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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 June 30, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
0-21818
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(Commission File No.)
DAW TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
UTAH 87-0464280
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(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 August 16, 1999, the Registrant had 12,513,114 shares of Common
Stock, $0.01 par value outstanding.
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Daw Technologies, Inc.
TABLE OF CONTENTS
<TABLE>
<S> <C>
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
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Daw Technologies, Inc.
CONDENSED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1999 1998
-------- --------
ASSETS
<S> <C> <C>
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
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
1
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Daw Technologies, Inc.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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
</TABLE>
See accompanying notes to condensed financial statements.
2
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Daw Technologies, Inc.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Six months ended
June 30,
----------------------
1999 1998
------- -------
<S> <C> <C>
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)
------- -------
</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>
Six months ended
June 30,
----------------------
1999 1998
------- -------
<S> <C> <C>
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 -- --
</TABLE>
See accompanying notes to condensed financial statements.
4
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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
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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.
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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:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
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
======= =======
</TABLE>
7
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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
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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)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
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)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------- -------
<S> <C> <C>
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
</TABLE>
9
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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
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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
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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
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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
<PAGE> 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:
<TABLE>
<CAPTION>
Shares
Name Voted For
---- ---------
<S> <C>
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
</TABLE>
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
<TABLE>
<CAPTION>
Regulation S-K
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
for the three months ended June 30, 1999.
14
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 961
<SECURITIES> 0
<RECEIVABLES> 8,946
<ALLOWANCES> (615)
<INVENTORY> 1,045
<CURRENT-ASSETS> 24,354
<PP&E> 13,995
<DEPRECIATION> (9,866)
<TOTAL-ASSETS> 32,131
<CURRENT-LIABILITIES> 15,472
<BONDS> 0
0
0
<COMMON> 125
<OTHER-SE> 16,266
<TOTAL-LIABILITY-AND-EQUITY> 32,131
<SALES> 22,460
<TOTAL-REVENUES> 22,460
<CGS> 20,836
<TOTAL-COSTS> 24,870
<OTHER-EXPENSES> 381
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 287
<INCOME-PRETAX> (2,791)
<INCOME-TAX> (1,033)
<INCOME-CONTINUING> (1,758)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,758)
<EPS-BASIC> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
