<PAGE> 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
September 30, 1998
or
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
0-21818
---------------------
(Commission File No.)
DAW TECHNOLOGIES, INC.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
UTAH 87-0464280
- ----------------------------- -----------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2700 SOUTH 900 WEST
SALT LAKE CITY, UTAH 84119
-----------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 977-3100
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ( X) No ( )
As of November 13, 1998, the Registrant had 12,479,711 shares of Common
Stock, $0.01 par value outstanding.
- --------------------------------------------------------------------------------
<PAGE> 2
Daw Technologies, Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION................................................................................. 1
Item 1. Financial Statements
Condensed Balance Sheets - September 30, 1998 and December 31, 1997................................... 1
Condensed Statements of Operations - Three months and nine months ended September 30, 1998
and 1997.............................................................................................. 2
Condensed Statements of Cash Flows - Nine months ended September 30, 1998 and 1997................... 3
Notes to Condensed Financial Statements............................................................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................................. 7
PART II OTHER INFORMATION...................................................................................... 13
Item 6. Exhibits and Reports on Form 8-K...................................................................... 13
Signatures...................................................................................................... 13
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Daw Technologies, Inc.
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,278 $ 5,802
Contracts receivable, net 15,424 12,472
Costs and estimated earnings in excess
of billings on contracts in progress 4,514 3,702
Inventories 4,068 1,363
Deferred income taxes 364 352
Other current assets 3,831 2,144
--------- ---------
Total current assets 29,479 25,835
PROPERTY AND EQUIPMENT - NET, AT COST 5,227 6,304
DEFERRED INCOME TAXES 2,274 135
OTHER ASSETS, net 1,249 90
--------- -----------
$38,229 $32,364
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $10,354 $ 5,700
Billings in excess of costs and estimated
earnings on contracts in progress 2,971 3,005
Lines of credit 5,629 1,230
Current portion of long-term obligations 547 652
--------- ---------
Total current liabilities 19,501 10,587
LONG-TERM OBLIGATIONS, less current portion 683 1,077
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 12,450,607 shares at
September 30, 1998 and 12,407,977 at December 31, 1997 124 124
Additional paid-in-capital 16,536 15,209
Retained earnings 1,385 5,367
--------- ---------
Total shareholders' equity 18,045 20,700
-------- --------
$38,229 $32,364
======= =======
</TABLE>
See accompanying notes to condensed financial statements.
1
<PAGE> 4
Daw Technologies, Inc.
CONDENSED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
September 30, September 30,
---------------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- -------
<S> <C> <C> <C> <C>
Contract revenue $14,332 $11,453 $38,662 $44,711
Cost of contracts 13,380 9,417 38,990 37,694
-------- --------- -------- --------
Gross profit (loss) 952 2,036 (328) 7,017
-------- --------- -------- --------
Operating expenses
Selling, general and administrative 1,640 1,833 4,993 6,027
Research and development 38 49 160 197
Depreciation and amortization 152 108 413 322
-------- --------- -------- --------
1,830 1,990 5,566 6,546
-------- --------- -------- --------
Earnings (loss) from operations (878) 46 (5,894) 471
Other income (expense)
Interest (146) (54) (335) (265)
Other income (expense), net (168) 86 (113) 187
-------- --------- -------- --------
(314) 32 (448) (78)
-------- --------- -------- --------
Earnings (loss) before income taxes (1,192) 78 (6,342) 393
Income tax expense (benefit) (444) 30 (2,360) 147
-------- --------- -------- --------
NET EARNINGS (LOSS) $ (748) $ 48 $ (3,982) $ 246
======== ========= ======== ========
Earnings (loss) per common share
Basic $ (0.06) $ 0.00 $ (0.32) $ 0.02
Diluted $ (0.06) $ 0.00 $ (0.32) $ 0.02
Weighted average common and
dilutive common equivalent
shares outstanding
Basic 12,450,607 12,419,586 12,432,759 12,409,429
Dilutive 12,450,607 12,419,586 12,432,759 12,409,429
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 5
Daw Technologies, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings (loss) $ (3,982) $ 246
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities
Depreciation and amortization 1,309 1,261
Provision for losses on contracts receivable (6) 84
Deferred income taxes (benefit) (2,151) 98
Changes in assets and liabilities
Contracts receivable (2,946) 10,610
Costs and estimated earnings in excess
of billings on contracts in progress (812) 1,559
Inventories (2,705) 259
Other current assets (1,687) 662
Accounts payable and accrued liabilities 4,654 (2,062)
Income taxes payable - (390)
Billings in excess of costs and estimated
earnings on contracts in progress (34) (4,666)
Other assets (1,208) (227)
---------- -----------
Net cash provided by (used in)
operating activities (9,568) 7,434
---------- ----------
Cash flows from investing activities
Payments for purchase of property
and equipment (183) (294)
---------- ----------
</TABLE>
(continued)
See accompanying notes to condensed financial statements.
3
<PAGE> 6
Daw Technologies, Inc.
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------
1998 1997
---------- ---------
<S> <C> <C>
Cash flows from financing activities
Net change in lines of credit 4,399 (5,657)
Proceeds from issuance of common stock 69 48
Obligations to issue common stock 1,258 -
Payments on long-term obligations (499) (463)
--------- ---------
Net cash provided by (used in)
financing activities 5,227 (6,072)
--------- --------
Net increase (decrease) in cash and cash equivalents (4,524) 1,068
Cash and cash equivalents at beginning of period 5,802 3,258
--------- --------
Cash and cash equivalents at end of period $ 1,278 $ 4,326
======== =======
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 335 $ 265
Income taxes - 438
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 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 of Daw
Technologies, Inc. (the "Company" or "Daw") have been prepared 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 and nine months ended September 30, 1998 and 1997 should be
read in conjunction with the Company's annual report on Form 10-K for the
calendar year ended December 31, 1997. The results of operations for the three
months and nine months ended September 30, 1998 may not be indicative of the
results that may be expected for the year ending December 31, 1998.
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 and warrants to purchase 683,000 shares of
common stock at $2.50 to $3.50 a share were outstanding for the nine months
ended September 30, 1998. They were not included in the computation of earnings
per share because the option's exercise prices were greater than the average
market price of the common shares.
3. RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements
for the three months and nine months ended September 30, 1997, to conform to the
1998 presentation.
4. LINES OF CREDIT
At September 30, 1998, the Company maintained a revolving line of
credit with a domestic bank for the lesser of $8,000 or the available borrowing
base. The interest rate is computed at the bank's prime rate (8.25% at September
30, 1998) and requires monthly payments of interest. The Company had borrowings
under the line of $5,629 and $1,230 as of September 30, 1998, and December 31,
1997, respectively. The line of credit is collateralized by certain domestic
receivables, inventories, equipment and fixtures. 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.
5
<PAGE> 8
Daw Technologies, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share data)
4. LINES OF CREDIT - CONTINUED
The Company is currently in default of two loan covenants within the
original loan agreement, however, the Company has signed a forbearance agreement
with the lender where the lender has agreed to forebear exercise of its remedies
providing the Company meets certain obligations as outlined in the forbearance
agreement. All such obligations have been met. The Company is currently
negotiating the renewal of the credit. Additionally, the Company is currently
reviewing several other financing alternatives. There can be no assurances that
such additional financing would be available on favorable terms.
5. BUSINESS ACQUISITION
On April 22, 1998, the Company acquired the net assets of Intelligent
Enclosures Corporation from Intelligent Systems Corporation in exchange for
27,023 shares of the Company's common stock with a fair value of approximately
$41 and a commitment to deliver on or before April 21, 2000, additional common
stock of the Company having a value equal to $1,300 less the market value on
that date of the initial 27,023 shares. Intelligent Enclosures Corporation is a
leader in high performance controlled environments and contamination control
solutions, including tool isolation environments, for microelectronic and
semiconductor manufacturers.
The acquisition was accounted for as a purchase and recorded at the
value of the guaranteed $1,300 purchase price. Various intangible assets valued
at approximately $1,200 were recorded in Other Assets and are being amortized on
a straight line basis from 2 to 15 years.
The results of operations of Intelligent Enclosures Corporation are
included in the accompanying financial statements from the date of acquisition
and did not have a significant impact on the Company's financial position and
results of operations.
6. INVENTORIES
Raw material inventory at September 30, 1998 was $1,498 compared to
$1,363 at December 31, 1997. Work-in-process inventory at September 30, 1998 was
$2,570 compared to zero work-in-process inventory at December 31, 1997.
6
<PAGE> 9
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 as well as the
production of a new line of semi tractor sleeper shells. 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 and continues to be adversely
affected by a cyclical downturn that began in 1996.
The Company recently received notification of the cancellation of one
previously awarded contract and the indefinite delay of a second contract. Both
contracts were with large North American companies, where the projects
themselves are located in the United States and the People's Republic of China.
Under the terms of these contracts, the Company is allowed to recover all costs
associated with these contracts up through and including the respective
cancellation dates. The cancellation and delay of these contracts is the direct
result of the continuing uncertainty within the semiconductor industry. While
industry analysts maintain that a strong capital spending recovery is on the
horizon, the actual timeline of that recovery continues to be in question.
While the industry downturn has resulted in fewer contracts available
to bid, the Company has been successful in securing numerous new contracts. As a
result, the Company's backlog has increased to $21.1 million at September 30,
1998 compared to $15.0 million at September 30, 1997. In addition to the backlog
noted above, the Company's backlog from non-cleanroom related contracts was $7.0
million at September 30, 1998 compared to zero backlog at September 30, 1997.
Although the Company has experienced an increase in the value of contracts
awarded, management believes that the industry downturn adversely affected its
revenues and results of operations for the first three quarters of 1998 and
anticipates it will continue to adversely affect its revenues and profitability
through the second and possibly the third quarters of 1999.
Although there is uncertainty surrounding the timing of a recovery in
the semiconductor industry, management continues to believe that changes taking
place in the industry should result in expanded semiconductor industry capital
expenditures in the long-term. In order to preserve the Company's asset base
during the current industry slump and in response to the cancellation and delay
of the above referenced contracts, management is continuing to implement
aggressive cost cutting measures and reorganized its operating structure. In
October 1998, the Company reduced its workforce by about 50% via layoffs and
attrition. This reduction in workforce will result in estimated annual savings
in payroll and related personnel benefits of $7.9 million. Additionally, the
Company is implementing other cost cutting measures that will further reduce
non-payroll related operating expenses. These operating cost reductions are a
result of the poor
7
<PAGE> 10
industry conditions and a direct consequence of the lost contracts, both as
noted above. It is management's intent to reduce the Company's cost structure to
match anticipated current contract revenues without jeopardizing its ability to
continue to develop state of the art cleanroom technology and provide
world-class support to the Company's customers.
To increase future revenues, the Company has recently established
several sales related initiatives where the Company intends to enhance its
current cleanroom fab related sales and expand its revenue base outside of the
semiconductor industry. The Company has in the past, established a long-term
presence well after the completion of the cleanroom project by remaining at
facility sites and assisting in other construction and renovation projects.
Management believes the Company can increase revenues by further utilizing its
construction management expertise in these areas.
During the current year, the Company began production of a new line of
semi tractor sleeper shells using technology that was developed as part of the
Company's cleanroom operations. This product has been quite successful in a
small segment of the trucking industry. Management is actively pursuing numerous
opportunities to expand the sales of this technology through other related
applications. Additionally, management believes significant opportunities exist
to exploit the Company's expertise in high quality metal fabrication, painting,
and powder coating. In this area as well, management is actively pursuing
numerous opportunities to develop additional revenue sources.
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).
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 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.
8
<PAGE> 11
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 (Data in the tables are in thousands)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------- -------------------------------
1998 1997 1998 1997
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue.......................... $ 14,332 $ 11,453 $38,662 $ 44,711
Gross profit (loss) ...................... 952 2,036 (328) 7,017
Selling, general and
administrative expenses............... 1,640 1,833 4,993 6,027
Research and development.................. 38 49 160 197
Net earnings (loss)....................... (748) 48 (3,982) 246
----------------------------------
SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------- -------------
BALANCE SHEET DATA:
Cash and cash equivalents................. $ 1,278 $ 5,802
Working capital........................... 9,978 15,248
Total assets.............................. 38,229 32,364
Total liabilities......................... 20,184 11,664
Total shareholders' equity.................. 18,045 20,700
</TABLE>
Contract revenue for the third quarter of 1998 increased by 25.1% to
$14.3 million compared to $11.5 million for the third quarter of 1997. This
increase was largely due to a large Asian contract that was subsequently
canceled. Contract revenue for the nine months ended September 30, 1998
decreased by 13.5% to $38.7 million compared to $44.7 million for the nine
months ended September 30, 1997. This decrease is attributed to the downturn in
the semiconductor industry as more fully discussed above. The downturn has
resulted in fewer contracts being worked on during the first three quarters of
1998 compared with the first three quarters of 1997. As noted above, the
Company's contract revenues fluctuate substantially from quarter to quarter
depending on such factors as the timing of significant customer orders, the
timing of revenue and cost recognition, and fluctuations in the semiconductor
equipment market.
Gross profit for the third quarter of 1998 decreased by 53.2% to
$952,000 from $2.0 million for the third quarter of 1997 and decreased as a
percentage of contract revenue to 6.6% for the third quarter of 1998 from 17.8%
for the third quarter of 1997. Gross profit for the nine months ended September
30, 1998 decreased by 104.7% to a loss of $328,000 from $7.0 million for the
nine months ended September 30, 1997 and decreased as a percentage of contract
revenue to a loss of 0.8% for the nine months ended September 30, 1998 from
15.7% for the nine months ended September 30, 1997. The decrease in gross profit
is the result of the combination of lower margins realized on contracts in
process, manufacturing inefficiencies related to lower volume of work in certain
product divisions and production start-up costs related to the manufacture of
panels for semi tractor sleeper shells by the Company's new manufacturing
division for this product.
9
<PAGE> 12
During the first and second quarters of 1998, the Company was ramping
up to full production, products manufactured by the Company's new transportation
division. During this ramp-up the Company incurred manufacturing startup costs
that had a significant impact on the gross profit of the Company for the nine
months ended September 30, 1998. The transportation division began recognizing
operating profits during the third quarter of 1998.
The semiconductor industry downturn has resulted in a price competitive
bidding environment. Contracts in process during the first three quarters of
1998 were awarded at margins significantly less than contracts in process during
the first three quarters of 1997. In addition, the downturn has resulted in a
decrease in the volume of certain manufactured products.
Selling, general and administrative expenses for the third quarter of
1998 decreased by 10.5% to $1.6 million compared to $1.8 million for the third
quarter of 1997, and decreased as a percentage of contract revenue to 11.4% for
the third quarter of 1998 from 16.0% for the third quarter of 1997. For the nine
months ended September 30, 1998, selling, general and administrative expenses
decreased by 17.2% to $5.0 million compared to $6.0 million for the nine months
ended September 30, 1997, and decreased as a percentage of contract revenue to
12.9% for the nine months ended September 30, 1998, from 13.5% for the nine
months ended September 30, 1997. The decrease is a result primarily of
management's effort to reduce its general and administrative expenses in light
of the current semiconductor industry conditions.
Research and development expense for the third quarter of 1998
decreased 22.4% to $38,000 compared to $49,000 for the third quarter of 1997.
Research and development expense for the nine months ended September 30, 1998
decreased 18.8% to $160,000 compared to $197,000 for the nine months ended
September 30, 1997. During 1997 the Company was involved with certain research
and development projects related to value engineering of existing products.
These projects were completed prior to the third quarter of 1998, resulting in
lower research and development expense for the nine months ended September 30,
1998 compared to the same period in 1997.
Depreciation and amortization expense for the third quarter of 1998
increased 40.7% to $152,000 compared to $108,000 for the third quarter of 1997.
Depreciation and amortization expense for the nine months ended September 30,
1998 increased 28.3% to $413,000 compared to $322,000 for the nine months ended
September 30, 1997. Of the $91,000 increase for the nine months ended September
30, 1998, $49,000 was the result of amortization of intangible assets recorded
in connection with the acquisition of Intelligent Enclosures in May 1998.
Interest expense for the third quarter of 1998 increased 170.4% to
$146,000 compared to $54,000 for the third quarter of 1997. Interest expense for
the nine months ended September 30, 1998 increased 26.4% to $335,000 compared to
$265,000 for the nine months ended September 30, 1997. This increase is directly
related to increased borrowings against the Company's credit line during 1998
compared to borrowings during 1997.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1998 was $10.0 million compared to
$15.2 million at December 31, 1997. This includes cash and cash equivalents of
$1.3 million at September 30, 1998 and $5.8 million at December 31, 1997. The
Company's operations used $9.6 million of cash during the nine months ended
September 30, 1998, compared to providing $7.4 million of cash from operations
during the nine months ended September 30, 1997. During the nine months ended
September 30, 1998, the Company experienced an increase in receivables, costs
and estimated earnings in excess of billings on contracts in progress, other
current assets and inventories. In addition, the Company experienced an increase
in accounts payables, accrued liabilities, and lines of credit, and a decrease
in billings in excess of costs and estimated earnings on contracts in progress
during the nine months ended September 30, 1998.
At September 30, 1998, the Company had a line of credit totaling the
lesser of $8.0 million or the available borrowing base. Amounts drawn under the
line bear interest at the bank's prime rate (8.25% at September 30, 1998). The
line is secured by certain equipment and fixtures, domestic receivables and
inventories. The Company had $5,629 and $1,230 in borrowings against the line as
of September 30, 1998, and December 31, 1997, respectively. The line of credit
agreement contains restrictive covenants imposing limitations on payments on
cash dividends, purchases or redemptions of capital stock, indebtedness and
other matters. The Company is currently in default of two loan covenants in the
original loan agreement, however, the Company has signed a forbearance agreement
with the lender where the lender has agreed to forebear its remedies providing
the Company meets certain obligations as outlined in the forbearance agreement.
The Company has met all such obligations.
The Company is currently negotiating the renewal of the credit line.
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, 1998.
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. The
Company is currently reviewing several other financing alternatives to
supplement its current line of credit. There can be no assurance that such
additional financing, if required, would be available on favorable terms or at
all.
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.
11
<PAGE> 14
YEAR 2000
During the current year, the Company completed the installation of new
computer hardware and a comprehensive information processing system, both of
which are fully Year 2000 compliant. The installation of this hardware and
software was done to improve information processing capabilities and
efficiencies and was done irrespective of the Year 2000 issue. The Company
regularly upgrades its computer hardware and software components and believes
that it will not incur any additional expense to modify its systems due to the
Year 2000 issue. Additionally, the Company plans to contact significant vendors,
creditors, and customers to determine the extent to which the Company may be
exposed to third party Year 2000 issues.
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.
12
<PAGE> 15
PART II - OTHER INFORMATION
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 September 30,
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 as amended,
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/ Michael J. Schifsky
------------------------------------
Michael J. Schifsky
Dated: November 13, 1998 It's: Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONDENSED BALANCE SHEETS AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997, AND THE
CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,278
<SECURITIES> 0
<RECEIVABLES> 15,821
<ALLOWANCES> (397)
<INVENTORY> 4,068
<CURRENT-ASSETS> 29,479
<PP&E> 13,910
<DEPRECIATION> (8,683)
<TOTAL-ASSETS> 38,229
<CURRENT-LIABILITIES> 19,501
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 17,921
<TOTAL-LIABILITY-AND-EQUITY> 38,229
<SALES> 38,662
<TOTAL-REVENUES> 38,662
<CGS> 38,990
<TOTAL-COSTS> 44,556
<OTHER-EXPENSES> 113
<LOSS-PROVISION> 100
<INTEREST-EXPENSE> 335
<INCOME-PRETAX> (6,342)
<INCOME-TAX> (2,360)
<INCOME-CONTINUING> (3,982)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,982)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
