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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, 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.
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(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
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(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 13, 1998, the Registrant had 12,407,977 shares of Common
Stock, $0.01 par value outstanding.
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Daw Technologies, Inc.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I FINANCIAL INFORMATION.................................................................... 1
Item 1. Financial Statements
Condensed Balance Sheets - March 31, 1998 and December 31, 1997........................ 1
Condensed Statements of Operations - Three months ended March 31, 1998 and 1997........ 2
Condensed Statements of Cash Flows - Three months ended March 31, 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.......................................................................... 11
Item 6. Exhibits and Reports on Form 8-K....................................................... 11
Signatures ........................................................................................ 11
</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>
March 31, Dec. 31,
1998 1997
------- -------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,548 $ 5,802
Contracts receivable, net 11,615 12,472
Costs and estimated earnings in excess
of billings on contracts in progress 6,634 3,702
Inventories 2,524 1,363
Deferred income taxes 333 352
Other current assets 2,669 2,144
------- -------
Total current assets 26,323 25,835
PROPERTY AND EQUIPMENT - NET, AT COST 5,930 6,304
DEFERRED INCOME TAXES 173 135
OTHER ASSETS 90 90
------- -------
$32,516 $32,364
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 5,754 $ 5,700
Billings in excess of costs and estimated
earnings on contracts in progress 2,730 3,005
Lines of credit 2,598 1,230
Current portion of long-term obligations 625 652
------- -------
Total current liabilities 11,707 10,587
LONG TERM OBLIGATIONS, less current portion 940 1,077
DEFERRED INCOME TAXES -- --
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 12,407,977 shares 124 124
Additional paid-in-capital 15,209 15,209
Retained earnings 4,536 5,367
------- -------
Total shareholders' equity 19,869 20,700
------- -------
$32,516 $32,364
======= =======
</TABLE>
See accompanying notes to condensed financial statements
1
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Daw Technologies, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Contract revenue $ 11,441 $ 16,795
Cost of contracts 10,955 14,212
------------ ------------
Gross profit 486 2,583
------------ ------------
Operating Expenses
Selling, general and administrative 1,634 2,076
Research and development 44 74
Depreciation and amortization 106 106
------------ ------------
1,784 2,256
------------ ------------
Earnings (loss) from operations (1,298) 327
Other income (expense)
Interest (69) (113)
Other income, net 46 76
------------ ------------
(23) (37)
------------ ------------
Earnings (loss) before income taxes (1,321) 290
Income taxes (benefit) (490) 108
------------ ------------
NET EARNINGS (LOSS) $ (831) $ 182
============ ============
Earnings (loss) per common share
Basic $ (0.07) $ 0.01
Diluted $ (0.07) $ 0.01
Weighted average common and dilutive
common equivalent shares outstanding
Basic 12,407,977 12,396,730
Dilutive 12,407,977 12,397,894
</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>
Three months ended
March 31,
------------------------
1998 1997
------- -------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings (loss) $ (831) $ 182
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities
Depreciation and amortization 426 426
Provision for losses on contracts receivable (50) 100
Deferred income taxes (benefit) (19) 2
Changes in assets and liabilities
Contracts receivable 907 (120)
Costs and estimated earnings in excess
of billings on contracts in progress (2,932) 2,785
Inventories (1,161) 313
Other current assets (525) 435
Accounts payable and accrued liabilities 75 (1,065)
Income taxes payable (21) (261)
Billings in excess of costs and estimated
earnings on contracts in progress (275) 561
Other assets - 4
------- -------
Net cash provided by (used in)
operating activities (4,406) 3,362
------- -------
Cash flows from investing activities
Payments for purchase of property
and equipment (52) (144)
------- -------
</TABLE>
(continued)
See accompanying notes to condensed financial statements.
3
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Daw Technologies, Inc.
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from financing activities
Net change in lines of credit 1,368 (3,855)
Payments on obligations under
capital leases (164) (152)
------- -------
Net cash provided by (used in)
financing activities 1,204 (4,007)
------- -------
Net decrease in cash and
cash equivalents (3,254) (789)
Cash and cash equivalents at beginning of period 5,802 3,258
------- -------
Cash and cash equivalents at end of period $ 2,548 $ 2,469
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 69 $ 113
Income taxes -- 368
</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 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, 1998 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 ended March 31, 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 to acquire 683,000 shares of common stock
were not included in the calculation of dilutive weighted shares outstanding for
the three months ended March 31, 1998 because they would have been
anti-dilutive.
3. LINES OF CREDIT
At March 31, 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 (8.50% at March 31, 1998)
and requires monthly payments of interest. The Company had borrowings under the
line of $2,598 and $1,230 as of March 31, 1998, and December 31, 1997,
respectively. The line of credit expires June 30, 1998. The line of credit is
collateralized by certain domestic receivables and inventories. The line of
credit agreement contains restrictive covenants imposing limitations on payments
of cash dividends, purchases or redemptions of capital stock, indebtedness and
other matters.
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Daw Technologies, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share data)
3. LINES OF CREDIT - CONTINUED
Also, at March 31, 1998, the Company maintained a guidance line of
credit with a domestic bank used to facilitate the issuance of letters of
credit. The facility allows for letters of credit to be issued up to the lesser
of $3,000 or the available borrowing base. The facility expires July 31, 1998.
In addition, the facility maintains the same restrictive covenants and
collateral requirements as the above mentioned revolving line of credit. No
letters of credit were open under this facility at March 31, 1998.
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 will be 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 equal $1.3
million.
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 a supplier of ultra-clean manufacturing environments,
or cleanrooms, to the semiconductor industry. 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 current industry downturn has resulted in continued lower capital
spending by semiconductor manufacturers during the first quarter of 1998. Due to
contract bidding activity, management believes the downturn is nearing its end
but may continue through the second and possibly the third quarters of 1998. The
Company has been awarded a larger value of projects during the first quarter of
1998 compared to the first quarter of 1997. However, the Company's backlog has
decreased to $15.3 million at March 31, 1998 compared to $21.0 million at March
31, 1997. Although the Company has experienced an increase in contract awards
during the first quarter of 1998 compared to the first quarter of 1997,
management believes that the above-described events adversely affected its
revenues and results of operations for the first quarter of 1998 and anticipates
the industry downturn will continue to adversely affect its revenues and
profitability through the second and possibly the third quarters of 1998.
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. Chip makers are enlarging silicon wafers in order
to reduce their costs. It is estimated that using larger wafers can reduce the
cost to make a chip by 15 to 20 percent, because the 300mm diameter wafer
produces approximately 2.5 times as many chips by processing one wafer. With
300mm technology, it is also estimated that capital investment per chip can be
reduced. Delays in the ramp-up of 300mm technology have delayed the expected
construction of the whole series of 300mm fabs worldwide. Due, in part, to the
lack of 300mm process tools, weaker than expected demand, and the current focus
on lowering process geometries from .25m to .18m, the 300mm effort has slowed by
at least 12 to 24 months. In response to the current downturn, management will
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'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
7
<PAGE> 10
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
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------------------
1998 1997
--------------- -----------
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C>
Contract revenue.......................... $11,441 $16,795
Gross profit.............................. 486 2,583
Net earnings (loss) ...................... (831) 182
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
---------------- -------------------
BALANCE SHEET DATA:
<S> <C> <C>
Cash and cash equivalents.................. $ 2,548 $ 5,802
Working capital............................ 14,616 15,248
Total assets............................... 32,516 32,364
Total liabilities.......................... 12,647 11,664
Total shareholder's equity................. 19,869 20,700
</TABLE>
Contract revenue for the first quarter of 1998 decreased by 31.9% to
$11.4 million compared to $16.8 million for the first quarter of 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 quarter of 1998 compared with the first quarter of 1997.
Gross profit for first quarter of 1998 decreased by 81.2% to $486,000
from $2.6 million for the first quarter of 1997 and decreased as a percentage of
contract revenue to 4.2% for the first quarter of 1998 from 15.4% for the first
quarter of 1997. The decrease in gross profit as a percentage of revenue was
primarily the result of a decrease in contract margins during the first quarter
of 1998 compared to the first quarter of 1997. The semiconductor industry
downturn has resulted in a price competitive bidding environment. Contracts in
process during the first quarter of 1998 were awarded at margins less than
contracts in process during the first quarter of 1997.
8
<PAGE> 11
Selling, general and administrative expenses for the first quarter of
1998 decreased 21.3% to $1.6 million, or 14.3% of contract revenue, compared to
$2.1 million, or 12.4% of contract revenue for the first quarter of 1997. The
decrease in actual dollars spent is a result of a reduction in general and
administrative headcount completed during the second quarter of 1997.
Research and development expense for the first quarter of 1998
decreased 40.5% to $44,000 compared to $74,000 for the first quarter of 1997.
During the first quarter of 1997 the Company was involved with certain research
and development projects. These projects were completed prior to the first
quarter of 1998, resulting in lower research and development expense for the
first quarter of 1998 compared to the same period in 1997.
Interest expense for the first quarter of 1998 decreased to $69,000
compared to $113,000 for the first quarter of 1997. This decrease is directly
related to decreased borrowings against the Company's credit line during the
first quarter of 1998 compared to borrowings during the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1998 was $14.6 million compared to $15.2
at December 31, 1997. This includes cash and cash equivalents of $2.5 million at
March 31, 1998 and $5.8 million at December 31, 1997. The Company's operations
used $4.4 million of cash during the first quarter of 1998, compared to
providing $3.4 million of cash from operations during the first quarter of 1997.
During the first quarter of 1998, the Company experienced a net decrease in
receivables of $857,000, but an increase in costs and estimated earnings in
excess of billings on contracts in progress of $2.9 million, and an increase in
inventories of $1.2 million.
At March 31, 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 (8.50% at March 31, 1998), and are
due no later than June 30, 1998, with options to renew the agreement on an
annual basis. The line is secured by certain domestic receivables and
inventories. The Company had $2,598 and $1,230 in borrowings against the line as
of March 31, 1998, and December 31, 1997, respectively. In addition, at March
31, 1998, the Company maintained a guidance line of credit with a domestic bank
used to facilitate the issuance of letters of credit. The facility allows for
letters of credit to be issued up to the lesser of $3.0 million or the available
borrowing base. No letters of credit were open under this facility at March 31,
1998. The facility expires July 31, 1998, with options to renew the agreement on
an annual basis. 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.
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 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.
9
<PAGE> 12
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.
10
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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 March
31, 1998.
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
---------------------------------------------------
It's: Executive Vice President, Chief Operating Officer,
Chief Financial Officer (Principal financial and
accounting officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) THE
CONDENSED BALANCE SHEETS AS OF MARCH 31, 1998 AND DECEMBER 31, 1997, AND THE
CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,548
<SECURITIES> 0
<RECEIVABLES> 11,968
<ALLOWANCES> (353)
<INVENTORY> 2,524
<CURRENT-ASSETS> 26,323
<PP&E> 13,779
<DEPRECIATION> (7,848)
<TOTAL-ASSETS> 32,516
<CURRENT-LIABILITIES> 11,707
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 19,745
<TOTAL-LIABILITY-AND-EQUITY> 32,516
<SALES> 11,441
<TOTAL-REVENUES> 11,441
<CGS> 10,955
<TOTAL-COSTS> 12,739
<OTHER-EXPENSES> (46)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 69
<INCOME-PRETAX> (1,321)
<INCOME-TAX> (490)
<INCOME-CONTINUING> (831)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (831)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
