<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 March 31, 2000
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 Identification No.)
organization)
2700 SOUTH 900 WEST
SALT LAKE CITY, UTAH 84119
-----------------------------------------------------------
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 977-3100
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of May 15, 2000, the Registrant had 12,832,454 shares of Common
Stock, $0.01 par value outstanding.
================================================================================
<PAGE> 2
Daw Technologies, Inc.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I FINANCIAL INFORMATION................................................. 1
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2000 and December 31, 1999
(unaudited).......................... ................................ 1
Consolidated Statements of Operations - Three months ended March 31,
2000 and 1999 (unaudited).......... .................................. 2
Consolidated Statements of Cash Flows - Three months ended March 31,
2000 and 1999 (unaudited)............................................. 3
Notes to Consolidated Financial Statements (unaudited)................ 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 8
Item 3. Qualitative and Quantitative Disclosures About Market Risk............ 13
PART II OTHER INFORMATION....................................................... 13
Item 6. Exhibits and Reports on Form 8-K...................................... 13
Signatures...................................................................... 14
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Daw Technologies, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
March 31, Dec. 31,
2000 1999
-------- --------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 384 $ 296
Accounts receivable, net 9,853 7,447
Costs and estimated earnings in excess
of billings on contracts in progress 6,608 4,994
Inventories, net 2,282 2,612
Deferred income taxes 425 425
Other current assets 2,760 2,569
-------- --------
Total current assets 22,312 18,343
PROPERTY AND EQUIPMENT - NET, AT COST 3,200 3,402
DEFERRED INCOME TAXES 3,364 3,364
OTHER ASSETS 919 966
-------- --------
$ 29,795 $ 26,075
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Checks written in excess of cash in bank $ - $ 248
Accounts payable and accrued liabilities 10,499 8,117
Billings in excess of costs and estimated
earnings on contracts in progress 2,406 1,373
Line of credit 5,468 5,258
Current portion of long-term obligations 408 461
-------- --------
Total current liabilities 18,781 15,457
LONG-TERM OBLIGATIONS, less current portion 105 110
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 12,832,454 shares at
March 31, 2000 and 12,513,114 shares on December 31, 1999 128 125
Additional paid-in capital 17,011 16,579
Accumulated deficit (6,230) (6,196)
-------- --------
Total shareholders' equity 10,909 10,508
-------- --------
$ 29,795 $ 26,075
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 4
Daw Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
------------ ------------
<S> <C> <C>
Revenues $ 14,675 $ 12,480
Cost of goods sold 13,102 10,903
------------ ------------
Gross profit 1,573 1,577
Operating expenses
Selling, general and administrative 1,333 1,788
Research and development 19 60
Depreciation and amortization 120 119
------------ ------------
1,472 1,967
------------ ------------
Earnings (loss) from operations 101 (390)
Other income (expense)
Interest (192) (101)
Other, net 57 (11)
------------ ------------
(135) (112)
------------ ------------
Loss before income taxes (34) (502)
Income taxes (benefit) - (186)
------------ ------------
NET LOSS $ (34) $ (316)
============ ============
Loss per common share
Basic $ (0.00) $ (0.03)
Diluted (0.00) (0.03)
Weighted-average common and dilutive
common equivalent shares outstanding
Basic 12,595,011 12,479,711
Diluted 12,595,011 12,479,711
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
Daw Technologies, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
------- -------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net loss $ (34) $ (316)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 282 393
Loss on disposition of property
and equipment 13 -
Deferred income taxes - (186)
Changes in assets and liabilities
Account receivables (2,406) (616)
Costs and estimated earnings in excess
of billings on contracts in progress (1,614) (1,725)
Inventories 330 119
Other current assets (191) 94
Accounts payable
and accrued liabilities 2,382 2,158
Billings in excess of costs and estimated
earnings on contracts in progress 1,033 (9)
Other assets 47 50
------- -------
Net cash used in
operating activities (158) (38)
------- -------
Cash flows from investing activities
Payments for purchase of property
and equipment (93) (37)
------- -------
Net cash used in
investing activities (93) (37)
------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
Daw Technologies, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(unaudited)
(in thousands, except share data)
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
------- -------
<S> <C> <C>
Cash flows from financing activities
Decrease in checks written in excess of cash in bank (248) -
Net change in line of credit 210 (879)
Proceeds from issuance of stock 435 -
Payments on long-term obligations (58) (145)
------- -------
Net cash provided by (used in)
financing activities 339 (1,024)
------- -------
Net increase (decrease) in cash
and cash equivalents 88 (1,099)
Cash and cash equivalents at beginning of period 296 2,140
------- -------
Cash and cash equivalents at end of period $ 384 $ 1,041
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for
Interest $ 192 $ 101
Income taxes - -
During the quarter ended March 31, 2000, the Company issued 301,550 shares of
common stock in connection with the exercise of options related to its 1993
Stock Option Plan.
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
Daw Technologies, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share data)
1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated 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. These financial statements
and footnote disclosures in this Form 10-Q for the three months ended March 31,
2000 should be read in conjunction with the Company's annual report on Form 10-K
for the calendar year ended December 31, 1999. The results of operations for the
three months ended March 31, 2000 may not be indicative of the results that may
be expected for the year ending December 31, 2000.
2. NET EARNINGS (LOSS) PER SHARE
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" (SFAS No. 128). SFAS No. 128 requires the
presentation of basic and diluted EPS. Basic EPS are calculated by dividing
earnings (loss) available to common shareholders by the weighted-average number
of common shares outstanding during each period. Diluted EPS are similarly
calculated, except that the weighted-average number of common shares outstanding
includes common shares that may be issued subject to existing rights with
dilutive potential.
3. LINE OF CREDIT
Through March 9, 2000, the Company maintained a revolving line of
credit with a domestic bank for the lesser of $6,000, or the available borrowing
base. From March 10, 2000, through March 31, 2000, the Company maintained a
revolving line of credit with a domestic bank for the lesser of $5,500, or the
available borrowing base. On April 1, 2000, the revolving line of credit was
reduced to the lesser of $5,000, or the available borrowing base. The interest
rate is computed at the bank's prime rate plus 3 percent per annum and requires
monthly payments of interest. The Company had $5,468 in borrowings against the
line at March 31, 2000 ($5,258 at December 31, 1999). The line of credit expired
December 31, 1999 and was extended to August 31, 2000, which included a waiver
of the Company's non-compliance with the covenants as of December 31, 1999. The
Company was in compliance with the extended line of credit agreement as of March
31, 2000. 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. The Company is currently
reviewing several financing alternatives.
5
<PAGE> 8
Daw Technologies, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except share data)
4. SEGMENT INFORMATION
The Company has two reportable segments for the three months ended
March 31, 2000, namely 1) cleanrooms and related products and 2) other
manufactured goods. 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.
Segment information for the cleanrooms and related products and other
manufactured goods are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
2000 1999
-------- --------
<S> <C> <C>
Revenues
Cleanrooms and related products $ 11,269 $ 9,723
Other products 3,406 2,757
-------- --------
Totals $ 14,675 $ 12,480
======== ========
Operating profit (loss)
Cleanrooms and related products $ 161 $ (799)
Other products (60) 409
-------- --------
Totals $ 101 $ (390)
======== ========
</TABLE>
<TABLE>
<CAPTION>
March 31, Dec. 31,
2000 1999
-------- --------
<S> <C> <C>
Total assets
Cleanrooms and related products $ 19,462 $ 15,640
Other products 2,512 2,284
Manufacturing and corporate assets 7,821 8,151
-------- --------
Totals $ 29,795 $ 26,075
======== ========
</TABLE>
6
<PAGE> 9
Daw Technologies, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share data)
5. SUBSEQUENT EVENTS
a. On April 22, 1998, the first closing date, the Company acquired
the net assets of Intelligent Enclosures Corporation. The
transaction was accounted for as a purchase and the transaction
was completed on April 22, 2000, the second closing date. At the
first closing date, the Company delivered 27,023 shares of common
stock. Approximately 30 days after the second closing date, the
Company will issue 618,439 shares of common stock at the average
per share closing price for the 20 consecutive trading days prior
to the second closing date, which in addition to the original
27,023 shares, will equal 645,462 shares.
b. Subsequent to March 31, 2000, the Company completed a $4.8
million private equity placement through the issuance of 480
shares of the Company's 3% Series A Convertible Preferred Stock,
which are convertible into shares of the Company's common stock.
The private equity placement was necessary due to the length and
severity of the semiconductor downturn, the losses incurred by
the company over the last 3 years, the Company's recent
resurgence in business activity and the need for working capital
to finance this growth.
6. EARNINGS (LOSS) PER COMMON SHARE
The following data show the shares used in computing earnings (loss) per
common share including dilutive potential common stock:
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
---------- ----------
<S> <C> <C>
Common shares outstanding entire
period 12,513,114 12,479,711
Net weighted average common shares issued during
period 81,897 -
---------- ----------
Weighted average number of common shares used in
basic EPS 12,595,011 12,479,711
Dilutive effect of stock options - -
Dilutive effect of warrants - -
---------- ----------
Weighted average number of common shares and
dilutive potential common shares used in diluted
EPS 12,595,011 12,479,711
========== ==========
</TABLE>
For the periods ended March 31, 2000, and 1999, all of the options and warrants
that were outstanding were not included in the computation of diluted EPS
because to do so would have been anti-dilutive.
7
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The following discussion should be read in conjunction with the
financial statements and notes thereto included elsewhere herein. All data in
the tables are in thousands, except for percentages and per-share data.
The Company's principal line of business is an integrated systems
solution provider of cleanrooms and cleanroom component systems for the
semiconductor industry. In recent years, the Company has typically had one to
three significant customers, each of whom accounted for approximately 10% or
more of the Company's annual revenues; however, 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 the industry downturn that began in the latter part of 1996. Capital spending
by semiconductor manufacturers has generally closely followed chip sales. As
chip sales increased from around $50 billion per year in the late 1980's to a
peak of $150 billion in 1995, capital spending on new equipment and facilities
by the chip manufacturers surged to $45 billion from about $12 billion during
the same period of time. As chip sales have declined over the past three years
to about $122 billion in 1999, capital spending on new equipment and facilities
declined to less than $30 billion in 1998. Various industry analysts have
reported that in 1999 chip sales increased by 20%, which indicates that the
recent downturn may be ending. In addition, analysts predict that chip sales for
2000 may increase by an additional 30 to 40%.
The Company's operating results have been severely impacted by the
reduced capital spending of the semiconductor industry during the past three
years. While the industry has shown signs of recovery from time to time over the
past three years, it has been consistently disappointed by continued declines.
Management believes the downturn is nearing its end and the industry is on the
road to recovery. The timing or likelihood of any such recovery that will take
place is still subject to significant uncertainty. The recent downturn in the
semiconductor industry generally resulted in fewer contracts available to bid, a
significant increase in price competition on contracts that were awarded, and
reduced margins on such contracts. However, beginning in the fourth quarter of
1999, the Company experienced growth in new contract awards, resulting in an
increase in the Company's backlog from $12.8 million at December 31, 1998 to
$19.7 million at December 31, 1999. Additionally, during the first quarter of
2000, the Company has experienced an increase in contract bidding at higher
gross margins than at any time during the three-year industry downturn,
resulting in the award of $24.2 million of new cleanroom contracts. The
Company's backlog increased from $15.9 million at March 31, 1999 to $21.1
million at March 31, 2000.
Although there is uncertainty regarding the condition and prospects 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. Delays in the ramp-up of 300mm technology have
delayed the expected construction of a whole series of 300mm fabs worldwide,
although beginning in the fourth quarter of 1999 and continuing in the first
quarter of 2000, construction of some of these delayed fabs were initiated. In
response to the current downturn, management has continued to take steps to
reduce the Company's cost structure including an approximate 26% cut in wages in
1999 as compared to 1998. Previously, in 1998, the Company reduced its work
force by more than 50%. During 2000, management is continuing to closely monitor
the Company's cost structure, and is taking appropriate actions as considered
necessary, but is continuing to develop state-of-the-art cleanroom technology,
providing world-class support to the Company's customers, and continuing its
diversification strategy.
8
<PAGE> 11
In response to reduced revenue generated by the sale of cleanrooms, the
Company has undertaken several initiatives to expand its revenue base beyond the
semiconductor industry and to reduce its reliance on this historically cyclical
business. The Company has developed an air entrance system used by large
national retail chains in their new "superstores". Air entrances are used in
lieu of conventional swinging and sliding doors to help the store maintain
comfort in the front of the store, reduce liability and increase and optimize
the traffic flow in and out of the store. The Company's air entrance system was
developed by applying its advanced cleanroom air movement and filtration
technology resulting in a technically advanced air entrance system. This product
also shows promise of providing increased gross profit over the next two years.
Additionally, the Company has entered into several contract manufacturing
agreements whereby the Company manufactures products owned and marketed by third
parties. During the first quarter of 1998, the Company announced its entrance
into the transportation industry, by producing sleeper cabs for heavy-duty
trucks. By applying similar wall panel systems technology used in cleanrooms the
Company produces a stronger, more durable, and lighter weight product than
traditional sleeper cabs. This technology may eventually be applied to other
products in the transportation industry. 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.
The Company's revenue and operating results fluctuate substantially
from quarter to quarter depending on such factors as the timing of 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 cleanroom 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). Non-cleanroom revenue is generally recognized when the
products are shipped to the customer.
The Company generates revenue in two geographic regions; North America
and Europe. 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 various markets. 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.
Devaluation of world currencies against the U.S. dollar has created extreme
price competitiveness from Korean, Japanese, and German manufacturers and
integrators of systems. 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.
The Company's business and operations have not been materially affected
by inflation during the periods for which financial information is presented.
9
<PAGE> 12
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------------
2000 1999
-------- --------
<S> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues .......................... $ 14,675 $ 12,480
Gross profit ...................... 1,573 1,577
Net loss .......................... (34) (316)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents .... $ 384 $ 296
Working capital .............. 3,531 2,886
Total assets ................. 29,795 26,075
Total liabilities ............ 18,886 15,567
Total shareholder's equity ... 10,909 10,508
</TABLE>
Revenues for the first quarter of 2000 increased by 17.6% to $14.7
million compared to $12.5 million for the first quarter of 1999. This increase
was primarily attributable to an increase in cleanroom and related products
contract awards during the fourth quarter of 1999 and the first quarter of 2000.
Revenues from cleanroom and related products increased $1.5 million, or 15.9%,
to $11.3 million for the first quarter of 2000 from $9.7 million during the
first quarter of 1999. Additionally, the sale of other manufactured products
increased by $649,000. Revenues from other manufactured products increased to
$3.4 million for the period ended March 31, 2000, as compared with $2.8 million
for the period ended March 31, 1999.
Gross profit for first quarter of 2000 decreased by 0.3% to $1.57
million from $1.58 million for the first quarter of 1999 and decreased as a
percentage of revenue to 10.7% for the first quarter of 2000 from 12.6% for the
first quarter of 1999. The decreased gross profit percentage was due largely to
lower than anticipated profits related to other products not related to the
semiconductor industry. With the Company's efforts to develop a portion 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, the Company may experience cost inefficiencies due to
ramp-up costs. However, it is the Company's objective to identify, manufacture
and sell other products that have high gross profit margin potential.
Selling, general and administrative expenses for the first quarter of
2000 decreased 25.4% to $1.3 million, or 9.1% of revenue, compared to $1.8
million, or 14.3% of revenue for the first quarter of 1999. The decrease in
selling, general and administrative expenses was the result of the Company's
continued efforts to manage and reduce its operating cost structure. The
reduction was primarily the result of reduced payroll and related expenses.
10
<PAGE> 13
Research and development expenses for the first quarter of 2000
decreased 68.3% to $19,000, compared to $60,000 for the first quarter of 1999.
The decrease was primarily the result of the Company's decision to establish a
foundry relationship for the supply of its traditional cleanroom component
products, similar to the foundry relationship being established by many
multinational semiconductor companies for their integrated circuit needs. The
Company continues to fund research and development to improve its existing
products and develop new products in its diversification program.
Interest expense for the first quarter of 2000 increased to $192,000,
compared to $101,000 for the first quarter of 1999. This increase was directly
related to increased borrowings at higher interest rates against the Company's
credit line during the first quarter of 2000, compared to borrowings during the
first quarter of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 2000 was $3.5 million, compared to $2.9
million at December 31, 1999. This includes cash and cash equivalents of
$384,000 at March 31, 2000 and $296,000 at December 31, 1999. The Company's
operations used $158,000 of cash during the first quarter of 2000, compared to
using $38,000 of cash from operations during the first quarter of 1999. During
the first quarter of 2000, the Company experienced a net increase in receivables
of $2.4 million, an increase in costs and estimated earnings in excess of
billings on contracts in progress of $1.6 million, and an increase in accounts
payable and accrued liabilities of $2.4 million. In addition, billings in excess
of costs and estimated earnings on contracts in progress increased by $1.0
million. During the first quarter ended March 31, 2000, the Company realized
proceeds of $435,000 from the issuance of 301,550 shares of common stock in
connection with the exercise of options related to its 1993 Stock Option Plan.
Through March 9, 2000, the Company maintained a revolving line of
credit with a domestic bank for the lesser of $6,000,000, or the available
borrowing base. From March 10, 2000, through March 31, 2000, the Company
maintained a revolving line of credit with a domestic bank for the lesser of
$5,500,000, or the available borrowing base. On April 1, 2000, the revolving
line of credit was reduced to the lesser of $5,000,000 or the available
borrowing base. The interest rate is computed at the bank's prime rate plus 3
percent per annum and requires monthly payments of interest. The Company had
$5,468,000 in borrowings against the line at March 31, 2000 ($5,258,000 at
December 31, 1999). The line of credit expired December 31, 1999 and was
extended to August 31, 2000, which included a waiver of the Company's
non-compliance with the covenants as of December 31, 1999. The Company was in
compliance with the extended line of credit agreement as of March 31, 2000. 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. The Company is currently
reviewing several financing alternatives.
Subsequent to March 31, 2000, the Company completed a $4.8 million
private equity placement through the issuance of 480 shares of the Company's 3%
Series A Convertible Preferred Stock, which are convertible into shares of the
Company's common stock. The private equity placement was necessary due to the
length and severity of the semiconductor downturn, the losses incurred by the
Company over the last 3 years, the Company's recent resurgence in business
activity and the need for working capital to finance this growth.
11
<PAGE> 14
Management believes that existing cash balances, borrowings available
under the existing line of credit or future credit facilities, cash generated
from operations, and proceeds from the $4.8 million private equity placement
will be adequate to meet the Company's anticipated cash requirements through
December 31, 2000. However, in the event the Company experiences adverse
operating performance, above-anticipated capital expenditure requirements, or is
unable to renew or replace its existing line of credit, additional financing may
be required. There can be no assurance that such additional financing, if
required, would be available on favorable terms if at all.
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
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to various market risks, including changes in
foreign currency exchange rates and interest rate risks. Market risk is the
potential loss arising from adverse change in market rates and prices, such as
foreign currency exchange and interest rates. For the Company, these exposures
are primarily related to the sale of product to foreign customers and changes in
interest rates. The Company does not have any derivatives or other financial
instruments for trading or speculative purposes.
The Company is exposed to interest rate changes primarily in relation
to its revolving credit line debt with a bank. The fair value of the Company's
total revolving credit line debt at March 31, 2000 was $5.5 million. Market risk
was estimated as the potential decrease (increase) in future earnings and cash
flows resulting from a hypothetical 10% increase (decrease) in the Company's
estimated weighted average borrowing rate at March 31, 2000. Although most of
the interest on the Company's debt is indexed to a market rate, there would be
no material effect on the future earnings or cash flows related to the Company's
total debt for such a hypothetical change.
The Company's financial position is not materially affected by
fluctuations in currencies against the U.S. dollar, since assets held outside
the United States are negligible. The Company's sensitivity analysis of the
effects of changes in foreign currency exchange rates does not factor in a
potential change in sales levels of local currency prices, as the preponderance
of its foreign sales occur over short periods of time or are denominated in U.S.
dollars.
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, 2000.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 May 15, 2000.
DAW TECHNOLOGIES, INC.
By: /s/ Ronald W. Daw
------------------------------------------
Ronald W. Daw
Chairman of the Board, President,
Chief Executive Officer and
Principal Financial and Accounting Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS AS OF MARCH 31, 2000 AND DECEMBER 31, 1999 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE 3 MONTHS ENDED MARCH 31, 2000 AND 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 384
<SECURITIES> 0
<RECEIVABLES> 10,153
<ALLOWANCES> (300)
<INVENTORY> 2,282
<CURRENT-ASSETS> 22,312
<PP&E> 9,765
<DEPRECIATION> (6,565)
<TOTAL-ASSETS> 29,795
<CURRENT-LIABILITIES> 18,781
<BONDS> 0
128
0
<COMMON> 0
<OTHER-SE> 10,781
<TOTAL-LIABILITY-AND-EQUITY> 29,795
<SALES> 14,675
<TOTAL-REVENUES> 14,675
<CGS> 13,102
<TOTAL-COSTS> 14,574
<OTHER-EXPENSES> 135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 192
<INCOME-PRETAX> (34)
<INCOME-TAX> 0
<INCOME-CONTINUING> (34)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
