-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PvWYlwKcXqrDgzYE8R4UgXnXjTJRZvuz4vlQs0PwSYJBxPl6vSSX0x2Vhy7Wl/+W N6sNQa4UeboCJZ9JUoAADw== 0000950149-99-001514.txt : 19990817 0000950149-99-001514.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950149-99-001514 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAW TECHNOLOGIES INC /UT CENTRAL INDEX KEY: 0000882159 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL BUILDING CONTRACTORS - NONRESIDENTIAL BUILDINGS [1540] IRS NUMBER: 870464280 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21818 FILM NUMBER: 99693841 BUSINESS ADDRESS: STREET 1: 2700 S 900 W CITY: SALT LAKE CITY STATE: UT ZIP: 84119 BUSINESS PHONE: 8019773100 MAIL ADDRESS: STREET 2: 2700 SOUTH 900 WEST CITY: SALT LAKE CITY STATE: UT ZIP: 84119 FORMER COMPANY: FORMER CONFORMED NAME: PRIMA ACQUISITIONS INC DATE OF NAME CHANGE: 19600201 10-Q 1 FORM 10-Q DATED JUNE 6, 1999 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 1999 or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. 0-21818 --------------------- (Commission File No.) DAW TECHNOLOGIES, INC. --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) UTAH 87-0464280 ---------------------------- ------------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) 2700 SOUTH 900 WEST SALT LAKE CITY, UTAH 84119 --------------------------------------------------------------------- (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (801) 977-3100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ( X) No ( ) As of August 16, 1999, the Registrant had 12,513,114 shares of Common Stock, $0.01 par value outstanding. 2 Daw Technologies, Inc. TABLE OF CONTENTS PART I FINANCIAL INFORMATION..................................................................................1 Item 1. Financial Statements Condensed Balance Sheets - June 30, 1999 and December 31, 1998.......................................1 Condensed Statements of Operations - Three months and six months ended June 30, 1999 and 1998........2 Condensed Statements of Cash Flows - Six months ended June 30, 1999 and 1998........................3 Notes to Condensed Financial Statements..............................................................5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................................8 PART II OTHER INFORMATION.......................................................................................14 Item 4. Submission of Matters to a Vote of Security Holders.................................................14 Item 5. Other Information...................................................................................14 Item 6. Exhibits and Reports on Form 8-K....................................................................14 Signatures .................................................................................................... 15
3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Daw Technologies, Inc. CONDENSED BALANCE SHEETS (Unaudited) (in thousands, except share data)
June 30, Dec. 31, 1999 1998 -------- -------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 961 $ 2,140 Accounts receivable - net 8,331 8,904 Costs and estimated earnings in excess of billings on contracts in progress 10,548 7,546 Inventories, net 1,045 1,233 Deferred income taxes 1,052 655 Other current assets 2,417 2,391 -------- -------- Total current assets 24,354 22,869 PROPERTY AND EQUIPMENT - NET, AT COST 4,129 4,859 DEFERRED INCOME TAXES 2,556 1,921 OTHER ASSETS 1,092 1,192 -------- -------- $ 32,131 $ 30,841 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $ 7,160 $ 4,749 Billings in excess of costs and estimated earnings on contracts in progress 2,336 1,635 Lines of credit 5,461 5,254 Current portion of long-term obligations 515 557 -------- -------- Total current liabilities 15,472 12,195 LONG TERM OBLIGATIONS, less current portion 268 519 COMMITMENTS AND CONTINGENCIES -- -- SHAREHOLDERS' EQUITY Preferred stock, authorized 10,000,000 shares of $0.01 par value; none issued and outstanding -- -- Common stock, authorized 50,000,000 shares of $0.01 par value; issued and outstanding 12,513,114 shares at June 30, 1999 and 12,479,711 at December 31, 1998 125 125 Additional paid-in-capital 16,579 16,557 Retained earnings (313) 1,445 -------- -------- Total shareholders' equity 16,391 18,127 -------- -------- $ 32,131 $ 30,841 ======== ========
See accompanying notes to condensed financial statements. 1 4 Daw Technologies, Inc. CONDENSED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per share data)
Three Months Ended Six Months Ended June 30, June 30, -------------------------------- -------------------------------- 1999 1998 1999 1998 ------------ ------------ ------------ ------------ Revenues $ 9,980 $ 12,888 $ 22,460 $ 24,329 Cost of goods sold 9,933 14,656 20,836 25,610 ------------ ------------ ------------ ------------ Gross profit (loss) 47 (1,768) 1,624 (1,281) ------------ ------------ ------------ ------------ Operating expenses Selling, general and administrative 1,896 1,719 3,684 3,353 Research and development 58 78 118 122 Depreciation and amortization 112 154 232 261 ------------ ------------ ------------ ------------ 2,066 1,951 4,034 3,736 ------------ ------------ ------------ ------------ Loss from operations (2,019) (3,719) (2,410) (5,017) Other income (expense) Interest (186) (121) (287) (190) Other, net (84) 10 (94) 57 ------------ ------------ ------------ (270) (111) (381) (133) ------------ ------------ ------------ ------------ Loss before income taxes (2,289) (3,830) (2,791) (5,150) Income tax benefit (847) (1,427) (1,033) (1,916) ------------ ------------ ------------ ------------ NET LOSS $ (1,442) $ (2,403) $ (1,758) $ (3,234) ============ ============ ============ ============ Loss per common share Basic $ (0.12) $ (0.19) $ (0.14) $ (0.26) Diluted $ (0.12) $ (0.19) $ (0.14) $ (0.26) Weighted average common and dilutive common equivalent shares outstanding Basic 12,502,102 12,439,226 12,490,968 12,423,688 Dilutive 12,502,102 12,439,226 12,490,968 12,423,688
See accompanying notes to condensed financial statements. 2 5 Daw Technologies, Inc. CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands, except share data)
Six months ended June 30, ---------------------- 1999 1998 ------- ------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities Net loss $(1,758) $(3,234) Adjustments to reconcile net loss to net cash provided by (used in) operating activities Depreciation and amortization 781 896 Provision for losses on accounts receivable -- 13 Deferred income tax (1,032) (1,756) Changes in assets and liabilities Accounts receivable 573 340 Costs and estimated earnings in excess of billings on contracts in progress (3,002) (2,026) Inventories 188 (2,415) Other current assets (26) (544) Accounts payable and accrued liabilities 2,411 2,546 Income taxes payable -- -- Billings in excess of costs and estimated earnings on contracts in progress 701 (243) Other assets 100 (1,255) ------- ------- Net cash used in operating activities (1,064) (7,678) ------- ------- Cash flows from investing activities Payments for purchase of property and equipment (51) (123) ------- -------
(continued) See accompanying notes to condensed financial statements. 3 6 Daw Technologies, Inc. CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED (Unaudited) (in thousands, except share data)
Six months ended June 30, ---------------------- 1999 1998 ------- ------- Cash flows from financing activities Net change in lines of credit 207 4,086 Proceeds from issuance of common stock 22 69 Obligations to issue common stock -- 1,258 Payments under long-term obligations (293) (331) ------- ------- Net cash provided by (used in) financing activities (64) 5,082 ------- ------- Net decrease in cash and cash equivalents (1,179) (2,719) Cash and cash equivalents at beginning of period 2,140 5,802 ------- ------- Cash and cash equivalents at end of period $ 961 $ 3,083 ======= ======= Supplemental disclosures of cash flow information Cash paid during the period for Interest $ 287 $ 190 Income taxes -- --
See accompanying notes to condensed financial statements. 4 7 Daw Technologies, Inc. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 1. INTERIM CONDENSED FINANCIAL STATEMENTS The accompanying unaudited condensed financial statements have been prepared by Daw Technologies, Inc. (the "Company" or "Daw") in accordance with generally accepted accounting principles for interim financial reporting and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared under generally accepted accounting principles have been condensed or omitted pursuant to such regulations. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company's financial position, results of operations and cash flows have been included. All such adjustments are of a normal recurring nature. This report on Form 10-Q for the three and six months ended June 30, 1999 should be read in conjunction with the Company's annual report on Form 10-K for the calendar year ended December 31, 1998. The results of operations for the three and six months ended June 30, 1999 may not be indicative of the results that may be expected for the year ending December 31, 1999. 2. EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard (SFAS) No. 128, "Earnings per Share". The statement is effective for financial statements for periods ending after December 15, 1997, and changes the method in which earnings per share will be determined. Adoption of this statement by the Company did not have a material impact on earnings per share. Options to acquire 869,000 shares of common stock were not included in the calculation of dilutive weighted shares outstanding for the three and six months ended June 30, 1999 because they would have been anti-dilutive. 3. LINES OF CREDIT At June 30, 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 the bank's prime rate plus 1.0% (8.75% at June 30, 1999) and requires monthly payments of interest. The Company had borrowings under the line of $5,461 and $5,254 as of June 30, 1999, and December 31, 1998, respectively. The line of credit, which expired on December 31, 1998, was extended to June 30, 1999. The line of credit is collateralized by certain domestic receivables, equipment, 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 June 30, 1999, the Company was out of compliance on certain covenants for which they signed a forbearance agreement with the lender where the lender agreed to forbear exercise of its remedies against the Company. The Company is currently reviewing several financing alternatives. 5 8 Daw Technologies, Inc. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 4. BUSINESS ACQUISITION On April 22, 1998, in a stock for asset transaction, the Company acquired the net assets of Intelligent Enclosures Corporation, a leader in high performance controlled environments and contamination control solutions, including tool isolation environments, for microelectronic and semiconductor manufacturers. The transaction has been accounted for as a purchase and is staged in two closing dates. At the first closing on April 22, 1998, the Company issued 27,073 shares of common stock. At the second closing, on or before April 22, 2000, the Company will issue additional shares of common stock at the average per share closing price for the 20 consecutive trading days prior to the second closing, which, in addition to the shares issued at the first closing, will equal $1.3 million. 5. SEGMENT INFORMATION The Company has two reportable segments for the quarter ended June 30, 1999, namely 1) cleanrooms and related products and 2) other manufactured products. Prior to March 31, 1998, the Company operated in one segment, cleanrooms and related products. The accounting policies for the segments are the same as those described in the Company's annual report on form 10-K for the calendar year ended December 31, 1998. The Company evaluates performance of each segment based on earnings or loss from operations. The Company's reportable segments are similar in manufacturing processes and are tracked similarly in the accounting system. The manufacturing process for each segment uses the same manufacturing facilities and overhead is allocated similarly to each segment. It is not practical to determine the total assets per segment and depreciation by segment because each segment uses the same manufacturing facility. Identifiable assets by segment are reported below. The Company allocates certain general and administrative expenses, consisting primarily of facilities expenses, utilities, and manufacturing overhead. 6 9 Daw Technologies, Inc. NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited) (in thousands, except share data) 5. SEGMENT INFORMATION (CONTINUED) Segment information for the cleanrooms and related products and other manufactured goods are as follows:
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------ ------------------------ 1999 1998 1999 1998 -------- -------- -------- -------- Revenues Cleanrooms and related products $ 7,037 $ 11,172 $ 16,760 $ 22,613 Other manufactured goods 2,943 1,716 5,700 1,716 -------- -------- -------- -------- Totals $ 9,980 $ 12,888 $ 22,460 $ 24,329 ======== ======== ======== ======== Operating loss Cleanrooms and related products $ (2,327) $ (3,370) $ (3,127) $ (4,668) Other manufactured goods 308 (349) 717 (349) -------- -------- -------- -------- Totals $ (2,019) $ (3,719) $ (2,410) $ (5,017) ======== ======== ======== ========
JUNE 30, DECEMBER 31, 1999 1998 ------- ------- Total assets Cleanrooms and related products $15,981 $30,841 Other manufactured goods 1,400 -- Manufacturing and corporate 14,750 -- ------- ------- Totals $32,131 $30,841 ======= =======
7 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General The following discussion should be read in conjunction with the financial statements and notes thereto included elsewhere herein. All data in the tables are in thousands, except for percentages and per-share data. The Company's principal line of business is an integrated systems solution provider of cleanrooms and cleanroom component systems for the semiconductor industry. The Company also manufactures sleeper cabs for heavy-duty trucks, air entrance systems for large national retail chains, and air handling systems used in commercial and industrial applications. Additionally, the Company has recently entered into various contract manufacturing agreements whereby the Company manufactures products owned and marketed by third parties. It is the Company's objective to develop and maintain 40% of its revenues from sources outside of the semiconductor industry by applying its product and engineering expertise in custom metal fabrication, airflow systems and panel production to similar type products used in other industries. In recent years, the Company has typically had one to three significant customers, each of which accounted for more than 10% of the Company's annual revenues; these customers do not necessarily remain significant in subsequent years. The semiconductor industry has been historically cyclical in nature. Since chip sales drive capital spending by the industry, capital spending on facilities and equipment also tends to be highly cyclical. While the semiconductor industry has shown signs of recovery, with most of the major semiconductor and micro-electronic manufacturers posting increased sales and profits over the first two quarters of 1999, capital spending on new facilities and major expansions has continued to be slow. After peaking at $45 billion in 1995, worldwide capital spending fell by almost one-third to around $30 billion in 1998. For 1999, industry analysts anticipate capital spending to recover modestly but increase to $41 billion in 2000 and to finally surpass the 1995 level of spending in 2001 at $54 billion. The recent trend of increased chip sales, which started their upward movement in July of 1998, began to push equipment sales up during the fourth quarter of 1998 and this trend has continued through the first half of 1999. Management believes that increased spending by the industry on re-tooling and new equipment is a precursor to spending on larger capital items such as facilities and cleanrooms. While the continued slump in capital spending on new facilities has resulted in fewer contracts available to bid, the Company has been successful during the second quarter of 1999 in securing numerous new contracts. At June 30, 1999 the Company had a backlog of $15.0 million, compared to $37.1 million at June 30, 1998. This significant decrease is due to an unusually large backlog posted in June of 1998 as a result of two major contracts of approximately $17.5 million and $8.0 million. Management continues to believe that changes taking place in the industry should result in expanded semiconductor industry capital spending in the long-term. Excess capacity in the industry is being absorbed and chip makers are enlarging silicon wafers in order to reduce their costs. The long anticipated introduction of the 300mm fabs is underway. Several announcements have been made for the construction of new fabs 8 11 utilizing the 300mm technology and several more are expected to follow during the year. Industry analysts anticipate the construction of these new fabs will significantly increase capital spending, particularly on new facilities. In response to the current downturn, management will continue to monitor the Company's cost structure and take appropriate actions as considered necessary, but continue to develop state of the art cleanroom technology and provide world-class support to the Company's customers. The Company will also continue to actively seek ways in which to diversify its revenue and income source. The Company's contract revenue and operating results fluctuate substantially from quarter to quarter depending on such factors as the timing of significant customer orders, the timing of revenue and cost recognition, variations in contract mix, changes in customer buying patterns, fluctuations in the semiconductor equipment market, utilization of capacity, manufacturing productivity and efficiency, availability of key components and trends in the economies of the geographical regions in which the Company operates. The Company uses the percentage-of-completion method of accounting for its long-term 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). RESULTS OF OPERATIONS (Data in the tables are in thousands)
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED JUNE 30, ENDED JUNE 30, ------------------------ ------------------------ 1999 1998 1999 1998 -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Contract revenue ............ $ 9,980 $ 12,888 $ 22,460 $ 24,329 Gross profit (loss) ......... 47 (1,768) 1,624 (1,281) Selling, general and administrative expenses . 1,896 1,719 3,684 3,353 Research and development .... 58 78 118 122 Net loss .................... (1,442) (2,403) (1,758) (3,234)
JUNE 30, DECEMBER 31, 1999 1998 ------- ------- BALANCE SHEET DATA: Cash and cash equivalents $ 961 $ 2,140 Working capital .......... 8,882 10,674 Total assets ............. 32,131 30,841 Total liabilities ........ 15,740 12,714 Total shareholders' equity 16,391 18,127
9 12 Revenues for the second quarter of 1999 decreased by 22.6% to $10.0 million compared to $12.9 million for the second quarter of 1998. Contract revenue for the six months ended June 30, 1999 decreased by 7.7% to $22.5 million compared to $24.3 million for the six months ended June 30, 1998. This decrease is attributed to the continued reduction in capital spending by the semiconductor industry as more fully discussed above. The downturn has resulted in fewer contracts being worked on during the first two quarters of 1999 compared with the first two quarters of 1998. Gross profit for the second quarter of 1999 increased by 102.7% to $47,000 from a gross profit loss of $1.8 million for the second quarter of 1998 and increased as a percentage of contract revenue to .5% for the second quarter of 1999 from a negative 13.7% for the second quarter of 1998. Gross profit for the six months ended June 30, 1999 increased by 226.8% to $1.6 million from a gross profit loss of $1.3 million for the six months ended June 30, 1998 and increased as a percentage of contract revenue to 7.2% for the six months ended June 30, 1999 from a negative 5.3% for the six months ended June 30, 1998. The continued downturn in capital spending by the semiconductor industry has resulted in a price competitive bidding environment. As a result, contracts in process during the first and second quarters of 1999 continued to be awarded at lower margins. In addition, the reduced business activity during the second quarter of 1999 was not sufficient to adequately cover manufacturing overhead for the related product lines, resulting in low margins. The second quarter of 1998 was the ramp-up to full production of sleeper cabs by the Company's new manufacturing division for this product. During this ramp-up the Company incurred manufacturing startup costs that had a significant impact on the Company for the second quarter of 1998. Selling, general and administrative expenses for the second quarter of 1999 increased by 10.3% to $1.9 million compared to $1.7 million for the second quarter of 1998, and increased as a percentage of contract revenue to 19.0% for the second quarter of 1999 from 13.3% for the second quarter of 1998. For the six months ended June 30, 1999, selling, general and administrative increased by 9.9% to $3.7 million compared to $3.4 million for the six months ended June 30, 1998, and increased as a percentage of contract revenue to 16.4% for the six months ended June 30, 1999 from 13.8% for the six months ended June 30, 1998. Research and development expense for the second quarter of 1999 decreased 25.6% to $58,000 compared to $78,000 for the second quarter of 1998. Research and development expense for the six months ended June 30, 1999 decreased 3.3% to $118,000 compared to $122,000 for the six months ended June 30, 1998. The Company continues to fund research and development to improve existing products and develop new products in its diversification program. Depreciation and amortization expense for the second quarter of 1999 decreased 27.3% to $112,000 compared to $154,000 for the second quarter of 1998. Depreciation and amortization expense for the six months ended June 30, 1999 decreased 11.1% to $232,000 compared to $261,000 for the six months ended June 30, 1998. Interest expense for the second quarter of 1999 increased 53.7% to $186,000 compared to $121,000 for the second quarter of 1998. Interest expense for the six months ended June 30, 1999 increased 51.1% to $287,000 compared to $190,000 for the six months ended June 30, 1998. The increase in interest expense during the six months ended June 30, 1999 10 13 compared to the six months ended June 30, 1998 is the result of an increase in borrowings against the Company's line of credit through June 30, 1999 compared with borrowings through the same period during 1998. LIQUIDITY AND CAPITAL RESOURCES Working capital at June 30, 1999 was $8.9 million compared to $10.7 at December 31, 1998. This includes cash and cash equivalents of $961,000 at June 30, 1999 and $2.1 million at December 31, 1998. The Company's operations used $1.1 million of cash during the six months ended June 30, 1999, compared to $7.7 million of cash used by operations during the six months ended June 30, 1998. During the six months ended June 30, 1999, the Company experienced increases in costs and estimated earnings in excess of billings on contracts in progress and deferred income taxes. The increase in inventories was due to an increase in work in process inventory. In addition, the Company experienced an increase in accounts payables and accrued liabilities, lines of credit as a result of raw material purchases associated with recently awarded contracts, and billings in excess of costs and estimated earnings on contracts in progress during the six months ended June 30, 1999. At June 30, 1999, the Company had a line of credit totaling the lesser of $6.0 million or the available borrowing base. Amounts drawn under the line bear interest at the bank's prime rate plus 1.0% (8.75% at June 30, 1999). Certain domestic receivables and inventories secure the line. The Company had $5,461 and $5,254 in borrowings against the line as of June 30, 1999, and December 31, 1998, respectively. The lines of credit agreements contain restrictive covenants imposing limitations on payments on cash dividends, purchases or redemptions of capital stock, indebtedness and other matters. At June 30, 1999 the Company was out of compliance on certain indebtedness covenants for which they signed a forbearance agreement with the lender where the lender has agreed to forbear exercise of its remedies against the Company. The Company is currently negotiating the renewal of the credit line as well as several other financing alternatives. 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 September 30, 1999. However, in the event the Company experiences adverse operating performance, above-anticipated capital expenditure requirements, or is unable to negotiate a renewal of its current credit lines, additional financing may be required. There can be no assurance that such additional financing, if required, would be available on favorable terms. YEAR 2000 ISSUES The Company has developed a comprehensive plan to address year 2000 issues. The areas of focus are as follows: i) the Company's information technology systems; ii) the Company's non-information technology systems (i.e. machinery, equipment and devices which utilize built in or embedded technology); and iii) third party suppliers and customers. The Company is undertaking its year 2000 review in the following phases: awareness (education and potential impact of year 2000 issue), identification (identifying processes or systems which are exposed to the year 2000 issue), assessment (identifying the potential impact of year 2000 on the equipment, processes and systems identified during the previous phase), testing and verification (testing to determine if an item is compliant or the degree to 11 14 which it is not), and implementation (carrying out necessary remedial efforts to address year 2000 readiness, including validation of upgrades, patches or other year 2000 fixes). During 1998, the Company completed the installation of Oracle application software, a comprehensive enterprise-wide business system. This system affects nearly every aspect of the Company's operations, including: financial accounting, purchasing and accounts payable, raw material inventory control, production planning and scheduling, and invoicing and accounts receivable. All Oracle application software utilized by the Company is year 2000 compliant. In conjunction with the installation of the Oracle software, the Company installed new HP computer hardware to run the application software. While the HP hardware is not yet fully year 2000 compliant, the Company believes it has in its possession the necessary software to make the hardware's operating systems year 2000 compliant and intends to implement the software by September 1999. The Company expects to test these hardware, operating systems and software applications by September 1999 to confirm year 2000 readiness. The Company has identified other hardware, operating systems and software applications used in its process control and other information systems and is in the process of obtaining year 2000 compliance information from the providers of such hardware, operating systems and applications software. The Company expects to work with vendors to test the year 2000 readiness of such hardware, operating systems and software applications. The Company has no internally developed software applications. The Company has substantially completed inventorying its non-information technology systems and is assessing the year 2000 issues to determine appropriate testing and remediation. The Company has completed its assessment of its major non-information technology systems and is currently implementing patches to make all such systems fully year 2000 compliant. The Company has significant relationships with various third parties, and the failure of any of these third parties to achieve year 2000 compliance could have a material adverse impact on the Company. The Company has commenced efforts to survey each major third party supplier to confirm their year 2000 readiness. This review process will continue into the second quarter of 1999. The Company is in the process of preparing contingency plans for critical areas to address year 2000 failures if remedial efforts are not fully successful. The Company's contingency plans are expected to target the Company's most reasonably likely worst case scenarios. The Company's contingency plans will be based in part on the results of third-party supplier surveys and thus are not fully developed at this time. Completion of initial contingency plans is targeted for the fall of 1999. No assurance can be given that the Company will not be materially adversely affected by year 2000 issues. The Company may experience material unanticipated problems and costs caused by undetected errors or defects in its information and non-information technology systems. In addition, the failure of third parties to timely address their year 2000 issues could have a material adverse impact on the Company's business, operations, and financial condition. The installation of the Oracle application software and related hardware and operating systems was done to improve information processing capabilities and efficiencies and was done irrespective of the year 2000 issue. The Company upgrades its computer 12 15 hardware and software components on a regular basis and believes it will not incur any additional material expense to modify its systems due to the year 2000 issue. The foregoing discussion of the Company's year 2000 readiness includes forward-looking statements, including estimates of the timeframes and costs for addressing this issue and is based on management's current estimates which were derived using numerous assumptions. There can be no assurance that these estimates will be achieved, and actual events and results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability of personnel with required remediation skill, the ability of the Company to identify and correct or replace all relevant computer code and the success of third parties with whom the Company does business in addressing their year 2000 issues. FACTORS AFFECTING FUTURE RESULTS The Company's future operations will be impacted by, among other factors; the length and severity of the current economic downturn in the semiconductor industry as more fully discussed above. The length and severity of the current economic downturn in the semiconductor industry remains subject to a high degree of uncertainty. The Company's operations are also subject to additional 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, and changes in semiconductor and cleanroom technology. Information contained in this Report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by the use of forward-looking terminology such as "may," "will," "should," "expect," "anticipate," "estimate," or "continue," or the negative thereof or other variations thereon or comparable terminology. These forward-looking statements are subject to risks and uncertainties that include, but are not limited to, those identified in this report, described from time to time in the Company's other Securities and Exchange Commission filings, or discussed in the Company's press releases. Actual results may vary materially from expectations. 13 16 PART II - OTHER INFORMATION Item 4: Submission of Matters to a Vote of Security Holders The registrant held its Annual Meeting of Shareholders on July 30, 1999. The shareholders elected the following Board of Directors to serve for one year:
Shares Name Voted For ---- --------- Ronald W. Daw 10,677,143 Charles L. Bates, Jr. 10,669,974 Robert G. Chamberlain 10,680,413 James S. Jardine 10,674,313 Robert J. Frankenberg 10,676,213 Virginia Gore Giovale 10,664,694
The shareholders also ratified the appointment of Grant Thornton LLP as independent auditors for fiscal year 1999 by a vote of 11,318,611 for, 40,400 against and 13,570 abstained. Additionally, shareholders ratified the adoption of the Daw Technologies, Inc. 1999 Omnibus Stock Incentive Plan by a vote of 5,957,497 for, 1,542,885 against and 54,925 abstained. The number of broker non-votes was 3,817,274. Item 5. Other Information If a shareholder desiring to raise a proposal at the next annual meeting of shareholders does not seek inclusion of the proposal in the Company's proxy statement and fails to notify the Company at least 45 days prior to the month and day of mailing of the prior year's proxy statement, management proxies will be allowed to use their discretionary voting authority when the proposal is raised at the annual meeting, without any discussion of the proposal in the proxy statement. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Regulation S-K Exhibit No. Description ----------- ----------- 27 Financial Data Schedule
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for the three months ended June 30, 1999. 14 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on August 16, 1999. DAW TECHNOLOGIES, INC. (Registrant) By: /s/ Michael J. Schifsky ------------------------------- Its: Senior Vice President, Chief Financial Officer (Principal financial and accounting officer) 15 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED BALANCE SHEETS AS OF JUNE 30, 1999 AND DECEMBER 31, 1998, AND THE CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 961 0 8,946 (615) 1,045 24,354 13,995 (9,866) 32,131 15,472 0 0 0 125 16,266 32,131 22,460 22,460 20,836 24,870 381 0 287 (2,791) (1,033) (1,758) 0 0 0 (1,758) (0.14) (0.14)
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