELECTED FINANCIAL DATA...................................................................... 2 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........ 3 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................................. 10 PART IV............................................................................................... 11 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.............................. 11 SIGNATURES............................................................................................ 13 FINANCIAL STATEMENTS.................................................................................. F-1
1 ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth selected financial data of the Company. The summary financial data in the table is derived from the financial statements of the Company. The data should be read in conjunction with the financial statements, related notes and other financial information included therein (in thousands, except per share data).
YEAR ENDED DECEMBER 31, ----------------------------------------------------------- 2000 1999 1998 1997 1996 --------- ---------- --------- --------- ---------- STATEMENT OF OPERATIONS DATA: Revenues................................ $ 51,424 $ 44,011 $ 53,078 $ 52,541 $ 112,826 Cost of goods sold...................... 45,389 44,050 51,223 47,272 97,364 --------- ---------- --------- --------- ----------- Gross profit (loss)..................... 6,035 (39) 1,855 5,269 15,462 --------- ---------- --------- --------- ----------- Selling, general and administrative..... 4,631 7,348 6,513 8,373 10,274 Research and development................ - 214 293 246 282 Depreciation and amortization........... 426 704 563 431 400 Restructuring charges................... - 1,839 - - - --------- ---------- --------- --------- ----------- Total operating expenses 5,057 10,105 7,369 9,050 10,956 --------- ---------- --------- --------- ----------- Earnings (loss) from operations......... 978 (10,144) (5,514) (3,781) 4,506 Other income (expense), net............. (249) (677) (483) (344) 352 --------- ---------- --------- --------- ----------- Earnings (loss) before income taxes..... 729 (10,821) (5,997) (4,125) 4,858 Income taxes (benefit).................. 315 (1,092) (2,075) (1,866) 1,548 --------- ---------- --------- --------- ----------- NET EARNINGS (LOSS) .................... $ 414 $ (9,729) $ (3,922) $ (2,259) $ 3,310 ========= ========== ========= ========= =========== Earnings (loss) per share - basic (1) Earnings (loss) before imputed dividend $ 0.03 $ (0.78) $ (0.32) $ (0.18) $ 0.27 Imputed dividend (0.20) - - - - Earnings (loss) per share attributable to common shareholders - basic $ (0.17) $ (0.78) $ (0.32) $ (0.18) $ 0.27 Earnings (loss) per share - diluted $ 0.03 $ (0.78) $ (0.32) $ (0.18) $ 0.27 Earnings (loss) before imputed dividend (0.20) - - - - Imputed dividend Earnings (loss) per share attributable to $ (0.17) $ (0.78) $ (0.32) $ (0.18) $ 0.27 common shareholders - diluted Weighted-average common and dilutive common equivalent shares outstanding Basic............................... 13,140 12,502 12,440 12,416 12,350 Diluted............................. 13,140 12,502 12,440 12,416 12,393
(1) For 2000, earnings applicable to common stock includes a one-time non-cash imputed dividend to the preferred shareholders in the amount of $2,666 ($0.21 per common share-basic) which decreased the net earnings available to common shareholders from $3,370 ($0.26 per share-basic) to $704 ($0.05 per share-basic). This one-time, noncash charge only decreased the calculated earnings per share amount and had no impact on financial position, net earnings, or cash flows of the Company (see Note S of Notes to Consolidated Financial Statements).
DECEMBER 31, ----------------------------------------------------------- (1)2000 (1)1999 1998 1997 1996 --------- ---------- --------- --------- ---------- BALANCE SHEET DATA: Cash and cash equivalents................ $ 2,175 $ 296 $ 2,140 $ 5,802 $ 3,258 Working capital.......................... 7,285 973 10,674 15,248 17,112 Total assets............................. 27,093 24,875 30,841 32,364 49,495 Preferred stock.......................... 4,093 - - - - Total liabilities........................ 13,674 16,572 12,714 11,664 26,557 Total shareholders' equity............... 9,326 8,303 18,127 20,700 22,938
(1) Amounts for 2000 and 1999 are presented as restated. See Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations. 2 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere herein. All data in the tables are in thousands, except for percentages and per-share data. The Company's principal line of business is 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. Because the bulk of its business comes from semiconductor manufacturers, the Company's financial performance has historically been closely tied to the performance of the semiconductor industry. During the past twenty years, the semiconductor industry has shown strong growth. For example, worldwide semiconductor revenues increased from approximately $50 billion in 1990 to approximately $195 billion in 2000. Most experts predict that upward growth to continue. However, the semiconductor industry has also been subject to severe cycles from year to year. Just as the semiconductor industry is cyclical in nature, so too has been the business of the Company. DIVERSIFICATION STRATEGY In an effort to ease the impact of the cyclical nature of the semiconductor industry on the Company's business, the Company has recently undertaken a multi-prong diversification strategy. This strategy includes diversification in terms of industry, product and geography. The Company has begun to pursue business opportunities within its core business of cleanroom design, manufacture and installation in industries other than semiconductors. Most of this new business is in the pharmaceutical, disk drive, flat panel display, biotechnology and food processing industries. The diversification into non-semiconductor industries has been particularly successful with respect to the mini-environment portion of the Company's business. In terms of product diversification, the Company continues to pursue manufacturing and non-cleanroom related opportunities, particularly when they are in some way connected to the Company's core cleanroom business. An example of this diversification effort is the Company's recent entry into the air door business. Air doors are used in lieu of conventional swinging and sliding doors to help maintain comfort in the front of the store, reduce liability and increase and optimize the traffic flow in and out of the store. The Company's air entrance system was developed by applying its advanced cleanroom air movement and filtration technology resulting in a technically superior air door system. The Company has also formulated a geographic diversification strategy with respect to its cleanroom business. For example, management believes, based on the forecasts of numerous industry experts, that Asia and the Asian Pacific Rim represent very strong future growth areas in terms of the construction of new microelectronics fabs. In years prior to 2000, the Company did a material amount of business in Asia. However, for a variety of business reasons, at the end of 1999 the Company ceased operations in Asia and sold its Asian assets to a former employee. The Company has also expanded its manufacturing activities into non-cleanroom industries. The Company provides high precision contract manufacturing services on an OEM basis for various customers. This includes a broad range of services for a diverse mix of customers. The Company's contract manufacturing services include design and prototyping, fabrication, metal forming, assembly and specialized painting. SEMICONDUCTOR INDUSTRY Worldwide sales of semiconductors in the year 2000 were approximately $195 billion, compared to 3 approximately $150 billion in 1999, $125 billion in 1998 and $140 billion in 1997. The Company's financial results for the year 2000 reflect the recovery of the semiconductor industry from its three year downturn. However, it now appears that the semiconductor industry is entering another downturn in capital spending that most experts expect to last until at least the third quarter of 2001. It is unknown how severe or prolonged this latest downturn will be, or whether it will adversely affect the Company's cleanroom installation business. If such a downturn is severe or prolonged, it would most likely result in fewer contracts available for the Company to bid, significant price competition on contracts being awarded, and reduced profit margins on such contracts. Throughout 2000 the Company experienced growth in new contract awards resulting in an increase in the Company's backlog from $19.7 million at December 31, 1999 to $28.3 million at December 31, 2000. The Company's backlog (excluding contract manufacturing) at March 31, 2001 was $18.5 million, compared to $21.1 million on March 31, 2000. The decrease in the backlog at the end of the first quarter of 2001 as compared to the end of the first quarter of 2000 is attributable to a slowdown in capital spending by semiconductor manufacturers and by shorter construction cycles dictated by many of the Company's customers. Although there is uncertainty regarding the condition and prospects of a full recovery in the semiconductor industry in the short term, management continues to believe that changes taking place in the industry should, in the long term, result in expanded semiconductor industry capital expenditures. Delays in the ramp-up of 300mm technology have delayed the expected construction of several 300mm fabs worldwide, although during the fourth quarter of 2000 construction of some of these delayed fabs was initiated. In response to an industry downturn that lasted through 1999 and into early 2000, management took aggressive steps to reduce the Company's cost structure, including an approximate 26% cut in wages in 2000 as compared to 1999, which was on top of an approximate 50% cut in wages in 1999 as compared to 1998. Management will continue to closely monitor the Company's cost structure and take appropriate actions as considered necessary, provided that such actions do not adversely affect the Company's ability to continue to develop state-of-the-art cleanroom technology, provide world-class support to the Company's customers, and continue its growth and diversification strategy. THE COMPANY'S RESULTS The Company's revenue and operating results fluctuate substantially from quarter to quarter depending on such factors as the timing of customer orders, the timing of the Company's recognition of revenue and costs, variations in contract mix, changes in customer buying patterns, fluctuations in the semiconductor equipment market, utilization of capacity, manufacturing productivity and efficiency, availability of key components and trends in the economies of the geographical regions in which the Company operates. The Company uses the percentage-of-completion method of accounting for its long-term cleanroom contracts. The Company recognizes revenue in proportion to the costs incurred to date in relation to the total anticipated costs. Revenue recognized may not be the same as progress billings to the customer. Underbillings are reflected in an asset account (costs and estimated earnings in excess of billings on contracts in progress), and overbillings are reflected in a liability account (billings in excess of costs and estimated earnings on contracts in progress). Non-cleanroom revenue is generally recognized when the products are shipped to the customer. The Company currently generates most of its revenue in two geographic regions; North America and Europe. Although risk of fluctuations in currency value does not affect 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 competitors. 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. 4 RESTATEMENTS In November 2001, the Company determined that the consolidated financial information in the Company's Annual Reports on Form 10-K for the years ended December 31, 1999 and December 31, 2000 as well as the unaudited interim financial statements reported in the Company's Quarterly Reports on Form 10-Q for the periods ended March 31, 2000, June 30, 2000, September 30, 2000, March 31, 2001 and June 30, 2001 had been incorrectly compiled and reported primarily because of errors in the financial information reported by the Company's European operations. Prior to October 1999, most of the accounting for the Company's European operations was done at the Company's headquarters in the United States. In October 1999, the Company formed a wholly owned European subsidiary in Scotland known as Daw Technologies (Europe) Ltd. ("Daw Europe") to manage not only the UK subsidiary, but all of the Company's European operations. At that time, all European accounts were transferred to Daw Europe to manage, and Daw Europe personnel took over all of the accounting for all of the Company's foreign operations. Daw Europe's business grew very rapidly between 1999 and 2001, with annualized revenue almost doubling during that two-year period. During this period of rapid growth, Daw Europe was allowed significant autonomy, and its responsibilities included maintaining all of the financial records for not only the UK subsidiary, but all of the Company's operations throughout Europe and the Middle East. As it turns out, the accounting systems and personnel in the Daw Europe office were unable to keep pace with the rapid growth and growing complexity of the European business, including the fact that most of this revenue growth occurred outside of the United Kingdom. As a result, various problems occurred with respect to Daw Europe's accounting and financial reporting. One of the problems that developed involved the Company's recognition of revenue on construction projects. In accordance with generally accepted accounting principles, Daw recognizes revenue on its long term construction projects based on the percentage of completion method of accounting. The primary accounting system used by Daw Europe did not include a revenue recognition feature that would allow it to accurately recognize revenue on its various projects based on percentage of completion. Daw Europe personnel therefore created a financial spreadsheet to help account for the recognition of revenue on its numerous European projects. This method of tracking and accounting for contracts in progress resulted in some problems, including the following: 1. Some of the formulas in the Daw Europe spreadsheet did not properly calculate atypical situations, such as costs exceeding budget. 2. When the numbers derived from formulas seemed incorrect, accounting personnel in Daw Europe would, in some instances, override formulas in the spreadsheet by inputting numbers directly into the spreadsheet. This damaged the underlying integrity and reliability of the spreadsheet. 3. Budget estimates were not updated in the spreadsheets for currency fluctuations, and currency rates were only changed in the Daw Europe accounting system periodically. 4. The Daw Europe spreadsheet was not always properly updated to reflect changes to contract terms. In addition to the problems with the spreadsheet maintained by Daw Europe, there were also problems in the consolidation process of European accounts with the United States accounts. For example, European costs incurred through the United States accounts were, in some instances, lost in the consolidation process. Also, the Company noted that certain projects in Israel were either not recorded or were not properly recorded on the financial records of Daw Europe. When Daw Europe recorded transactions associated with the Company's projects in Israel, instead of always obtaining objective accounting documentation, the accounting personnel, in some instances, relied on informal data and statements by project managers. Some of this informally gathered information proved to be incomplete and subsequently required an adjustment. Finally, the restated financial statements also contain certain reclassifications and other adjustments such as; (a) foreign currency translation and transactions gains/losses related to foreign operations, (b) intercompany errors and (c) amortization of leasehold improvements. The Company's financial statements for 1999 and 2000 have been restated to correct the errors noted above. In the opinion of management, all material adjustments necessary to correct the financial statements have 5 been recorded. The impact of these adjustments on the Company's 2000 financial results and financial condition as originally reported is summarized below (in thousands, except per share data): CONSOLIDATED STATEMENT OF OPERATIONS DATA
Year Ended December 31, 2000 ------------------------------------------- As Previously As Reported Restated Change ----------- -------- ------ Revenues $ 52,633 $ 51,424 $ (1,209) Cost of goods sold 43,525 45,389 1,864 Gross profit 9,108 6,035 (3,073) Operating expenses 6,460 5,057 (1,403) Earnings from operations 2,648 978 (1670) Other income (expense), net (208) (249) (41) Net earnings (loss) applicable to common stock 704 (2,276) (2,980) Earnings per common share Basic $ 0.05 $ (0.17) $ (0.22) Diluted 0.05 (0.17) (0.22) Weighted-average common and dilutive common equivalent shares outstanding Basic 13,140 13,140 - Diluted 13,140 13,140 -
CONSOLIDATED BALANCE SHEET DATA
December 31, 2000 ---------------------------------------- As Previously As Reported Restated Change --------- -------- ------ Current assets $ 23,798 $ 20,860 $ (2,938) Property and equipment - net, at cost 2,404 2,034 (370) Other assets 5,362 4,199 (1,163) Total assets $ 31,564 $ 27,093 $ (4,471) ========= ======== ========= Current liabilities $ 12,454 $ 13,575 $ 1,121 Long-term obligations 99 99 - Preferred stock - 4,093 4,093 Shareholders' equity 19,011 9,326 (9,685) --------- -------- --------- Total liabilities and shareholders' equity $ 31,564 $ 27,093 $ (4,471) ========= ======== =========
6 RESULTS OF OPERATIONS REVENUE FROM OPERATIONS
2000 Change 1999 Change 1998 ---- ------ ---- ------ ---- Cleanrooms and Related Products $ 39,362 27.9% $30,775 (33.5)% $ 46,298 Other Manufactured Goods 12,062 (8.9)% 13,236 95.2% 6,780 -------- ------- -------- Total Revenue $ 51,424 16.8% $44,011 (17.1)% $ 53,078 ======== ======= ========
The Company's total revenue increased 16.8% in 2000 as compared to 1999. This increase in total revenue was partly a result of the recovery of the semiconductor industry during 2000 and partly a result of the Company's diversification strategy. The Company's revenue from cleanrooms and related products increased 27.9% in 2000 to $39.4 million from $30.8 million in 1999. The increase is largely attributable to the semiconductor industry's increase of capital expenditures for new fab facilities in 2000. During 1999, cleanroom contract revenue decreased by 33.5% to $30.8 million from $46.3 million in 1998. This decrease is primarily related to a downturn in the semiconductor industry. Revenue from non-cleanroom products decreased to $12.1 million in 2000 from $13.2 million in 1999. During 1999, revenue from other products increased to $13.2 million as compared to $6.8 million in 1998. The increase was attributable to sales of sleeper cabs and the sale of other products that were not offered by the Company in 1998, including products manufactured by the Company as a contract manufacturer for third parties. In July 2000, the Company sold all of its assets used in the manufacture of sleeper cabs that were not used in the Company's other operations, and the Company discontinued the manufacture of such products. NORTH AMERICA - North America cleanroom revenue for the year ended December 31, 2000 increased by 33.9% as compared to the previous year. North America cleanroom revenue in 2000 was $24.5 million, compared to $18.3 million in 1999. As a percentage of total cleanroom revenue, North America revenue decreased to 62.2% in 2000 compared to 59.5% in 1999. The increase in North America cleanroom revenue in 2000 was primarily related to the semiconductor industry's increase of capital expenditures for new fab facilities. North America cleanroom revenue for the year ended December 31, 1999 decreased by 22.1% to $18.3 million, from $23.5 million for the year ended December 31, 1998. As a percentage of total revenue, North America revenue increased to 59.5% in 1999 compared to 50.8% in 1998. The decrease in North America cleanroom revenue in 1999 was the result of fewer contracts received in North America due to the decline in capital spending by the semiconductor industry. EUROPE - European cleanroom revenue for the year ended December 31, 2000 increased by 53.6% over the prior year. European cleanroom revenue for 2000 was $14.9 million, compared to $9.7 million for the year 1999. As a percentage of total cleanroom revenue, European revenue increased to 37.9% in 2000 compared to 31.5% in 1999. Although the worldwide downturn in the semiconductor industry continued in 2000, it did not appear to have affected the Company's European operations to the same extent as it affected the Company's North American operations. European cleanroom revenue for 1999 decreased by 25.4%, to $9.7 million, when compared to the $13.0 million in European cleanroom revenue for 1998. This decrease is primarily attributable to the overall reduction in cleanroom expenditures by the semiconductor industry during 1999. As a percentage of total cleanroom revenue, revenue from the Company's European operations increased to 31.5% in 1999 compared to 28.1% in 1998. ASIA/PACIFIC RIM - The Company derived no revenue from cleanroom products or services in the Asia/Pacific Rim region for the year ended December 31, 2000. This is in contrast to $2.7 million revenue for the year ended December 31, 1999. The decrease in revenue was directly related to the Company's decision in January 2000 to cease sales activities in the Asia/Pacific Rim region and sell its Asia branch. Cleanroom revenue generated in the Asia/Pacific Rim area for the year ended December 31, 1999 decreased by 71.9% from the year ended December 31, 1998. Revenue from that region in 1999 was $2.7 million, compared to $9.6 million for the year 1998. As a percentage of total cleanroom revenue, Asia/Pacific Rim revenue decreased to 7 8.8% in 1999 compared to 20.7% in 1998. The decrease in revenue and percentage was directly related to a downturn in the semiconductor industry in the Asia/Pacific Rim, an Asian financial downturn, and the Company's decision to pull out of this region. GROSS PROFIT
2000 Change 1999 Change 1998 ---- ------ ---- ------ ---- Gross Profit (Loss) $ 6,035 n/m $(39) (102.1)% $ 1,855 Percentage of Revenues 11.7% 0.0% 3.5%
Gross profit for the year ended December 31, 2000 increased to $6.0 million from negative $39,000 for the year ended December 31, 1999. Gross profit increased as a percentage of revenue to 11.7% for 2000 compared to 0.0% for 1999. The Company believes the increase in gross profit is primarily the result of increased margins on a larger number of awarded contracts due to installation efficiencies and the Company's decision to outsource the purchase of various cleanroom components where price efficiencies can be realized. Gross profit for 1999 decreased by 102.1%, to negative $39,000, from $1.9 million in 1998, and decreased as a percentage of revenue to 0.0% in 1999 from 3.5% in 1998. The decrease in gross profit was the direct result of the substantial reductions in contracts awarded from 1998 to 1999 as the semiconductor industry entered the second year of an industry-wide downturn. As the downturn gained momentum throughout 1999, the Company had fewer contracts to which it could allocate its fixed manufacturing overhead costs the Company had put in place in prior years as a result of anticipated contract awards. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
2000 Change 1999 Change 1998 ---- ------ ---- ------ ---- Selling, General and Administrative Expenses $ 4,631 (37.0%) $ 7,348 12.8% $ 6,513 Percentage of Revenues 9.0% 16.7% 12.3%
Selling, general and administrative expenses for 2000 decreased 37.0% to $4.6 million, from $7.3 million, and decreased as a percentage of revenue to 9.0% for the year ended December 31, 2000 compared to 16.7% for the year ended December 31, 1999. The decrease in selling, general and administrative expenses in 2000 compared with 1999 was primarily the result of a reduction in wages and related costs and other fixed costs. Selling, general and administrative expenses for 1999 increased 12.8% over 1998, from $6.5 million in 1998 to $7.3 million in 1999. As a percentage of revenue, selling, general and administrative expenses increased from 12.3% in 1998 to 16.7% in 1999. RESEARCH AND DEVELOPMENT
2000 Change 1999 Change 1998 ---- ------ ---- ------ ---- Research and Development Expense - (100.0)% $ 214 (27.0)% $ 293 Percentage of Revenues 0.0% 0.5% 0.6%
As part of its cost cutting strategy in 1999 and 2000, the Company temporarily reduced, but did not eliminate, its spending on research and development. However, the Company stopped keeping track of research and development expenses as a separate line item. Instead, for fiscal year 2000, research and development costs were typically included as part of each individual project's budget, and are, where possible, passed along to the Company's customers. 8 DEPRECIATION AND AMORTIZATION
2000 Change 1999 Change 1998 ---- ------ ---- ------ ---- Depreciation and Amortization Expense $ 426 (39.5)% $ 704 25.0% $ 563 Percentage of Revenues 0.8% 1.6% 1.1%
Depreciation and amortization, not charged to cost of goods sold, during 2000 decreased by 39.5%, to $426,000, as compared to 1999. This decrease was the result of some leasehold improvements, furniture, fixtures, computer equipment and software becoming fully depreciated in 2000. Depreciation and amortization expense in 1999 increased by 25.0%, to $704,000, as compared to 1998. This increase was the result of an acceleration in the depreciable life in leasehold improvements associated with the Company's building lease. RESTRUCTURING CHARGES
2000 Change 1999 Change 1998 ---- ------ ---- ------ ---- Restructuring Charges - (100.0%) $ 1,839 100.0% -- Percentage of Revenues 0.0% 4.2% 0.0%
Restructuring charges in 1999 were largely due to the disposition of the Company's Asia/Pacific office, and the write-down of assets associated with the decision to divest itself of the Company's cleanroom component manufacturing division. The Company announced in 1999 its plans to pursue a foundry strategy for the manufacture of cleanroom components by selling its cleanroom component manufacturing business unit. The Company continues to manufacture component systems on a limited basis. INCOME TAXES BENEFIT
2000 Change 1999 Change 1998 ---- ------ ---- ------ ---- Income Taxes (Benefit) $ 315 128.8% $(1,092) (47.4)% $(2,075) Percentage of Revenues 0.6% 2.5% 3.9%
The changes in the effective tax rates for all periods relate primarily to the amount of deferred tax assets recorded and the amount of offsetting valuation allowances provided against such assets. The valuation allowance was increased by approximately $174,000 for the year ended December 31, 2000 and increased by approximately $2.9 million in 1999 ($0 in 1998). As of December 31, 2000, the Company had net operating loss carry forwards for tax reporting purposes of approximately $15.4 million expiring in various years through 2019. (See Note J to Consolidated Financial Statements). LIQUIDITY AND CAPITAL RESOURCES Working capital at December 31, 2000 was $7.3 million compared to $973,000 at December 31, 1999. This included cash and cash equivalents of $2.2 million and $296,000 at December 31, 2000 and 1999, respectively. Day's sales outstanding (the ratio between receivables, excluding retention, and average daily revenue taken over the year) decreased to 51 days at December 31, 2000, from 60 days at December 31, 1999. The Company's operating activities used $110,000 of cash during 2000, compared to using $1.1 million of cash in 1999. During 2000, the Company experienced a decrease in inventories of $254,000, an increase in costs and estimated earnings in excess of billings on contracts in progress of $2.7 million, and an increase in billings in excess of costs and estimated earnings on contracts in progress of $434,000. During 2000 and 1999, the Company maintained a revolving line of credit with a domestic bank for the lesser of $6 million or the available borrowing base. The interest rate is computed at 14.5 percent and requires monthly payments of interest. The Company had $2.6 million in borrowings against the line at December 31, 2000 (compared to $5.3 million at December 31, 1999). The original expiration date of the line of credit was October 31, 1999, but the expiration date has been extended. 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 9 cash dividends, purchases or redemptions of capital stock, indebtedness and other matters. At times during 2000 and at December 31, 2000, the Company was not in compliance with certain loan covenants. Subsequent to year-end the Company signed an extension of the line of credit through April 30, 2001, which included a waiver by the lender of the Company's non-compliance with the covenants as of December 31, 2000. The Company is currently reviewing several financing alternatives. During 2000, the Company used $226,000 for the purchase of property and equipment and realized $526,000 from the sale of net assets. The Company anticipates that its capital expenditures in 2001 for routine additions and replacements of property, and equipment will be less than $600,000. These purchases will be financed through long-term debt or capital leases. Management believes that existing cash balances, borrowings available under the line of credit 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. IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued Statement on Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES in 1998. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. This statement is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. In June 2000, SFAS 133 was amended by SFAS 138, which amended or modified certain issues discussed in SFAS 133. SFAS 138 is also effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not believe the adoption of SFAS No. 133 and SFAS 138 will have a material effect on the financial position or results of operations of the Company FACTORS AFFECTING FUTURE RESULTS The Company's operations are subject to risks and uncertainties that could result in actual operating results differing materially from anticipated operating results and past operating results and trends. These risks and uncertainties include pricing pressures, cancellations of existing contracts, timing of significant customer orders, increased competition, changes in semiconductor and cleanroom technology, or changes in manufacturing techniques. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's financial statements and notes are included herein beginning on page F-1. The supplementary data is included herein immediately following the signature page of this report on Form 10-K/A. 10 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Documents Filed as Part of this Report: (1) FINANCIAL STATEMENTS. The following financial statements are filed with this report beginning on page F-1: -- Report of Independent Certified Public Accountants -- Consolidated Balance Sheets as of December 31, 2000 and 1999 -- Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998 -- Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2000, 1999 and 1998 -- Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 -- Notes to Consolidated Financial Statements -- Report of Independent Certified Public Accountants on Schedule -- Schedule II - Valuation and Qualifying Accounts All other schedules have been omitted because the information is not required, or if required the information required therein is not present in amounts sufficient to require submission of the schedule or because the information required is included in the financial statements or notes thereto. (b) Reports on Form 8-K: None. (c) Exhibits: The following exhibits required by Item 601 of Regulation S-K are filed herewith or have been filed previously with the Commission as indicated below: 11
REGULATION S-K EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE NO. ---------------- ------------------------------------------------------------ ------------------------------- 3.1 Restated Articles of Incorporation* Form 10-KSB for the year ended December 31, 1994, Exhibit No. 3.1 3.2 Articles of Amendment to Articles of Registration Statement on Incorporation of the Company* Form S-3, File No. 333-38350, filed June 1, 2000, Exhibit 3.1 3.3 Bylaws of the Company* Form 10-KSB for the year ended December 31, 1992, Exhibit No. 3.2 4.1 Form of Warrant issued to purchasers of Form 10-Q for quarter ended Series A Preferred Shares* June 30, 2000, Exhibit 4.3 4.2 Form of Warrant issued to Cardinal Registration Statement on Securities, LLC* Form S-3, File No. 333-38350, filed June 1, 2000, Exhibit 4.4 4.3 Articles of Amendment to Articles of Same as Exhibit 3.2 Incorporation of the Company* 10.1 1993 Stock Option Plan* Form 10-KSB for the year ended December 31, 1993, Exhibit 10.4 10.2 Amendment No. 1 to 1993 Stock Option Plan* Form 10-Q for quarter ended June 30, 1997, Exhibit 10.1 10.3 Amendment No. 2 to 1993 Stock Option Plan* Form 10-K for the year ended December 31, 1997, Exhibit 10.4 10.4 Revolving Domestic Line of Credit Agreement, Form 10-K for the year ended as Amended* December 31, 1999, Exhibit 10.5 10.5 Lease Agreement for Salt Lake City facility* Form 10-KSB for the year ended December 31, 1993, Exhibit 10.6 10.6 Amendment to Lease Agreement* Form 10-K for the year ended December 31, 1996, Exhibit 10.5 10.7 Convertible Preferred Stock Purchase Agreement Registration Statement on Dated April 28, 2000* Form S-3, File No. 333-38350, filed June 1, 2000, Exhibit 10.1 23.1 Consent of Independent Certified Public Accountants. Filed herewith.
---------- * These exhibits are incorporated herein by reference. 12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on April 24, 2002. DAW TECHNOLOGIES, INC. By: /s/ Donald K. Mccauley ------------------------------------------------------ Donald K. McCauley Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) 13 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Daw Technologies, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheets of Daw Technologies, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Daw Technologies, Inc. and Subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for each of the three years in the period ended December 31, 2000 and 1999 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note Y to the financial statements, the accompanying consolidated balance sheets as of December 31, 2000, and the related consolidated statements of operations, shareholders' equity, and cash flows for the years then ended, have been restated. /s/ GRANT THORNTON LLP Salt Lake City, Utah February 14, 2001, except for Note Y, for which the date is April 5, 2002 F-1 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
December 31, ----------------------- 2000 1999 (as (as restated) restated) ----------- ---------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 2,175 $ 296 Accounts receivable, net 7,347 7,372 Costs and estimated earnings in excess of billings on contracts in progress 6,109 3,581 Inventories, net 1,977 2,612 Deferred income taxes 425 425 Other current assets 2,827 3,149 ----------- ---------- Total current assets 20,860 17,435 PROPERTY AND EQUIPMENT, NET 2,034 3,110 DEFERRED INCOME TAXES 3,364 3,364 OTHER ASSETS 835 966 ------------ ---------- $ 27,093 $ 24,875 =========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Checks written in excess of cash in bank $ 22 $ 248 Accounts payable and accrued liabilities 8,868 8,871 Billings in excess of costs and estimated earnings on contracts in progress 1,994 1,624 Line of credit 2,603 5,258 Current portion of long-term obligations 88 461 ----------- -------- Total current liabilities 13,575 16,462 LONG-TERM OBLIGATIONS, less current portion 99 110 COMMITMENTS AND CONTINGENCIES - - REDEEMABLE PREFERRED STOCK 3% Series A Convertible Preferred stock, authorized 10,000,000 shares of $0.01 par value; 465 shares issued and outstanding in 2000 4,093 - SHAREHOLDERS' EQUITY Common stock, authorized 50,000,000 shares of $0.01 par value; issued and outstanding 13,696,071 shares in 2000 and 12,513,114 shares in 1999 137 125 Additional paid-in capital 19,760 16,579 Warrants 350 - Accumulated deficit (10,560) (8,284) Accumulated other comprehensive loss (361) (117) ----------- -------- Total shareholders' equity 9,326 8,303 ----------- -------- $ 27,093 $ 24,875 =========== ========
The accompanying notes are an integral part of these statements. F-2 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Year ended December 31, ------------------------------------------------- 2000 1999 1998 (as restated) (as restated) -------------- --------------- --------------- Revenues $ 51,424 $ 44,011 $ 53,078 Cost of goods sold 45,389 44,050 51,223 -------------- --------------- --------------- Gross profit (loss) 6,035 (39) 1,855 Operating expenses Selling, general and administrative 4,631 7,348 6,513 Research and development - 214 293 Depreciation and amortization 426 704 563 Restructuring charges - 1,839 - -------------- --------------- --------------- 5,057 10,105 7,369 -------------- --------------- --------------- Earnings (loss) from operations 978 (10,144) (5,514) Other income (expense) Gain (loss) on sale of net assets 744 (147) - Interest income 91 130 140 Interest expense (667) (658) (459) Other, net (417) (2) (164) -------------- --------------- --------------- (249) (677) (483) -------------- --------------- --------------- Earnings (loss) before income taxes 729 (10,821) (5,997) Income tax expense (benefit) 315 (1,092) (2,075) -------------- --------------- --------------- Net EARNINGS (LOSS) $ 414 $ (9,729) $ (3,922) ============== =============== =============== Earnings (loss) per common share (NOTE S) Basic $ (0.17) $ (0.78) $ (0.32) Diluted (0.17) (0.78) (0.32) Weighted-average common and dilutive common equivalent shares outstanding Basic 13,140,000 12,501,980 12,440,121 Diluted 13,140,000 12,501,980 12,440,121
The accompanying notes are an integral part of these statements. F-3 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands, except share data) Years ended December 31, 2000, 1999 and 1998
(As (As restated) restated) (As Accu- Addi- restated) mulated tional (As Retained compre- (As Common paid-in restated) earnings hensive restated) stock capital Warrants (deficit) loss Total ----------- ---------- ---------- ----------- --------- ---------- Balances as of January 1, 1998 $ 124 $ 15,209 $ - $ 5,367 $ - $ 20,700 Common stock issued for purchase of 44,711 shares under the employee stock purchase plan and 27,023 shares issued for acquisition of another company 1 1,348 - - - 1,349 Net loss for 1998 - - - (3,922) - (3,922) ----------- ---------- ---------- ----------- --------- ---------- Balances as of December 31, 1998 125 16,557 - 1,445 - 18,127 Comprehensive income (loss) Net loss for 1999 - - - (9,729) - (9,729) Foreign currency translation adjustments (117) (117) Total comprehensive loss (9,846) Common stock issued for purchase of 33,403 shares under the employee stock purchase plan - 22 - - - 22 ----------- ---------- ---------- ----------- --------- ---------- Balances as of December 31, 1999 125 16,579 - (8,284) (117) 8,303 Comprehensive income (loss) Net income for 2000 - - - 414 - 414 Foreign currency translation adjustments (244) (244) Total comprehensive income - 170 Beneficial conversion of 480 shares of 3% Series A convertible preferred stock (NOTE B) - 2,593 - (2,593) - - Warrants issued with preferred stock issuance - (NOTE B) - - 350 - 350 Common stock issued for purchase of 41,805 shares - under the employee stock purchase plan - 28 - - 28 Common stock issued upon exercise of employee - stock options for purchase of 301,550 shares 3 433 - - 436 618,439 shares of common stock issued for the - acquisition of another company (Note T) 6 (6) - - - 221,163 shares of common stock issued pursuant to - conversion of 15 shares of preferred stock 3 133 - - 136 Preferred stock dividends - - - (97) - (97) ----------- ---------- ---------- ----------- --------- ---------- Balances as of December 31, 2000 $ 137 $ 19,760 $ 350 $ (10,560) $ (361) $ 9,326 =========== ========== ========== =========== ========= ==========
The accompanying notes are an integral part of these statements. F-4 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except share data)
Year ended December 31, ---------------------------------- 2000 1999 1998 (as (as restated) restated) --------- ---------- --------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net earnings (loss) $ 414 $ (9,729) $ (3,922) Adjustments to reconcile net earnings (loss) to net cash used in operating activities Depreciation and amortization 1,263 2,021 1,808 Loss (gain) on sale of net assets (744) 147 - Provision for losses on accounts receivable 56 360 100 Deferred income taxes - (1,213) (2,089) Changes in assets and liabilities Accounts receivable (195) 1,134 3,468 Costs and estimated earnings in excess of billings on contracts in progress (2,682) 3,965 (3,844) Inventories 254 (1,379) 190 Other current assets 238 (757) (224) Other assets (2) 226 10 Accounts payable and accrued liabilities 854 4,159 (1,042) Billings in excess of costs and estimated earnings on contracts in progress 434 (10) (1,370) --------- ---------- --------- Net cash used in operating activities (110) (1,076) (6,915) --------- ---------- --------- Cash flows from investing activities Payments for purchase of property and equipment (226) (390) (167) Disposal of equipment 166 122 - Proceeds from sale of net assets 526 - - --------- ---------- --------- Net cash provided by (used in) investing activities 466 (268) (167) --------- ---------- ---------
(Continued) F-5 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (in thousands, except share data)
Year ended December 31, ----------------------------------- 2000 1999 1998 (as (as restated) restated) ---------- ---------- ---------- Cash flows from financing activities Increase (decrease) in checks written in excess of cash in bank (248) 248 - Net change in line of credit (2,655) 4 4,024 Proceeds from issuance of common stock 464 22 49 Proceeds from issuance of preferred stock and warranties 4,575 - - Payments on long-term obligations (636) (657) (653) ---------- ---------- ---------- Net cash provided by (used in) financing activities 1,500 (383) 3,420 Effect of exchange rate changes on cash and cash equivalents 23 (117) - ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents 1,879 (1,844) (3,662) Cash and cash equivalents at beginning of year 296 2,140 5,802 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 2,175 $ 296 $ 2,140 ========== ========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for Interest $ 667 $ 658 $ 459 Income taxes 49 - 11
NONCASH INVESTING AND FINANCING ACTIVITIES During 2000, the Company sold assets with a net book value of $834 for $526 cash and the buyer assuming $834 of the Company's liabilities. The transaction resulted in a change to the following balance sheet accounts: Cash $ 526 Other assets (15) Inventories (365) Property and equipment (236) Liabilities assumed 834 ---------- Gain on sale of net assets $ (744) ==========
Capital lease obligations of $252 for property and equipment acquisitions were incurred during 2000 ($152 in 1999). (Continued) F-6 Daw Technologies, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (in thousands, except share data) NONCASH INVESTING AND FINANCING ACTIVITIES - CONTINUED During 1998, the Company issued 27,023 shares of common stock in connection with the acquisition of the net assets of another company (Note T). During 2000, the Company completed the acquisition by issuing another 618,439 shares. These transactions resulted in an increase to the following balance sheet accounts: Inventories $ 60 Other current assets 23 Property and equipment 50 Other assets 1,258 Accounts payable (91) ---------- Common stock $ 1,300 ==========
The Company accrued dividends of $97 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 $133 of its 3% Series A convertible preferred stock and $3 of accrued dividends into Common Stock. The accompanying notes are an integral part of these statements F-7 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows. 1. BUSINESS ACTIVITY Daw Technologies, Inc. and Subsidiaries (the Company) is a supplier of ultra-clean manufacturing environments, or cleanrooms, to the semiconductor industry. The Company designs, engineers, manufactures, installs and services all principal component systems for advanced cleanrooms. The Company also manufactures and sells other products that are manufactured similar to cleanrooms, and provides contract manufacturing services on an OEM basis for various customers. 2. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts and operations of the Company and its wholly owned subsidiaries, Daw Technologies, France, which was organized in 2000, Daw Technologies, Europe Ltd., which was organized in 1999, and Translite Systems, Inc., which was organized in 1999, (inactive). All material intercompany accounts and transactions have been eliminated in consolidation. 3. METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS Revenue recorded for contracts in the accompanying financial statements are recognized using the percentage-of-completion method and, therefore, take into account the costs, estimated earnings and revenue to date on contracts not yet completed. The revenue recognized is that portion of the total contract price that cost incurred to date bears to anticipated final total cost, based on current estimates of cost to complete. Revenue from cost-plus-fixed-fee contracts is recognized on the basis of costs incurred during the period plus the fee earned, measured by the cost-to-cost method. Contract costs include all direct and allocable indirect labor, benefits, materials unique to or installed in the project, subcontractor cost allocations, including employee benefits and equipment expense. At the time a loss on a contract becomes known, the entire amount of the estimated ultimate loss is recognized in the financial statements. As long-term contracts extend over one year, revisions in cost and earnings estimates during the course of the work are reflected in the accounting period in which the facts which require the revision become known. Costs attributable to contract claims or disputes are carried in the accompanying balance sheets only when realization is probable. These costs are recorded at the lesser of actual costs incurred or the amount expected to be realized. It is reasonably possible that estimates by management related to contracts can change in the future. F-8 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 3. METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS - CONTINUED The current asset, "costs and estimated earnings in excess of billings on contracts in progress," represents revenues recognized in excess of amounts billed (under-billings), and the current liability, "billings in excess of costs and estimated earnings on contracts in progress," represents billings in excess of revenues recognized (over-billings). The amount of revenue recognized is not related to the progress billings to customers. 4. OTHER REVENUE RECOGNITION The Company recognizes revenues on its other product sales and contract manufacturing services when the product is shipped and title passes to the customer. 5. DEPRECIATION AND AMORTIZATION Property and equipment are stated at cost. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. Leased property under capital leases and leasehold improvements are amortized over the shorter of the lives of the respective leases or over the service lives of the asset. The straight-line method of depreciation is followed for financial reporting purposes. Accelerated methods of depreciation are used for tax purposes. 6. INCOME TAXES The Company utilizes the liability method of accounting for income taxes. Under the liability method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. An allowance against deferred tax assets is recorded when it is more likely than not that such tax benefits will not be realized. Research tax credits are recognized as utilized. 7. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments with an original maturity of three months or less when purchased to be cash equivalents. F-9 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 8. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined principally by the first-in, first-out method. 9. NET EARNINGS (LOSS) PER SHARE Basic Earnings Per Share (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. Diluted EPS is not calculated for periods of net loss because to do so would be anti-dilutive. 10. RESEARCH AND DEVELOPMENT COSTS The Company conducts research and development to develop new products or product improvements not directly related to a specific project. Research and development costs have been charged to expense as incurred. 11. CONCENTRATIONS The Company's financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and receivables. The Company provides credit according to the terms of the individual project contracts, in the normal course of business, primarily to semi-conductor manufacturers. Approximately 33 percent of receivables are with four customers (49 percent with three customers in 1999). In addition, approximately 43 percent (30 percent in 1999) of receivables are due from entities located outside of North America, primarily Europe. Of the total receivables, approximately 43 percent are denominated in foreign currencies (30 percent at December 31, 1999). The Company routinely evaluates the financial strength of its customers and monitors each account to minimize the risk of loss. F-10 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 11. CONCENTRATIONS - CONTINUED The Company maintains cash and cash equivalents at several financial institutions. Accounts at each domestic institution are insured by the FDIC up to $100. Uninsured domestic balances were approximately $312 at December 31, 2000. The Company also maintains cash and cash equivalents in foreign accounts. These uninsured balances are approximately $1.8 million at December 31, 2000. 12. RETENTIONS RECEIVABLE Many of the Company's contracts require retentions, typically 5-10 percent of the amount billed, to be withheld from each progress payment by the customer until the project reaches substantial completion. 13. INTANGIBLE ASSETS Intangible assets are amortized on the straight-line method over the estimated useful life or the terms of the respective agreement or patent, whichever is shorter. The original estimated useful lives range from 2-15 years. On an ongoing basis, management reviews the valuation and amortization of intangible assets to determine possible impairment by comparing the carrying value to the undiscounted estimated future cash flows of the related assets and necessary adjustments, if any, are recorded. Amortization of goodwill during 2000 was approximately $113 ($195 in 1999). 14. ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of the Company's cash and cash equivalents, contracts receivable and accounts payable, accrued liabilities and lines of credit approximate their fair values due to their short-term nature. F-11 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED 16. STOCK OPTIONS The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for its employee stock options rather than adopting the alternative fair value accounting provided for under FASB Statement 123, "Accounting for Stock-Based Compensation" (SFAS 123). 17. TRANSLATION OF FOREIGN CURRENCIES The foreign subsidiaries' asset and liability accounts, which are originally recorded in the appropriate local currency, are translated for consolidated financial reporting purposes, into U.S. dollar amounts at period-end exchange rates. Revenue and expense accounts are translated at the weighted-average rates for the period. Foreign currency translation adjustments are accumulated as a component of comprehensive income. 18. NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board issued Statement on Financial Accounting Standards ("SFAS") No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES in 1998. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. For a derivative not designated as a hedging instrument, changes in the fair value of the derivative are recognized in earnings in the period of change. As a result of SFAS No. 137, SFAS No. 133 has been adopted in 2001. The Company does not believe the adoption of SFAS No. 133 will have a material effect on the financial position or results of operations of the Company 19. RECLASSIFICATIONS Certain reclassifications have been made to the 1999 and 1998 financial statements to conform with the 2000 presentation. F-12 NOTE B - CAPITAL TRANSACTIONS During 2000, the Company entered into a Convertible Preferred Stock Purchase Agreement wherein 480 shares of its 3 percent Series A Convertible Preferred stock was sold for an aggregate purchase price of $4,800 resulting in net proceeds received by the Company of $4,575. These shares are convertible to common stock at a conversion rate equal to a fraction, the numerator of which is equal to $10 plus all accrued dividends and the denominator of which is equal to the lesser of (a) $1.32 per share and (b) 80% of the average of the five lowest consecutive per share market values during the 25 trading days preceding the conversion date. This sale of Preferred Stock resulted in a beneficial conversion feature (Note S). In conjunction with the sale of Preferred Stock the Company also issued 472,500 warrants. The net proceeds received by the Company have been allocated to the warrants and Preferred Stock based on their relative fair market values. From September to December 2000, 15 of these shares were converted into 221,163 shares of common stock. Various employees converted their stock options during 2000. In total, 301,550 shares of common stock were issued due to stock option conversions. In 1998, the Company issued 27,023 shares of common stock to acquire the net assets of Intelligent Enclosures Corporation and in 2000, the Company completed the acquisition by issuing another 618,439 shares (Note T). The Company purchased and retired 27,023 shares of common stock during 1998. During 1996, the shareholders of the Company approved an employee stock purchase plan. The maximum number of shares of common stock that may be issued under the plan is 750,000 shares. Employees are eligible to participate in the plan upon completion of 90 days employment. Eligible employees may designate from 2 percent to 15 percent (up to $25) of eligible compensation to be withheld for the purchase of stock. Price per share is 85 percent of the lower closing trading price of the stock on the applicable offering commencement date or offering termination date. Offering periods are six months in length beginning on May 1 and November 1 of each year. During 2000, 1999 and 1998, the Company received $41, $22 and $49 from the issuance of 41,805, 33,403 and 44,711 shares of common stock, respectively. F-13 NOTE C - INTERNATIONAL OPERATIONS Financial information summarized by geographic area for the years ended December 31, 2000, 1999 and 1998, is as follows:
North 2000 America Europe Asia/Pacific Consolidated --------------------------------------------- ----------- ----------- ------------- -------------- Net revenues - unaffiliated customers $ 36,508 $ 14,916 $ - $ 51,424 Earnings from operations 605 373 - 978 Identifiable assets 17,396 9,697 - 27,093 North 1999 America Europe Asia/Pacific Consolidated --------------------------------------------- ----------- ----------- ------------- -------------- Net revenues - unaffiliated customers $ 31,169 $ 9,749 $ 3,093 $ 44,011 Loss from operations (6,319) (1,386) (2,439) (10,144) Identifiable assets 18,443 6,432 - 24,875 North 1998 America Europe Asia/Pacific Consolidated --------------------------------------------- ----------- ----------- ------------- -------------- Net revenues - unaffiliated customers $ 30,507 $ 12,965 $ 9,606 $ 53,078 Loss from operations (4,316) (42) (1,156) (5,514) Identifiable assets 21,352 6,453 3,036 30,841
Foreign currency transaction losses totaling approximately $41 for 2000 ($192 for 1999) ($203 for 1998) are included in other income (expense). NOTE D - ACCOUNTS RECEIVABLE Accounts receivable consist of the following:
2000 1999 ----------- ---------- Trade accounts receivable $ 434 $ 1,662 Contract receivables 7,099 5,822 Retentions receivable 143 188 ----------- ---------- 7,676 7,672 Less allowance for doubtful accounts 329 300 ----------- ---------- Total $ 7,347 $ 7,372 =========== ==========
F-14 NOTE E - INVENTORIES Inventories consist of the following:
2000 1999 ----------- ---------- Raw materials $ 2,277 $ 523 Work in process - 2,389 ---------- --------- 2,277 2,912 Less allowance for obsolescence 300 300 ---------- --------- Total $ 1,977 $ 2,612 ========== =========
NOTE F - OTHER CURRENT ASSETS Other current assets consist of the following:
2000 1999 ----------- ---------- Income taxes receivable $ - $ 222 Refundable foreign taxes 2,603 2,703 Prepaid expenses 143 137 Miscellaneous receivables and deposits 81 87 ---------- --------- Total $ 2,827 $ 3,149 ========== =========
NOTE G - PROPERTY AND EQUIPMENT Property and equipment and estimated useful lives consist of the following:
Years 2000 1999 --------------- ---------- --------- Equipment 5-10 $ 1,839 $ 2,093 Furniture and fixtures 3-5 1,331 1,322 Leasehold improvements life of lease 2,592 2,626 Equipment under capital leases 5-10 3,588 3,720 Vehicles 3-5 287 246 --------- -------- 9,637 10,007 Less accumulated depreciation and amortization including $3,279 and $3,227 for equipment under capital leases at 2000 and 1999, respectively 7,603 6,897 --------- -------- Total $ 2,034 $ 3,110 ========= ========
F-15 NOTE H - CONTRACTS IN PROGRESS Costs incurred to date and estimated earnings and the related progress billings to date on contracts in progress are as follows:
2000 1999 ----------- ----------- Total costs and estimated earnings $ 47,760 $ 193,794 Progress billings to date 43,645 191,837 ---------- ---------- Total $ 4,115 $ 1,957 ========== ==========
The above are included in the balance sheets under the following captions:
2000 1999 ----------- ----------- Costs and estimated earnings in excess of billings on contracts in progress $ 6,109 $ 3,581 Billings in excess of costs and estimated earnings on contracts in progress (1,994) (1,624) ---------- ---------- Total $ 4,115 $ 1,957 ========== ==========
NOTE I - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Accounts payable and accrued liabilities consist of the following:
2000 1999 ----------- ---------- Trade accounts payable $ 5,488 $ 6,334 Other accrued liabilities 1,230 1,392 Employees salaries, incentive pay, vacation and payroll taxes 999 836 Reserve for contract estimates and warranties 275 309 Foreign and U.S. sales taxes 876 - ---------- --------- Total $ 8,868 $ 8,871 ========== =========
F-16 NOTE J - INCOME TAXES Components of income taxes (benefit) are as follows:
2000 1999 1998 ---------- ----------- ----------- Current Federal $ 287 $ 106 $ 12 State 28 15 2 Foreign - - - --------- ---------- ---------- 315 121 14 Deferred Federal - (1,511) (1,809) State - 298 (280) --------- ---------- ---------- - (1,213) (2,089) --------- ---------- ---------- Income tax expense (benefit) $ 315 $ (1,092) $ (2,075) ========= ========== ==========
The income tax expense (benefit) reconciled to the tax computed at the statutory Federal rate of 34 percent is as follows:
2000 1999 1998 --------- --------- --------- Tax (benefit) at federal statutory rate $ 248 $ (3,679) $ (2,039) Nondeductible expenses (97) 5 12 State income taxes, net of federal income tax benefit 15 (324) (198) Change in valuation allowance 174 2,887 - Adjustment of estimated income tax accruals (25) - - All other, net - 19 150 -------- -------- -------- Income tax expense (benefit) $ 315 $ (1,092) $ (2,075) ======== ======== ========
Deferred income taxes (benefit) related to the following:
2000 1999 --------- --------- Current deferred tax assets Allowance for doubtful accounts $ 123 $ 112 Accrued expenses and reserves 302 313 -------- -------- Total current $ 425 $ 425 ======== ========
F-17 NOTE J - INCOME TAXES - CONTINUED
2000 1999 --------- --------- Long-term deferred tax assets (liabilities) Excess book depreciation and amortization $ 303 $ (37) Foreign tax credit carry forwards 197 162 Alternative minimum tax credit carry forwards 220 198 Net operating loss carry forward 5,705 5,928 Valuation allowance (3,061) (2,887) -------- -------- Total long-term $ 3,364 $ 3,364 ======== ========
The foreign tax credit carry forward of $197 begins to expire during 2001. Management believes it is more likely than not that the Company will have sufficient foreign and domestic income to utilize the credits before expiration. The valuation allowance was increased by $174 for the year ended December 31, 2000 and increased by $2,887 in 1999 ($0 in 1998). As of December 31, 2000, the Company had net operating loss carry forwards for tax reporting purposes of approximately $15,377 expiring in various years through 2019. NOTE K - LINE OF CREDIT During 2000 and 1999, the Company maintained a revolving line of credit with a domestic bank for the lesser of $6,000 or the available borrowing base. The interest rate is computed at 14.5 percent and requires monthly payments of interest. The Company had $2,603 in borrowings against the line at December 31, 2000 ($5,258 at December 31, 1999). The line of credit originally expired October 31, 1999 but was extended to December 31, 2000. The line of credit is collateralized by certain domestic receivables and inventories. The line of credit agreement contains restrictive covenants imposing limitations on payments of cash dividends, purchases or redemptions of capital stock, indebtedness and other matters. At times during 2000 and at December 31, 2000, the Company was out of compliance with certain indebtedness covenants. Subsequent to year-end the Company signed an extension of the line of credit through April 30, 2001, which included a waiver for the non-compliance with the covenants as of December 31, 2000. The Company is currently reviewing several financing alternatives. F-18 NOTE L - LONG-TERM OBLIGATIONS The Company has entered into capital leases with various financial institutions and leasing organizations that carry interest rates ranging from 4 percent to 11.5 percent. The leases are collateralized by equipment. Payments approximate $23 monthly including interest. The following is a schedule by year of future minimum lease payments under capital leases, together with the present value of the net lease payments as of December 31, 2000:
Year ending December 31, --------------------------- 2001 $ 103 2002 77 2003 17 2004 7 2005 2 Thereafter - -------- Total minimum leases payments 206 Less amount representing interest 19 -------- Present value of net minimum lease payments 187 Less current portion 88 -------- Long-term portion $ 99 ========
NOTE M - OPERATING LEASES The Company leases buildings, machinery and equipment under operating leases. The building leases expire in 2001 through 2006. The machinery and equipment leases expire through 2002. The following is a schedule, by year, of future minimum rental payments as of December 31, 2000:
Year ending December 31, ---------------------------- 2001 $ 1,267 2002 661 2003 647 2004 633 2005 303 Thereafter 3 ------- $ 3,514 =======
F-19 NOTE M - OPERATING LEASES - CONTINUED The building leases provide for payment of property taxes, insurance, and maintenance costs by the Company. Rental expense for operating leases totaled $1,376, $2,314 and $2,212 for 2000, 1999 and 1998, respectively. The Company has an option to renew one building lease for four additional five year periods upon expiration of the current term in 2005. NOTE N - BENEFIT PLANS 1. SAVINGS PLAN The Company has established a 401(k) savings plan covering all non-union employees 21 years of age and older. The Company, at its discretion, matches 50 percent of employee contributions up to a maximum matching contribution of 3 percent of the employee's annual salary. Contributions are made at the discretion of the Board of Directors. The Company's contributions to the plan were $117, $147 and $189 for the years ended December 31, 2000, 1999 and 1998, respectively. 2. MULTI-EMPLOYER PENSION PLANS The Company contributes to several multi-employer pension plans for employees covered by collective bargaining agreements. Employees covered by these plans are engaged solely in on-site installation of cleanrooms. These plans are not administered by the Company and contributions are determined in accordance with provisions of negotiated labor contracts. The Company's contributions to the multi-employer pension plans totaled approximately $17, $128 and $269, respectively, for the years ended December 31, 2000, 1999 and 1998. Information with respect to the Company's proportionate share of the excess, if any, of the actuarially computed value of vested benefits over the total pension plans' net assets are not available from the plans' administrators. The Multi-Employer Pension Plan Amendments Act of 1980 (The "Act") significantly increased the pension responsibilities of participating employers. Under the provision of the Act, if the plans terminate or the Company withdraws, the Company could be subject to a withdrawal liability. Management has no intention of undertaking any action which could subject the Company to any withdrawal liability which would have a material effect on the Company's financial condition. F-20 NOTE O - LEGAL PROCEEDINGS AND CLAIMS The Company is engaged in various lawsuits and claims, either as plaintiff or defendant, in the normal course of business. In the opinion of management, based upon advice of counsel, the ultimate outcome of these lawsuits will not have a material impact on the Company's financial position or results of operations. NOTE P - PRIMARY CUSTOMERS The Company has typically had one to three customers in each year which accounted for more than 10 percent each of revenues; these customers do not necessarily remain significant in subsequent years. These major customers are typically general contractors of fabrication facilities. The Company's major customers and revenue received there from are as follows:
2000 1999 1998 ----------- ------------ ----------- Company A $ 6,461 $ 10,625 $ 6,580 Company B 4,484 4,508 7,912 Company C 6,870 - - Company D 928 5,337 -
NOTE Q - RELATED PARTY TRANSACTIONS Daw Incorporated is a regional interior specialties contracting company based in Utah. Certain stockholders of Daw Incorporated own approximately 34 percent of the Company's common stock. The Company purchased goods and services from Daw Incorporated totaling $39, $71, and $447 in 2000, 1999 and 1998, respectively. A member of the board of directors works for a law firm which provided legal services to the Company approximating $125, $19 and $171 in 2000, 1999 and 1998, respectively. F-21 NOTE R - WARRANTS AND OPTIONS During 1996, the Board of Directors and the shareholders amended the Company's 1993 Stock Option Plan (Plan) to increase the number of shares reserved for issuance by 250,000. In addition, the amendment extended the life of the Plan for one year, and eliminated the limit on the number of options that can be granted in any given year. Also, the amendment limits to 100,000 the number of options that can be granted to any one individual in any given year. The Plan is a non-qualified plan, and the options granted thereunder are non-qualified stock options. Under the amended Plan, 1,250,000 shares of common stock were reserved for issuance upon exercise of options. The Plan provides that options to purchase a maximum of 1,075,000 shares may be granted to eligible employees (including employees who are directors or officers) and options to purchase a maximum of 175,000 shares may be granted to non-employee directors. The exercise price for stock options granted under the Plan may not be less than 100 percent of the fair market value of a share of common stock on the date the option is granted. Options granted under the Plan after October 24, 1996, expire through 2008. Options granted prior to or on October 24, 1996 expire through 2011. The Company granted options to purchase 328,000 shares and 311,500 shares in 2000 and 1998, (none in 1999), respectively, of the Company's common stock. The options were granted to the following:
2000 1999 1998 ----------- ------------ ----------- Directors 55,000 - 20,000 Executive officers, including officers who are directors 105,000 - 60,000 Other employees 168,000 - 231,500 ----------- ------------ ----------- 328,000 - 311,500 =========== ============ ===========
On February 24, 1998, certain options with an exercise price greater than $1.40 were adjusted to $1.40, which was the market price of the Company's stock on that date. At that date, vesting was extended by one year for those options adjusted. These adjustments resulted in a new measurement date under interpretations to Accounting Principles Board Opinion No. 25. F-22 NOTE R - WARRANTS AND OPTIONS - CONTINUED The Company has adopted only the disclosure provisions of Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (FAS 123). Therefore, the Company continues to account for stock based compensation under Accounting Principles Board Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for the stock based compensation been determined based upon the fair value of the awards at the grant date consistent with the methodology prescribed by FAS 123, the Company's net earnings (loss) and earnings (loss) per share would have been changed to the following pro forma amounts:
2000 1999 1998 --------- --------- --------- Net earnings (loss) As reported $ 414 $ (9,729) $ (3,922) Pro forma 191 (9,903) (4,074) Earnings (loss) per share: Basic As reported (0.17) (0.78) (0.32) Pro forma (0.22) (0.79) (0.33) Diluted As reported (0.17) (0.78) (0.32) Pro forma (0.22) (0.79) (0.33)
These pro forma amounts may not be representative of future disclosures because they do not take into effect pro forma compensation cost related to grants made before 1995. The fair value of these options was estimated at the date of grant using the modified Black-Scholes American option-pricing model with the following weighted-average assumptions for 2000 and 1998: expected volatility of 144 percent (53 percent for 1998); risk-free interest rate of 5.50 percent (6.05 percent for 1998); and expected life of 10 years (10 for 1998). The weighted-average fair value of options granted was $0.93 and $1.17 in 2000 and 1998, respectively. Option pricing models require the input of highly subjective assumptions including the expected stock price volatility. Also, the Company's employee stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate. Management believes the best input assumptions available were used to value the options and that the resulting option values are reasonable. F-23 NOTE R - WARRANTS AND OPTIONS - CONTINUED Changes in the Company's stock options and warrants are as follows:
Shares Weighted- ------------------------------ Exercise average Stock price exercise price Warrants options per share per share -------------- ------------- ---------------- -------------- Outstanding at January 1, 1998 - 693,000 $ 1.94 - 3.50 $ 3.32 Granted - 311,500 0.84 - 2.66 2.28 Exercised - - - - Canceled or expired - (135,500) 1.38 - 3.50 3.05 -------------- ------------- Outstanding at December 31, 1998 - 869,000 0.84 - 3.50 1.99 Granted - - - - Exercised - - - - Canceled or expired - (127,500) 1.40 - 2.66 1.78 -------------- ------------- Outstanding at December 31, 1999 - 741,500 0.84 - 3.50 1.63 Granted 472,500 328,000 0.88 - 1.28 .95 Exercised - (301,550) 1.09 - 2.66 1.46 Canceled or expired - (63,500) 0.94 - 3.50 2.06 -------------- ------------- Outstanding at December 31, 2000 472,500 704,450 0.84 - 2.66 1.36 ============== ============= Exercisable at December 31, 2000 472,500 381,450 0.84 - 2.66 1.70 ============== ============= Exercisable at December 31, 1999 - 636,000 0.84 - 3.50 1.99 ============== ============= Exercisable at December 31, 1998 - - - - ============== =============
A summary of the status of the options outstanding under the Company's stock option plan at December 31, 2000 is presented below:
Outstanding Exercisable ---------------------------------------- ------------------------- Weighted- average Weighted- Weighted- remaining average average Number contractual exercise Number exercise Range of exercise prices outstanding life (years) price exercisable price -------------------------- ------------ ------------ ---------- ----------- ----------- $ 0.84 - $ 1.25 333,000 9 $ 0.93 20,000 $ 0.93 $ 1.26 - $ 1.50 271,450 5 1.39 261,450 1.39 $ 2.51 - $ 2.66 100,000 7 2.66 100,000 2.66 ------------ ----------- $ 0.84 - $ 2.66 704,450 7 $ 1.36 381,450 $ 1.99 ============ ===========
F-24 NOTE S - EARNINGS (LOSS) PER COMMON SHARE The following data show the amounts used in computing net earnings (loss) per common share, including the effect on net earnings (loss) for preferred stock dividends and a beneficial conversion feature associated with preferred stock. The following data also show the weighted average number of shares and rights to acquire shares with dilutive potential. For 2000, earnings applicable to common stock include a noncash imputed dividend to the preferred shareholders related to the beneficial conversion feature on the 2000 Series A Preferred Stock. The beneficial conversion feature is computed as the difference between the market value of the common stock into which the Series A Preferred Stock can be converted and the value assigned to the Series A Preferred Stock in the private placement. The imputed dividend is a one-time, noncash charge decreasing the net earnings per common share.
2000 1999 1998 -------------- -------------- ------------- Net earnings (loss) $ 414 $ (9,729) $ (3,922) Dividends on Preferred Stock (97) - - Imputed dividend from beneficial conversion feature (2,593) - - ------------- ------------- ------------ Net loss applicable to common shareholders $ (2,276) $ (9,729) $ (3,922) ============= ============= ============
The following data show the shares used in computing earnings (loss) per common share including dilutive potential common stock:
2000 1999 1998 ------------ ----------- ------------ Common shares outstanding during entire period 12,513,114 12,479,711 12,407,977 Net weighted average common shares issued during period 626,886 22,269 32,144 ------------ ------------ ------------ Weighted average number of common shares used in basic EPS 13,140,000 12,501,980 12,440,121 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 13,140,000 12,501,980 12,440,121 =========== =========== ===========
For the years ended December 31, 2000, 1999 and 1998, all of the stock options and warrants that were outstanding, as described in Note R, were not included in the computation of diluted EPS because to do so would have been anti-dilutive. F-25 NOTE T - BUSINESS ACQUISITION On April 22, 1998, the first closing date, the Company acquired the net assets of Intelligent Enclosures Corporation. The transaction was accounted for as a purchase and the transaction is to be completed on April 22, 2000, the second closing date. At the first closing date, the Company delivered 27,023 shares of common stock. During 2000, at the second closing date, the Company issued 618,439 additional shares of common stock at $2.06 per share (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 totaled $1,300. NOTE U - SEGMENT INFORMATION The Company has two reportable segments for the year ended December 31, 2000, namely 1) cleanrooms and related products and 2) other manufactured goods. Prior to 1998, the Company operated in one segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance of each segment based on earnings or loss from operations. The Companies reportable segments are similar in manufacturing processes and are tracked similarly in the accounting system. The manufacturing process for each segment uses the same manufacturing facilities and overhead is allocated similarly to each segment. It is not practical to determine the total assets per segment and depreciation by segment because each segment uses the same manufacturing facility. Identifiable assets by segment are reported below. The Company allocates certain general and administrative expenses, consisting primarily of facilities expenses, utilities, and manufacturing overhead. Segment information for the cleanrooms and related products and other manufactured goods are as follows:
2000 1999 1998 ----------- ----------- ------------ Revenues Cleanrooms and related products $ 39,362 $ 30,775 $ 46,298 Other manufactured goods 12,062 13,236 6,780 ---------- ---------- ----------- Totals $ 51,424 $ 44,011 $ 53,078 ========== ========== =========== Earnings (loss) from operations Cleanrooms and related products $ 4,295 $ (856) $ (6,005) Other manufactured goods (3,317) (9,288) 491 ---------- ---------- ----------- Totals $ 978 $ (10,144) $ (5,514) ========== ========== =========== Total assets Cleanrooms and related products $ 19,528 $ 15,535 $ 15,053 Other products 1,712 2,284 1,397 Manufacturing and corporate assets 5,853 7,056 14,391 ---------- ---------- ----------- Totals $ 27,093 $ 24,875 $ 30,841 ========== ========== ===========
F-26 NOTE V - REVENUES Revenues by country are based on the location of the project for long-term projects and by the location of the customer for other manufactured products and are as follows:
2000 1999 1998 ----------- ----------- ----------- Canada $ 4,844 $ 11,827 $ 6,666 United Kingdom 5,444 5,893 6,692 Peoples Republic of China - 382 7,092 Italy 983 42 3,568 Taiwan - 2,711 2,319 Israel 901 3,366 2,058 France 7,588 448 644 All others - - 198 ---------- ---------- ---------- Total export revenues 19,760 24,669 29,237 United States 31,664 19,342 23,841 ---------- ---------- ---------- Total revenues $ 51,424 $ 44,011 $ 53,078 ========== ========== ==========
NOTE W - RESTRUCTURING CHARGES During December 1999, in order to reduce costs, the Company implemented a restructuring of its operations which resulted in the Company recording a one-time restructuring charge totaling $1,839. This one-time charge was due to the transfer of ownership of the Company's Asia/Pacific office to a former employee ($796) and the write down of inventory due to the Company's plans to pursue a foundry strategy for the manufacture of cleanroom components ($1,043). NOTE X - QUARTERLY FINANCIAL RESULTS (UNAUDITED) Quarterly financial results for the years ended December 31, 2000 and 1999 are as follows:
Net earnings Earnings Net (loss) per Gross(2) (loss) from earnings common 2000 Revenues profit (loss) operations (loss) share-basic (1) ----------------------- --------------- -------------- ---------------- -------------- -------------- First quarter $ 15,140 $ 1,012 $ (214) $ (346) $ (0.03) Second quarter 14,637 2,146 729 266 (0.18) Third quarter 11,198 1,496 507 330 0.02 Fourth quarter 10,449 1,381 (44) 164 0.01 -------------- ------------- --------------- ------------- ------------- $ 51,424 $ 6,035 $ 978 $ 414 $ (0.17) ============== ============= =============== ============= ============= 1999 ----------------------- First quarter $ 12,480 $ 1,577 $ (390) $ (316) $ (0.03) Second quarter 9,980 47 (2,019) (1,442) (0.12) Third quarter 12,433 774 (1,018) (1,129) (0.09) Fourth quarter 9,118 (2,437) (6,717) (6,842) (0.54) -------------- ------------- --------------- ------------- ------------- $ 44,011 $ (39) $ (10,144) $ (9,729) $ (0.78) ============== ============= =============== ============= =============
(1) Earnings (loss) per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings (loss) per share amounts do not necessarily equal the total for the year due to rounding. F-27 NOTE Y - RESTATEMENT OF FINANCIAL STATEMENTS In November 2001, the Company determined that the consolidated financial information in the Company's Annual Reports on Form 10-K for the years ended December 31, 1999 and December 31, 2000 as well as the unaudited interim financial statements reported in the Company's Quarterly Reports on Form 10-Q for the periods ended March 31, 2000, June 30, 2000, September 30, 2000, March 31, 2001 and June 30, 2001 had been incorrectly compiled and reported primarily because of errors in the financial information reported by the Company's European operations. The errors generally resulted from the following items: - Foreign currency translation and transaction gains/losses 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. This included the reclassification of preferred stock to redeemable preferred stock, recording preferred stock dividends and the beneficial conversion feature in retained earnings and additional paid in capital. The Company's financial statements for 1999, 2000 and the first two quarters of 2001 have been restated to correct the errors noted above. In the opinion of management, all material adjustments necessary to correct the financial statements have been recorded. The effect of the restatements is described in amended filings on Form 10-K/A or Form 10-Q/A for the applicable periods. The impact of these adjustments on the Company's 2000 financial results and financial condition as originally reported is summarized below (in thousands, except per share data): F-28 NOTE Y - RESTATEMENT OF FINANCIAL STATEMENTS - CONTINUED
December 31, 2000 ----------------- As Previously As Reported Restated ---------- --------- Consolidated balance sheet: Current assets $ 23,798 $ 20,860 Property and equipment - net, at cost 2,404 2,034 Total assets 31,564 27,093 Current liabilities 12,454 13,575 Redeemable Preferred Stock - 4,093 Total shareholders' equity 19,011 9,326 Year ended December 31, 2000 ----------------- Consolidated statement of operations: Revenue, net $ 52,633 $ 51,424 Cost of goods sold 43,525 45,389 Gross profit 9,108 6,035 Operating expenses 6,460 5,057 Earnings from operations 2,648 978 Other income (expense), net (208) (249) Net earnings 3,464 414 Net earning (loss) applicable to common shareholders 704 (2,276) Net income (loss) per common share basic and diluted $ 0.05 $ (0.17)
F-29 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE Board of Directors Daw Technologies, Inc. and Subsidiaries In connection with our audit of the financial statements of Daw Technologies, Inc. and Subsidiaries referred to in our report dated February 14, 2001, except for Note Y for which the date is April 5, 2002, which is included in the annual report to shareholders and Form 10-K, we have also audited Schedule II - valuation and qualifying accounts for each of the three years in the period ended December 31, 2000. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. /s/ GRANT THORNTON LLP Salt Lake City, Utah February 14, 2001, except for Note Y for which the date is April 5, 2002 F-30 DAW TECHNOLOGIES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
-------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------------------------------------------------------------------------------------------------------------------- ADDITIONS -------------------------------------------------------------------------------------------------------------------- (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER ACCOUNTS DEDUCTIONS - END OF DESCRIPTION PERIOD EXPENSES DESCRIBE WRITE-OFFS PERIOD -------------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts Year ended December 31, 2000 $ 300 $ 56 $ (27)(A) $ - $ 329 Year ended December 31, 1999 615 360 - 675 300 Year ended December 31, 1998 403 100 150(B) (38) 615 Allowance for contract estimates Year ended December 31, 2000 309 - - 34 275 Year ended December 31, 1999 666 - - 357 309 Year ended December 31, 1998 366 - 300(B) - 666 Allowance for inventory obsolescence Year ended December 31, 2000 300 - - - 300 Year ended December 31, 1999 300 - 1,043(C) 1,043 300 Year ended December 31, 1998 - - 300(B) - 300 Allowance for contract repayment Year ended December 31, 1999 53 - (53)(A) - - Year ended December 31, 1999 53 - - - 53 Year ended December 31, 1998 803 - (750)(B) - 53 Allowance for deferred taxes Year ended December 31, 2000 2,887 174 - - 3,061 Year ended December 31, 1999 - 2,887 - - 2,887 Year ended December 31, 1998 - - - - -
(A) Reclassification 2000 (B) Reclassification 1999 (C) Restructuring charge F-31