<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 March 31, 1996
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 (IRS Employer
of incorporation or File No.) Identification No.)
organization)
2700 SOUTH 900 WEST
SALT LAKE CITY, UTAH 84119
(Address of principal
executive offices, including zip code)
Registrant's telephone number, including area code: (801) 977-3100
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
As of May 10, 1996, the Registrant had 12,337,254 shares of Common Stock,
$0.01 par value outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
DAW TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Condensed Balance Sheets - March 31, 1996 and December 31, 1995. . . 1
Condensed Statements of Earnings - Three months ended March 31,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Condensed Statements of Cash Flows - Three months ended March 31,
1996 and 1995. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Notes to Condensed Financial Statements - March 31, 1996 . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . 6
PART II OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 9
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DAW TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DEC. 31,
1996 1995
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,749 $ 5,885
Contracts receivable 19,639 14,714
Costs and estimated earnings in excess of billings
on contracts in progress 11,273 10,930
Inventories - raw materials 2,635 1,478
Other current assets 479 545
------- -------
Total current assets 35,775 33,552
PROPERTY AND EQUIPMENT, NET AT COST 6,913 6,438
OTHER ASSETS 90 82
$42,778 $40,072
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 11,153 $ 12,272
Billings in excess of costs and estimated
earnings on contracts in progress 5,613 3,699
Line of credit 2,944 1,500
Current portion of long-term obligations 594 650
------- -------
Total current liabilities 20,304 18,121
LONG TERM OBLIGATIONS 2,295 2,390
DEFERRED INCOME TAX LIABILITY 152 152
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Preferred stock, authorized 10,000,000 shares of
$.01 par value; none issued and outstanding - -
Common stock, authorized 50,000,000 shares of
$.01 par value; issued and outstanding 12,330,254
shares at March 31, 1996 and December 31, 1995 123 123
Additional paid-in-capital 14,970 14,970
Retained earnings 4,934 4,316
------- -------
Total shareholders' equity 20,027 19,409
------- -------
$42,778 $40,072
------- -------
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE>
DAW TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Contract revenue $23,383 $16,803
Cost of contracts 20,042 14,174
------- -------
Gross profit 3,341 2,629
------- -------
Selling, general and administrative expenses 2,258 1,169
Depreciation and amortization 97 79
------- -------
Operating expenses 2,355 1,248
------- -------
Earnings from operations 986 1,381
Other income (expense)
Interest expense (121) (13)
Other income 131 66
------- -------
10 53
------- -------
Earnings before income taxes 996 1,434
Income taxes (378) (545)
------- -------
NET EARNINGS $ 618 $ 889
------- -------
------- -------
Net earnings per share
Primary $ 0.05 $ 0.08
Fully diluted $ 0.05 $ 0.08
Weighted average common and dilutive
common equivalent shares outstanding
Primary 12,330,254 11,745,921
Fully diluted 12,330,254 11,745,921
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
DAW TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1996 1995
------- -------
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities
Net earnings $ 618 $ 889
Adjustments to reconcile net earnings
to net cash provided by (used in) operating
activities
Depreciation and amortization 386 158
Provision for losses on contracts receivable 43 -
Changes in assets and liabilities
Contracts and other receivables (5,011) 396
Costs and estimated earnings in excess
of billings on contracts in progress (343) (2,511)
Inventories (1,157) (227)
Prepaid expenses and other
current assets 110 42
Accounts payable, other liabilities and
accrued expenses (1,442) 1,854
Income taxes payable 323 545
Billings in excess of costs and estimated
earnings on contracts in progress 1,914 484
Other assets (9) (10)
------- -------
Net cash provided by (used in)
operating activities (4,568) 1,620
------- -------
Cash flows from investing activities
Payments for purchase of property
and equipment (862) (340)
------- -------
Net cash used in investing activities (862) (340)
------- -------
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE>
DAW TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from financing activities
Net change in line of credit $ 1,444 $ -
Payments of long-term debt (22) (21)
Proceeds from exercise of warrants and options - 95
Payments of obligations under
capital leases (128) (37)
------- -------
Net cash provided by
financing activities 1,294 37
------- -------
Net increase (decrease) in cash and
cash equivalents (4,136) 1,317
Cash and cash equivalents at beginning of period 5,885 2,711
------- -------
Cash and cash equivalents at end of period $ 1,749 $ 4,028
------- -------
------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR
Interest $ 121 $ 13
Income taxes - 100
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
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 months ended March
31, 1996 should be read in conjunction with the Company's annual report on
Form 10-K for the calendar year ended December 31, 1995. The results of
operations for the three months ended March 31, 1996 may not be indicative of
the results that may be expected for the year ending December 31, 1996.
2. LINE OF CREDIT
On January 2, 1996 the Company replaced its old revolving line of
credit for a new line of credit with a bank for $8,000. The interest rate is
computed at the bank's variable index rate (8.50% at inception, 8.25% at March
31, 1996). The Company had borrowings of $2,944 and $1,500 as of March 31,
1996, and December 31, 1995 respectively. The line is collateralized by certain
receivables and inventories.
5
<PAGE>
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 is an integrated systems solution provider of cleanrooms and
cleanroom component systems for the semiconductor industry. In recent years,
the Company has typically had one to five 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. During the fourth quarter of
1995 and the first quarter of 1996, there have been certain events that would
indicate the industry could currently be in a cyclical downturn. Such a
downturn could result in reduced capital spending by semiconductor companies and
the cancellation, reduction or delay of certain contracts already awarded, which
could have a material adverse effect on the Company's operations. Although the
Company has experienced one contract reduction during the first quarter of 1996,
management does not believe, based on the contract bidding activity in process
and the contracts that have been awarded to the Company in 1996, that any actual
downturn will be of a long-term nature or have a significant impact on the
Company's operations for 1996. There can be no assurance, however, that the
Company's operations will not be materially adversely affected by any such
cyclical downturn.
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
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).
Engineering and development costs for new products to be supplied for identified
projects are considered a cost of that project.
The Company generates revenue in three geographic regions; North America,
Asia/Pacific Rim and Europe. Contracts in the Asia/Pacific Rim region are
generally denominated in United States dollars. Although risk of fluctuations
in currency value does not affect such dollar-denominated contracts, changes in
the relative value of the dollar could make the Company less competitive in this
region. 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. The Company has in the past and may in the
future attempt to hedge against currency fluctuations on contracts
6
<PAGE>
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.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue $23,383 $16,803
Cost of contracts 20,042 14,174
------- -------
Gross profit 3,341 2,629
------- -------
Selling, general and administrative expenses 2,258 1,169
Depreciation and amortization 97 79
------- -------
2,355 1,248
------- -------
Earnings from operations 986 1,381
Other income, net 10 53
------- -------
Earnings before income taxes 996 1,434
Income taxes (378) (545)
------- -------
Net earnings $ 618 $ 889
------- -------
------- -------
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 1,749 $ 5,885
Working capital 15,471 15,431
Total assets 42,778 40,072
Total liabilities 22,751 20,663
Total shareholders equity 20,027 19,409
</TABLE>
Contract revenue for the first quarter of 1996 increased by 39.2% to $23.4
million compared to $16.8 million for the first quarter of 1995. This increase
is attributed to an increase in the number of contracts in process during the
first quarter of 1996 and an increase in the average size of the contracts. The
Company's ability to increase the number and size of its contracts has been
enhanced by an increase in the manufacturing capacity of the Company's
facilities, which has resulted in a higher production of cleanroom component
parts during the first quarter of 1996 compared to the first quarter of 1995.
7
<PAGE>
Gross profit for first quarter of 1996 increased by 27.1% to $3.3 million
from $2.6 million for the first quarter of 1995 but decreased as a percentage of
contract revenue to 14.3% for the first quarter of 1996 from 15.6% for the first
quarter of 1995. The decrease in gross profit as a percentage of revenue was
primarily the result of the Company's manufacturing expansion which created
certain inefficiencies that continue to result in lower than expected gross
margins. Management believes that gross margins will gradually improve over the
next few quarters as manufacturing inefficiencies continue to be eliminated.
Also effecting margins during the first quarter of 1996 were certain strategic
projects in process during the first quarter of 1996 awarded in Taiwan during
1995 at lower than average margins. These projects will continue to have an
effect on gross profit margin through the second quarter of 1996.
Selling, general and administrative expenses for the first quarter of 1996
increased 93.2% to $2.3 million, or 9.7% of contract revenue, compared to $1.2
million, or 7.0% of contract revenue for the first quarter of 1995. This
increase is related to greater selling and marketing activities required to
improve the number and size of contracts awarded during the first quarter of
1996 as compared to the first quarter of 1995. The Company also increased it's
general and administrative headcount to meet the requirements of the increased
sales volume. Interest expense for the first quarter of 1996 increased to $131
compared to $13 for the first quarter of 1995. This increase is directly
related to the borrowings against the Company's credit line. There were no
borrowings against the credit line for the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1996 was $15.5 million compared to $15.4 at
December 31, 1995. This includes cash and cash equivalents of $1.7 million at
March 31, 1996 and $5.9 million at December 31, 1995, respectively. The
Company's operations used $4.6 million of cash during the first quarter of 1996,
compared to $1.6 million of cash provided by operations during the first quarter
of 1995. During the first quarter of 1996, the Company experienced an increase
in receivables, costs and estimated earnings in excess of billings on contracts
in progress, and inventories as a result of growth in the size and number of
contracts. In addition, the Company paid down accounts payable and accrued
liabilities during the first quarter of 1996.
At December 31, 1995, the Company had lines of credit totaling $6.0
million. During the first quarter of 1996, the Company negotiated a new line of
credit totaling $8.0 million which replaced the two existing lines. Amounts
drawn under the line bear interest at a commercial loan variable rate index
(8.5% as of date of the agreement) and are due no later than June 1, 1996, with
options to renew the agreement on an annual basis. The line is secured by all
domestic accounts receivable and inventory. At March 31, 1996, the Company had
$2.9 million outstanding against the line of credit.
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,
1996. However, in the event the Company experiences adverse operating
performance or above-anticipated capital expenditure requirements, additional
financing may be required. There can be no assurance that such additional
financing, if required, would be available on favorable terms.
8
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
REGULATION S-K
EXHIBIT NO. DESCRIPTION
-------------- -----------------------------------
<S> <C>
10.1 Revolving Line of Credit Agreement*
11 Earnings Per Share Calculation
27 Financial Data Schedule
</TABLE>
_________________
* Incorporated by reference to Exhibit No. 10.3 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
(b) Reports on Form 8-K - There were no reports on Form 8-K filed for
the three months ended March 31, 1996.
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.
DAW TECHNOLOGIES, INC.
----------------------
(Registrant)
By: /s/ DAVID R. GROW
----------------------------------
David R. Grow
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
9
<PAGE>
EXHIBIT 11
DAW TECHNOLOGIES, INC.
EARNINGS PER SHARE CALCULATION
Three Months ended March 31,
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
PRIMARY FULLY DILUTED PRIMARY FULLY DILUTED
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Average number of common shares
outstanding during the period
Common shares outstanding
during the entire period 12,330,254 12,330,254 11,741,254 11,741,254
Weighted average common shares
issued during the period - - 4,667 4,667
---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding 12,330,254 12,330,254 11,745,921 11,745,921
Dilutive effect of common stock
equivalents under stock warrants
and options* - - - -
---------- ---------- ---------- ----------
Weighted average common and
dilutive common equivalent
shares outstanding 12,330,254 12,330,254 11,745,921 11,745,921
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings applicable to
common stock $ 618,000 $ 618,000 $ 889,000 $ 889,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per common and
dilutive common equivalent
shares outstanding $ 0.05 $ 0.05 $ 0.08 $ 0.08
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
*Not included in this earnings per share calculation, since the total
dilutive effect of all common stock equivalents calculated under the
Treasury Stock Method is less than 3% for the three months ended
March 31, 1996 and 1995.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1996, AND THE STATEMENT OF EARNINGS FOR THE THREE MONTHS
ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,749
<SECURITIES> 0
<RECEIVABLES> 19,823
<ALLOWANCES> (184)
<INVENTORY> 2,635
<CURRENT-ASSETS> 35,775
<PP&E> 11,407
<DEPRECIATION> (4,494)
<TOTAL-ASSETS> 42,778
<CURRENT-LIABILITIES> 20,304
<BONDS> 0
0
0
<COMMON> 123
<OTHER-SE> 19,904
<TOTAL-LIABILITY-AND-EQUITY> 42,778
<SALES> 23,388
<TOTAL-REVENUES> 23,383
<CGS> 20,042
<TOTAL-COSTS> 22,397
<OTHER-EXPENSES> (131)
<LOSS-PROVISION> 40
<INTEREST-EXPENSE> 121
<INCOME-PRETAX> 996
<INCOME-TAX> 378
<INCOME-CONTINUING> 618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 618
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
