**S****ECURITIES AND****E****XCHANGE****C****OMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 
| **ý** |   | **Quarterly report pursuant to Section  13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period  ended September 30, 2002** |
|------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                            |
|       |   | **or**                                                                                                                                          |
|       |   |                                                                                                                                            |
| **o**      |   | **Transition report pursuant to Section  13 or 15(d) of the Securities Exchange Act of 1934.**                                                  |

 

**0-21818**

**(Commission FileNo.)**

 

**D****AW****T****ECHNOLOGIES,****I****NC.**

(Exact name of registrant as specified in its charter)

 

| **Utah**                                                       |   | **87-0464280**                     |
|----------------------------------------------------------------|--------|------------------------------------|
| (State or other jurisdictionof  incorporation or organization) |   | (IRS Employer  Identification No.) |
|                                                           |   |                               |
| **2700 South 900 West  Salt Lake City, Utah 84119**            |
| (Address of principal executive offices, including zip code)   |

 

Registrant’s telephone number, including area code:  **(801)977-3100**

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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.  Yesý   No o

 

As of November 5, 2002, theRegistrant had 3,759,303 shares of Common Stock, $0.01 par value outstanding.

 

The financial statements contained in the Registrant’sQuarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and June30, 2002, which were filed without a review by an independent audit firmbecause of the Registrant’s replacement of Arthur Andersen LLP as itsindependent auditor, have now been reviewed by the Registrant’s independentaudit firm Tanner + Co.  There were nomaterial changes in the previously filed financial statements as a result ofthe review by Tanner + Co.

 

 

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Daw Technologies,Inc.

 

INDEX

 
| PART I  Financial Information |
|------------------------------------|
|                               |   |
| Item 1. Financial  Statements      |
|                               |   |
|                               | Condensed  Consolidated Balance Sheets - September 30, 2002 and  December 31, 2001 (unaudited) |
|                               |   |
|                               | Condensed  Consolidated Statements of Operations -  Three and nine months ended  September 30, 2002 and 2001 (unaudited) |
|                               |   |
|                               | Condensed  Consolidated Statements of Cash Flows -  Three and nine months ended  September 30, 2002 and 2001 (unaudited) |
|                               |   |
|                               | Notes  to Condensed Consolidated Financial  Statements (unaudited) |
|                               |   |
| Item  2.                           | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
|                               |   |
| Item  3.                           | Quantitative  and Qualitative Disclosures About Market  Risk |
|                               |   |
| Item 4.                            | Controls and Procedures |
|                               |   |
| PART II Other Information          |
|                               |   |
| Item 3.                            | Defaults Upon Senior  Securities |
|                               |   |
| Item  4.                           | Submission  of Matters to Vote of Security Holders |
|                               |   |
| Item 6.                            | Exhibits and Reports  on Form 8-K |
|                               |   |
| Signatures                         |
|                               |   |
| Certifications                     |
|                                    |  |  |

 

----

 

PARTI - FINANCIAL INFORMATION

 

**Item 1.    Financial Statements**

 

Daw Technologies,Inc. and Subsidiaries

CONDENSED CONSOLIDATEDBALANCE SHEETS

(in thousands,except share data)

(unaudited)

 
|                                                                                                                                                           |   | **September  30,  2002** |       | **December  31,  2001** |       |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|------------|-------------------------|------------|
| **ASSETS**                                                                                                                                                     |   |                     |       |                    |       |
| CURRENT ASSETS:                                                                                                                                                |   |                     |       |                    |       |
| Cash and cash equivalents                                                                                                                                      |   | $                        | 705        |                    | $          | 1,969 |   |
| Restricted cash                                                                                                                                                |   | 145                      |       | 716                     |       |
| Accounts receivable, net                                                                                                                                       |   | 4,348                    |       | 6,967                   |       |
| Costs and estimated earnings in excess of  billings on contracts in progress                                                                                   |   | 1,513                    |       | 1,803                   |       |
| Inventories, net                                                                                                                                               |   | 1,282                    |       | 1,983                   |       |
| Other current assets                                                                                                                                           |   | 743                      |       | 745                     |       |
| Total current  assets                                                                                                                                          |   | 8,736                    |       | 14,183                  |       |
| PROPERTY AND  EQUIPMENT, NET                                                                                                                                   |   | 1,170                    |       | 1,594                   |       |
| OTHER ASSETS                                                                                                                                                   |   | 553                      |       | 678                     |       |
|                                                                                                                                                           |   | $                        | 10,459     |                    | $          | 16,455 |   |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY (DEFICIT)**                                                                                                       |   |                     |       |                    |       |
|                                                                                                                                                           |   |                     |       |                    |       |
| CURRENT LIABILITIES:                                                                                                                                           |   |                     | ** ** |                    | ** ** |
| Accounts payable and accrued liabilities                                                                                                                       |   | $                        | 8,595      |                    | $          | 6,356 | ** ** |
| Billings in excess of costs and estimated  earnings on contracts in progress                                                                                   |   | 924                      |       | 1,912                   |       |
| Line of credit                                                                                                                                                 |   | 2,068                    |       | 2,585                   |       |
| Current portion of capital lease obligations                                                                                                                   |   | 80                       |       | 109                     |       |
| Total current  liabilities                                                                                                                                     |   | 11,667                   |       | 10,962                  |       |
| CAPITAL LEASE  OBLIGATIONS, less current portion                                                                                                               |   | 18                       |       | 50                      |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                                                                 |   |                     |       |                    |       |
| REDEEMABLE PREFERRED STOCK:                                                                                                                                    |   |                     |       |                    |       |
| 3% Series A Redeemable Convertible Preferred  Stock, authorized 10,000,000 shares of $0.01 par value; 411 and 411 shares  issued and outstanding, respectively |   | 5,401                    |       | 5,401                   |       |
| SHAREHOLDERS’ EQUITY (DEFICIT):                                                                                                                           |   |                     |       |                    |       |
| Common stock, authorized 50,000,000 shares  of $0.01 par value; 3,759,303 and 3,759,303 shares, respectively, issued and  outstanding                          |   | 38                       |       | 38                      |       |
| Additional paid-in capital                                                                                                                                     |   | 20,364                   |       | 20,364                  |       |
| Common stock warrants                                                                                                                                          |   | 350                      |       | 350                     |       |
| Accumulated deficit                                                                                                                                            |   | (26,910                  | )          | (20,244                 | )          |
| Accumulated other comprehensive loss                                                                                                                           |   | (469                     | )          | (466                    | )          |
| Total shareholders’ equity (deficit)                                                                                                                      |   | (6,627                   | )          | 42                      |       |
|                                                                                                                                                           |   | $                        | 10,459     |                    | $          | 16,455 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

1

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Daw Technologies,Inc. and Subsidiaries

 

CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands,except share data)

(unaudited)

 
|                                         |   | **Three  months ended  September 30,** |   | **Nine  months ended  September 30,** |   |
|----------------------------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                                         |   | **2002**                               |   | **2001**                              |   | **2002** |   | **2001** |   |
| Revenue,  net                                |   | $                                      | 6,271  |                                  | $      | 6,799 |   | $ | 19,865 |   | $ | 33,847 |   |
|                                         |   |                                   |   |                                  |   |   |   |   |   |
| Cost  of goods sold                          |   | 6,772                                  |   | 5,778                                 |   | 22,357 |   | 30,416 |   |
|                                         |   |                                   |   |                                  |   |   |   |   |   |
| Gross  profit (loss)                         |   | (501                                   | )      | 1,021                                 |   | (2,492 | ) | 3,431 |   |
|                                         |   |                                   |   |                                  |   |   |   |   |   |
| Operating  expenses:                         |   |                                   |   |                                  |   |   |   |   |   |
| Selling,  general and administrative         |   | 967                                    |   | 946                                   |   | 3,432 |   | 3,031 |   |
| Research  and development                    |   | 37                                     |   | 86                                    |   | 128 |   | 249 |   |
| Depreciation  and amortization               |   | 105                                    |   | 97                                    |   | 316 |   | 332 |   |
|                                         |   |                                   |   |                                  |   |   |   |   |   |
|                                         |   | 1,109                                  |   | 1,129                                 |   | 3,876 |   | 3,612 |   |
| Loss  from operations                        |   | (1,610                                 | )      | (108                                  | )      | (6,368 | ) | (181 | ) |
| Other  income (expense):                     |   |                                   |   |                                  |   |   |   |   |   |
| Interest  expense                            |   | (57                                    | )      | (84                                   | )      | (168 | ) | (354 | ) |
| Other,  net                                  |   | 16                                     |   | (12                                   | )      | (11 | ) | (749 | ) |
|                                         |   |                                   |   |                                  |   |   |   |   |   |
|                                         |   | (41)                                   |   | (96                                   | )      | (179 | ) | (1,103 | ) |
|                                         |   |                                   |   |                                  |   |   |   |   |   |
| Loss  before provision for income taxes      |   | (1,651                                 | )      | (204                                  | )      | (6,547 | ) | (1,284 | ) |
|                                         |   |                                   |   |                                  |   |   |   |   |   |
| Provision  for income taxes                  |   | 5                                      |   | 3,767                                 |   | 27 |   | 4,199 |   |
|                                         |   |                                   |   |                                  |   |   |   |   |   |
| NET  LOSS                                    |   | $                                      | (1,656 | )                                     | $      | (3,971 | ) | $ | (6,574 | ) | $ | (5,483 | ) |
|                                         |   |                                   |   |                                  |   |   |   |   |   |
| Net  loss per common share:                  |   |                                   |   |                                  |   |   |   |   |   |
| Basic                                        |   | $                                      | (0.44  | )                                     | $      | (1.06 | ) | $ | (1.77 | ) | $ | (1.51 | ) |
| Diluted                                      |   | (0.44                                  | )      | (1.06                                 | )      | (1.77 | ) | (1.51 | ) |
|                                         |   |                                   |   |                                  |   |   |   |   |   |
| Weighted-average  common shares outstanding: |   |                                   |   |                                  |   |   |   |   |   |
| Basic                                        |   | 3,759,303                              |   | 3,759,303                             |   | 3,759,303 |   | 3,704,076 |   |
| Diluted                                      |   | 3,759,303                              |   | 3,759,303                             |   | 3,759,303 |   | 3,704,076 |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

2

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Daw Technologies,Inc. and Subsidiaries

 

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands,except share data)

(unaudited)

 
|                                                                                                                                    |   | **Nine months ended  September 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                                                                                    |   | **2002**                             |   | **2001** |   |
| Increase  (decrease) in cash and cash equivalents                                                                                       |   |                                 |   |   |   |
| Cash flows from  operating activities:                                                                                                  |   |                                 |   |   |   |
|                                                                                                                                    |   |                                 |   |   |   |
| Net loss                                                                                                                                |   | $                                    | (6,574 | ) | $ | (5,483 | ) |
| Adjustments to  reconcile net loss to net cash provided by operating activities:                                                        |   |                                 |   |   |   |
| Depreciation and  amortization                                                                                                          |   | 617                                  |   | 710 |   |
| Loss on disposal  of property and equipment                                                                                             |   | —                               |   | 195 |   |
| Provision for  losses on accounts receivable                                                                                            |   | (69                                  | )      | 292 |   |
| Deferred income  taxes                                                                                                                  |   | —                               |   | 3,789 |   |
| Changes in  current assets and liabilities:                                                                                             |   |                                 |   |   |   |
| Restricted cash                                                                                                                         |   | 628                                  |   | (730 | ) |
| Accounts  receivable                                                                                                                    |   | 2,863                                |   | 1,993 |   |
| Costs and  estimated earnings in excess of billings on contracts in progress                                                            |   | 421                                  |   | 3,157 |   |
| Inventories                                                                                                                             |   | 724                                  |   | 275 |   |
| Other assets                                                                                                                            |   | (43                                  | )      | 1,688 |   |
| Accounts payable  and accrued liabilities                                                                                               |   | 1,937                                |   | (2,666 | ) |
| Billings in  excess of costs and estimated earnings on contracts in progress                                                            |   | (1,018                               | )      | (1,101 | ) |
|                                                                                                                                    |   |                                 |   |   |   |
| Net cash  provided by (used in) operating activities                                                                                    |   | (514                                 | )      | 2,119 |   |
|                                                                                                                                    |   |                                 |   |   |   |
| Cash flows from  investing activities                                                                                                   |   |                                 |   |   |   |
| Purchase of  property and equipment                                                                                                     |   | (124                                 | )      | (183 | ) |
| Proceeds from  sale of net assets                                                                                                       |   | 28                                   |   | — |   |
|                                                                                                                                    |   |                                 |   |   |   |
| Net cash used in  investing activities                                                                                                  |   | $                                    | (96    | ) | $ | (183 | ) |
|                                                                                                                                    |   |                                 |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                                                                       |   |                                 |   |   |   |
|                                                                                                                                    |   |                                 |   |   |   |
| Cash flows from  financing activities:                                                                                                  |   |                                 |   |   |   |
| Decrease in  checks written in excess of cash in bank                                                                                   |   | $                                    | — |   | (22 | ) |
| Net change in  line of credit                                                                                                           |   | (517                                 | )      | (637 | ) |
| Payments on  capital lease obligations                                                                                                  |   | (60                                  | )      | (88 | ) |
| Net cash used in  financing activities                                                                                                  |   | (577                                 | )      | (747 | ) |
| Effect of  foreign exchange rates on cash and cash equivalents                                                                          |   | 68                                   |   | (18 | ) |
| Net increase  (decrease) in cash and cash equivalents                                                                                   |   | (1,119                               | )      | 1,171 |   |
| Cash and cash  equivalents at beginning of period                                                                                       |   | 1,969                                |   | 2,175 |   |
|                                                                                                                                    |   |                                 |   |   |   |
| Cash and cash  equivalents at end of period                                                                                             |   | $                                    | 850    |   | $ | 3,346 |   |
|                                                                                                                                    |   |                                 |   |   |   |
| Supplemental  disclosures of cash flow information                                                                                      |   |                                 |   |   |   |
|                                                                                                                                    |   |                                 |   |   |   |
| Cash paid during  the period for:                                                                                                       |   |                                 |   |   |   |
| Interest                                                                                                                                |   | $                                    | 168    |   | $ | 343 |   |
|                                                                                                                                    |   |                                 |   |   |   |   |   |
| Noncash  investing and financing activities                                                                                             |   |                                 |   |   |   |
|                                                                                                                                    |   |                                 |   |   |   |
| During the nine  months ended September 30, 2002, the Company accrued dividends of $92 on its  3% Series A convertible preferred stock. |   |                                 |   |   |   |

 

See accompanyingnotes to condensed consolidated financial statements.

 

3

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Daw Technologies,Inc. and Subsidiaries

 

NOTES TO CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(in thousands,except share data)

(unaudited)

 

1.                                       SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES

 

##### Principles ofconsolidation

 

The consolidated financial statements include the accounts andoperations of the Company and its wholly owned subsidiaries, Daw TechnologiesEurope Ltd., which was organized in 1999, Daw Technologies France SAS, whichwas organized in 2001, and Translite Systems, Inc., (inactive) which wasorganized in 1999.  All significantintercompany accounts and transactions have been eliminated in consolidation.

 

Translationof foreign currencies

 

The functional currencyfor the Company’s foreign operations is the British Sterling.  The financial statements of the Company’sforeign subsidiaries are translated into U.S. Dollars in accordance withStatement of Financial Accounting Standards No. 52 *“Foreign Currency Translation”*.  Assets and liabilities of the foreignsubsidiaries are translated into the U.S. Dollar at the exchange rate at theend of each reporting period. Income and expense items are translated at theweighted average exchange rates for the period.  Translation gains and losses are reflected as a separatecomponent of shareholders’ equity as accumulated other comprehensive loss.  Foreign currency transaction gains andlosses are reported in the accompanying consolidated statements of operations.

 

Accounting for long-termcontracts

 

Revenue recorded for contracts in the accompanying financial statementsis recognized using the percentage-of-completion method and, therefore, takesinto account the costs, estimated earnings and revenue to date on contracts notyet completed.  The revenue recognizedis that portion of the total contract price that cost incurred to date bears toanticipated final total cost, based on current estimates of costs tocomplete.  Revenue fromcost-plus-fixed-fee contracts is recognized on the basis of costs incurredduring the period plus the fee earned, measured by the cost-to-cost method.

 

Contract costs includeall direct and allocable indirect labor, benefits, and materials unique to orinstalled in the project, subcontractor cost allocations, including employeebenefits and equipment expense.  At thetime a loss on a contract becomes known, the entire amount of the estimatedultimate loss is recognized in the financial statements.  As long-term contracts extend over one year,revisions in cost and earnings estimates during the course of the work arereflected in the accounting period in which the facts become known whichrequire the revision.  Costsattributable to contract claims or disputes are carried in the accompanyingbalance sheets only when realization is probable.  These costs are recorded at the lesser of actual costs incurredor the amount expected to be realized. It is reasonably possible that estimates by management related tocontracts can change in the future.

 

The current asset, costsand estimated earnings in excess of billings on contracts in progress,represents revenue recognized in excess of amounts billed (unbilledrevenue).  The current liability,billings in excess of costs and estimated earnings on contracts in progress,represents billings in excess of revenue recognized (unearned revenue).  The amount of revenue recognized is notrelated to the progress billings to customers.

 

4

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Other revenue recognition

 

The Company recognizes revenue on its other product sales and contractmanufacturing services when the product is shipped and title passes to thecustomer or when the services are performed.

 

Useof estimates

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

Cash and cash equivalents

 

The Company considers allhighly liquid instruments with an original maturity of three months or less tobe cash equivalents.

 

## **Income taxes**

 

The Company utilizes theliability method of accounting for income taxes.  Under the liability method, deferred tax assets and liabilitiesare determined based on differences between financial reporting and tax bases ofassets and liabilities and are measured using the enacted tax rates and lawsthat will be in effect when the differences are expected to reverse.  An allowance against deferred tax assets isrecorded when it is more likely than not that such tax benefits will not berealized.  Research tax credits arerecognized as utilized.

 

2.                                       ACCOUNTSRECEIVABLE

 

Accounts receivableconsist of the following:

 
|                                    |   | **September  30,  2002** |   | **December  31,  2001** |   |
|-----------------------------------------|--------|--------------------------|--------|-------------------------|--------|
| Contract and  trade account receivables |   | $                        | 4,646  |                    | $      | 7,039 |   |
| Retention  receivables                  |   | 98                       |   | 368                     |   |
|                                    |   | 4,744                    |   | 7,407                   |   |
| Less Allowance  for doubtful accounts   |   | (396                     | )      | (440                    | )      |
| Total                                   |   | $                        | 4,348  |                    | $      | 6,967 |   |

 

Some of the Company’s contracts require retentions, typically 5-10percent of the amount billed, to be withheld from each progress payment by thecustomer until the project reaches substantial completion. Earned, but unbilledretention amounts are included in retention receivables.  The Company has also included retention inthe account category of cost and earnings in excess of billings on contracts inprogress in the UK.

 

5

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3.                                       INVENTORIES

 

The components of inventories, net are as follows asof September 30, 2002 and December 31, 2001:

 
|                             |   | **September  30,  2002** |   | **December  31,  2001** |   |
|----------------------------------|--------|--------------------------|--------|-------------------------|--------|
| Raw materials                    |   | $                        | 1,668  |                    | $      | 1,801 |   |
| Finished goods                   |   | 39                       |   | —                  |   |
| Work in process                  |   | 367                      |   | 385                     |   |
|                             |   | 2,074                    |   | 2,186                   |   |
| Less allowance  for obsolescence |   | (792                     | )      | (203                    | )      |
| Total                            |   | $                        | 1,282  |                    | $      | 1,983 |   |

 

6

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4.                                       NETLOSS PER COMMON SHARE

 

The Company follows the provisions of Statement of Financial AccountingStandards (“SFAS”) No. 128 “Earnings Per Share”.  SFAS No. 128 requires the presentation of basic and dilutedearnings per share (“EPS”). Basic EPS is calculated by dividing net lossavailable to common shareholders by the weighted-average number of commonshares outstanding during each period. Diluted EPS is similarly calculated,except that the weighted-average number of common shares reflects the potentialdilution that could occur if outstanding stock options, warrants and preferredstock conversion features were exercised.

 

The following data show the amounts used in computing net loss percommon share, including the effect on net loss for preferred stockdividends.  The following data also showthe weighted average number of shares and rights to acquire shares withdilutive potential:

 
|                                                                                               |   | **Three months ended  September 30,** |   | **Nine months ended  September 30,** |   |
|----------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------------------------|--------|
|                                                                                               |   | **2002**                              |   | **2001**                             |   | **2002** |   | **2001** |   |
| Net loss                                                                                           |   | $                                     | (1,656 | )                                    | $      | (3,971 | ) | $ | (6,574 | ) | $ | (5,483 | ) |
|                                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| Imputed dividends from  beneficial conversion feature of preferred stock                           |   | —                                |   | —                               |   | — |   | — |   |
|                                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| Dividends on preferred  stock                                                                      |   | (15                                   | )      | (31                                  | )      | (92 | ) | (111 | ) |
|                                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| Net loss applicable to  common shareholders                                                        |   | $                                     | (1,671 | )                                    | $      | (4,002 | ) | $ | (6,666 | ) | $ | (5,594 | ) |
|                                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| Weighted average number  of common shares used in basic EPS                                        |   | 3,759,303                             |   | 3,759,303                            |   | 3,759,303 |   | 3,704,076 |   |
|                                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| Dilutive effect of  stock options                                                                  |   | —                                |   | —                               |   | — |   | — |   |
|                                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| Dilutive effect of  warrants                                                                       |   | —                                |   | —                               |   | — |   | — |   |
|                                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| Dilutive effect of preferred  stock                                                                |   | —                                |   | —                               |   | — |   | — |   |
|                                                                                               |   |                                  |   |                                 |   |   |   |   |   |
| Weighted average number  of common shares and dilutive potential common shares used in diluted EPS |   | 3,759,303                             |   | 3,759,303                            |   | 3,759,303 |   | 3,704,076 |   |

 

For the three and nine month periods ended September 30, 2002 and forthe three and nine month periods ended September 30, 2001, all stock options,warrants and preferred stock outstanding were not included in the computationof diluted EPS because to do so would have been anti-dilutive.

 

7

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5.                                       LINEOF CREDIT

 

During 2002 and 2001, the Company maintained a revolving line of creditwith a domestic bank.  The Company had$1,966 outstanding in borrowings under the line of credit as of September 30,2001.  As of September 30, 2002,borrowings under the line of credit were limited to the lesser of $3,000 or anavailable borrowing base equal to 75 percent of the Company’s domestic accountsreceivable (approximately $2,068 at September 30, 2002 and $2,585 at December31, 2001).  Interest on borrowings underthe line of credit is payable monthly. The interest rate associated with the line of credit is variable and atSeptember 30, 2002, the interest rate was 7.25%.  Borrowings under the line of credit are secured by substantiallyall the assets of the Company.  The lineof credit was to expire on January 31, 2002. In January 2002, the bank extended the expiration date to January 31,2003.  The maximum borrowings availableunder the extended line of credit is $3,000 from February 2002 until October2002 and $2,700 from November 2002 to January 2003.

 

As of September 30, 2002 the Company was out of compliance with certaincovenants.  If the bank were to requirethe immediate repayment of this line of credit, the Company would be forced toseek alternative sources of financing which may not be available to the Companyor may only be available on terms that are not acceptable to the Company.  The Company is currently in the process ofseeking alternative financing from other sources; however, there can be noassurance that the Company will be successful in these efforts.

 

6.                                       SEGMENTINFORMATION

 

During the three and nine month periods ended September 30, 2002 and2001, the Company had three reportable segments, namely cleanroom, mini-environmentand manufactured products.  Theoperations of the Company’s cleanroom segment consists primarily of the design,manufacture and installation of cleanroom components and integrated cleanroomsystems such as those used in the semiconductor, computer hardware,pharmaceutical, biotechnology and food processing industries.  The operations of the Company’s minienvironments segment consist of the design, manufacture and installation ofsmall clean environment systems such as those used in semiconductor andpharmaceutical research and development. The operations of the manufactured products segment consists primarilyof contract-based manufacturing and specialized painting services formanufacturers and fabricators.  (SeeItem 2. in MD&A for further segment discussion)

 

The accounting policies of the segments are the same as those describedin the summary of significant accounting policies (see Note 1).  The Company evaluates performance of eachsegment based on income or loss from operations.  Revenue by segment reflects sales to unaffiliated customers.  Each segment uses the same manufacturingfacility.  Accordingly, in computingincome or loss from operations, the Company allocates certain general andadministrative expenses, consisting primarily of facilities expenses, utilitiesand manufacturing overhead.  It is notpractical to determine the total assets per segment and depreciation by segmentbecause each segment uses the same manufacturing facility.  Identifiable assets by segment are reportedbelow.  Unallocable assets relateprimarily to the Company’s manufacturing facility and other non operatingassets.

 

8

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Segment information for the three and nine month periods endedSeptember 30, 2002 and September 30, 2001 is as follows:

 
|                                   |   | **Three months****Ended September 30,** |   | **Nine months****Ended September 30,** |   |
|----------------------------------------|--------|-----------------------------------------|--------|----------------------------------------|--------|
|                                   |   | **2002**                                |   | **2001**                               |   | **2002** |   | **2001** |   |
| Revenue,  net                          |   |                                    |   |                                   |   |   |   |   |   |
| Cleanrooms  and related products       |   | $                                       | 5,936  |                                   | $      | 5,384 |   | $ | 15,318 |   | $ | 28,572 |   |
| Mini  environment                      |   | 199                                     |   | 339                                    |   | 837 |   | 1,708 |   |
| Other  manufactured goods and services |   | 136                                     |   | 1,076                                  |   | 3,710 |   | 3,567 |   |
| Totals                                 |   | $                                       | 6,271  |                                   | $      | 6,799 |   | $ | 19,865 |   | $ | 33,847 |   |
| Income  (loss) from operations:        |   |                                    |   |                                   |   |   |   |   |   |
| Cleanrooms  and related products       |   | $                                       | (308   | )                                      | $      | (177 | ) | $ | (1,474 | ) | $ | 2,097 |   |
| Mini  environment                      |   | (88                                     | )      | 5                                      |   | (172 | ) | 144 |   |
| Other  manufactured goods and services |   | (205                                    | )      | 1,034                                  |   | (1,059 | ) | 679 |   |
| Unallocated                            |   | (1,009                                  | )      | (970                                   | )      | (3,663 | ) | (3,101 | ) |
| Totals                                 |   | $                                       | (1,610 | )                                      | $      | (108 | ) | $ | (6,368 | ) | $ | (181 | ) |

 

 
|                             |   | **September 30,  2002** |   | **December 31,  2001** |   |
|----------------------------------|--------|-------------------------|--------|------------------------|--------|
| Total assets:                    |   |                    |   |                   |   |
| Cleanrooms and  related products |   | $                       | 6,192  |                   | $      | 11,337 |   |
| Mini environment                 |   | 790                     |   | 647                    |   |
|                             |   |                    |   |                   |   |
| Manufactured  products           |   | 2,202                   |   | 1,776                  |   |
|                             |   |                    |   |                   |   |
| Unallocated                      |   | 1,275                   |   | 2,695                  |   |
|                             |   |                    |   |                   |   |
| Totals                           |   | $                       | 10,459 |                   | $      | 16,455 |   |

 

9

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7.                                       COMPREHENSIVELOSS

 

The following table reports comprehensive loss for the three and ninemonths ended September 30, 2002 and 2001:

 
|                                     |   | **Three  months ended  September 30,** |   |
|------------------------------------------|--------|----------------------------------------|--------|
|                                     |   | **2002**                               |   | **2001** |   |
| Net loss                                 |   | $                                      | (1,656 | ) | $ | (3,971 | ) |
| Foreign currency  translation adjustment |   | (12                                    | )      | 34 |   |
| Comprehensive  loss                      |   | $                                      | (1,668 | ) | $ | (3,937 | ) |

 
|                                     |   | **Nine months ended  September 30,** |   |
|------------------------------------------|--------|--------------------------------------|--------|
|                                     |   | **2002**                             |   | **2001** |   |
| Net loss                                 |   | $                                    | (6,574 | ) | $ | (5,483 | ) |
| Foreign currency  translation adjustment |   | (3                                   | )      | (52 | ) |
| Comprehensive  loss                      |   | $                                    | (6,577 | ) | $ | (5,535 | ) |

 

10

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**Item 2.    Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

 

# *GENERAL*

 

The following discussion should be read in conjunctionwith the financial statements and notes thereto included elsewhere herein.  All data in the tables are in thousands,except for percentages and share data.

 

The Company’s principal line of business is thedesign, manufacture and installation of cleanroom components and integratedcleanroom systems, primarily for the semiconductor industry.  The Company also designs, manufactures andinstalls cleanroom components and integrated cleanroom systems for otherindustries, such as the pharmaceutical, flat panel display, disk drive,biotechnology and food processing industries. The Company is a global leader in the cleanroom installationbusiness.  In addition, until October31, 2002, the Company designed and manufactured environmentally controlled“mini-environments,” which range in size from the size of a desk to the size ofa bus.  On October 31, 2002, the Companydivested itself of the “mini-environment” portion of its business by sellingthe assets related to that portion of the business to Intelligent Enclosures,Inc., a Utah corporation owned by the former managers of the Company’s“mini-environment” business.  At thebeginning of 2002, the Company established a product line in its Europeanoperations that offers ultra high purity piping services, usually inconjunction with the installation of highly specialized tools and equipment inadvanced manufacturing applications. Finally, the Company offers manufacturing and specialized paintingservices on a contract basis, primarily to local and regional manufacturers andfabricators.

 

RESULTS OF OPERATIONS (Data inthe tables are in thousands)

 

Selected Financial Information

 
|                 |   | **Three  months ended  September 30,** |   | **Nine  Months ended  September 30,** |   |
|----------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                 |   | **2002**                               |   | **2001**                              |   | **2002** |   | **2001** |   |
|                 |   |                                   |   |                                  |   |   |   |   |   |
| Revenue, net         |   | $                                      | 6,271  |                                  | $      | 6,799 |   | $ | 19,865 |   | $ | 33,847 |   |
|                 |   |                                   |   |                                  |   |   |   |   |   |
| Gross profit  (loss) |   | (501                                   | )      | 1,021                                 |   | (2,492 | ) | 3,431 |   |
|                 |   |                                   |   |                                  |   |   |   |   |   |
| Operating  expenses  |   | 1,109                                  |   | 1,129                                 |   | 3,876 |   | 3,612 |   |
|                 |   |                                   |   |                                  |   |   |   |   |   |
| Net loss             |   | (1,656                                 | )      | (3,971                                | )      | (6,574 | ) | (5,483 | ) |
|                      |        |                                        |        |                                       |        |  |  |  |  |  |  |  |  |

 
|                             |   | **Sept. 30,  2002** |   | **December  31,  2001** |   |
|----------------------------------|--------|---------------------|--------|-------------------------|--------|
| Balance Sheet Data:              |   |                |   |                    |   |
|                             |   |                |   |                    |   |
| Cash  and cash equivalents       |   | $                   | 705    |                    | $      | 1,969 |   |
|                             |   |                |   |                    |   |
| Working  capital                 |   | (2,931              | )      | 3,221                   |   |
|                             |   |                |   |                    |   |
| Total  assets                    |   | 10,459              |   | 16,455                  |   |
|                             |   |                |   |                    |   |
| Total  liabilities               |   | 11,685              |   | 11,012                  |   |
|                             |   |                |   |                    |   |
| Redeemable  preferred stock      |   | 5,401               |   | 5,401                   |   |
|                             |   |                |   |                    |   |
| Total  stockholders’ equity |   | (6,627              | )      | 42                      |   |
|                                  |        |                     |        |                         |        |  |  |

 

11

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### Discussion

 

Revenue for the three monthsended September 30, 2002, decreased by 7.8 % to $6.3 million compared to $6.8million for the three months ended September 30, 2001.  Revenue from cleanroom and related productsdecreased $0.2 million, or 4.5 %, to $5.1 million for the three months endedSeptember 30, 2002, from $5.4 million for the three months ended September 30, 2001.  Revenue from mini-environment and related products decreased $0.1million, or 41.0 % to $0.2 million for the three months ended September 30,2002, from $0.3 million during the three months ended September 30, 2001.  Revenue from other manufactured goods andservices decreased to $0.93 million for the three months ended September 30,2002, as compared with $1.1 million for the three months ended September 30,2001.

 

Revenue for the nine months endedSeptember 30, 2002, decreased by 41.3 % to $19.9 million compared to $33.8million for the nine months ended September 30, 2001.  Revenue from cleanroom and related products decreased $13.3million, or 46.4 %, to $15.3 million for the nine months ended September 30,2002, from $28.6 million for the ninemonths ended September 30, 2001. Revenue from mini-environment and related products decreased $0.9million, or 51.0 % to $0.8 million for the nine months ended September 30,2002, from $1.7 million during the nine months ended September 30, 2001.  Revenue from other manufactured goods andservices increased to $3.7 million for the nine months ended September 30,2002, as compared with $3.6 million for the nine months ended September 30,2001.

 

The decline in cleanroom andmini-environment revenue for the three and nine months ended September 30,2002, is primarily attributable to the severe recession in the semiconductorindustry that began in the first quarter of 2001.  The slight decrease in revenue from other manufactured goods andservices during the three months ended September 30, 2002 as compared to thesame period in 2001 is primarily attributable to the decrease in the amount ofcontract manufacturing done by the Company, which has been largely a responseto the excess manufacturing capacity created by the decline in cleanroomcomponent manufacturing.  The slightincrease in revenue from other manufactured goods and services during the ninemonths ended September 30, 2002 as compared to the same period in 2001 isprimarily attributable to a higher level of contract manufacturing completedduring the first part of 2002.

 

Gross profit (loss) for the threemonths ended September 30, 2002, decreased by 149.1 % to $(0.50) million from$1.0 million for the three months ended September 30, 2001, and decreased 8.0 %as a percentage of revenue for thethird quarter of 2002 compared to 15.0% for the third quarter of 2001. Grossprofit (loss) for the nine months ended September 30, 2002, decreased by 172.6% to $(2.5) million from $3.4 million for the nine months ended September 30,2001, and decreased 12.5 % as a percentage of revenue for the nine months ended September 30, 2002, compared to10.1% for same period.

 

The decrease in gross profit forthe nine months ended September 30, 2002, as compared to the nine months endedSeptember 30,2001, is in large part a result of inventory reserve expense of$543,000 recorded as cost of goods sold for slow moving and possibly obsoleteraw materials and income and VAT tax reserve expense related to a $1.7 millionestimated tax assessment charged to cost of goods sold that is related to VAT andother taxes in the Company’s international markets. The decrease in grossprofit for the three months ended September 30, 2002 as compared to the threemonths ended September 30, 2001 is a result of the decreases in thesemiconductor market, as well as the decline in the worldwide economy as awhole, and an increase in the competitive nature of the cleanroom biddingprocess.  In addition, the decrease ingross profit in the third quarter of 2002 is also attributable to someinefficiencies and inexperience by the Company’s European operations in pricingits fairly new ultra high purity piping services.

 

With the Company’s efforts to develop a portion of itsrevenue from sources outside of the semiconductor cleanroom industry byapplying its product and engineering expertise in custom metal fabrication

 

12

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and airflow systems, the Company continues to experience some costinefficiencies due to ramp-up costs. However, it continues to be the Company’s objective to identify,manufacture and sell non-semiconductor cleanroom related products and servicesthat have acceptable gross profit margin potential.

 

Capital spending by manufacturersin the volatile semiconductor industry continues to be depressed.  This has resulted in severe competition inacquiring business, and has resulted in fewer large cleanroom projects to bid. The Company is continuing to pursue the outsourcing of cleanroomcomponent parts where such outsourcing will allow it to offer its customers awider range of cleanroom solutions at competitive prices.  Management hopes that this strategy willenable the Company to be more flexible in the current environment.  Management is also carefully analyzing allportions of the Company’s business, and is beginning a process of restructuringor divesting itself of any product line or service that isunderperforming.  Most recently, thiseffort resulted in the Company divesting itself of its historicallyunder-performing mini-environment business assets in October 2002.  Management anticipates that additionaldivestitures may follow.

 

The Company will continue toanalyze opportunities outside of the manufacture and installation of clean roomsystems for the semiconductor industry. However, because of cash constraints and a diminished management team,the Company will, in the short term, only pursue those opportunities that donot detract from the Company’s focus on cleanroom design and installation.

 

The Company recently introduced aproduct line in its European operations offering ultra high purity pipingservices.  These services, which consistlargely of the installation and hook-up of highly specialized tools andequipment in advanced manufacturing facilities such as cleanrooms, are in highdemand.  As the rate of newsemiconductor fab construction continues to decline, the Company has determinedthat it must undertake to recognize more revenue per fab.  The ultra high purity piping services nowoffered by the Company helps the Company to achieve more revenue per fab.  This new product/service line has alreadyhelped the Company secure contracts in Europe, and management is optimisticabout the potential revenue that may be derived from such services.  At this point, the most significant obstaclefor significant growth in the ultra high purity piping products appears to bethe Company’s ability to recruit and retain sufficient highly skilled labor forthe highly technical work involved.

 

Selling, general andadministrative expenses for the three months ended September 30, 2002,increased 2.2 % to $0.97 million, or 15.4 % of revenue, compared to $0.95million, or 13.9 % of revenue for the of the three months ended September 30,2001.  Selling, general andadministrative expenses for the nine months ended September 30, 2002, increased13.2 % to $3.4 million, or 17.3 % of revenue, compared to $3.0 million, or 9.0% of revenue for the of the nine months ended September 30, 2001.   For the nine months ended September 30,2001, the increase in selling, general and administrative expenses was duelargely to the increased costs incurred in restating the company’s financialstatements back to 1999.  These costshave included, but have not been limited to, audit fees, consulting fees, legalfees, increased wages for additional employees and overtime costs.  The increase in selling, general andadministrative expense in the third quarter of 2002 as compared to the thirdquarter of 2001, was due to additional consulting and professional fees andtravel expense related to the restatement process, as mentioned above.

 

Research and development expenses for the three months ended September 30,2002, decreased to $37,000, compared to $86,000 for the three months endedSeptember 30, 2001. Research and development expenses for the nine months ended September 30, 2002, decreased to$128,000, compared to $249,000 for the nine months ended September 30,2001.   The decrease in both the threeand nine month periods is primarily attributable to the Company’s efforts tocontrol costs in down times but continue to fund research and development toimprove its existing products and develop new products in the cleanroom segmentof its business and in its diversification program.

 

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Interest expense for the thirdquarter of 2002 decreased to $57,000, compared to $84,000 for the third quarterof 2001 Interest expense for the first nine months of 2002 was $168,000 ascompared to $354,000 for the first nine months of 2001.  The decrease in interest expense in2002 as compared to 2001 is directly attributable to decreased borrowings against the Company’s credit line during thefirst nine months of 2002 over the same period in 2001.

 

The Company booked depreciationand amortization expense of $105,000 during the three months ended September30, 2002, as compared to $97,000 for the same period in 2001.  Depreciation and amortization expense forthe first nine months of 2002 was $316,000, as compared to $332,000 during thefirst nine months of 2001.

 

LIQUIDITYAND CAPITAL RESOURCES

 

Working capital at September 30, 2002 was $(2.9) million, comparedto $3.2 million at December 31, 2001. This includes cash and cash equivalents of $0.7 million at September 30,2002 and $2.0 million at December 31, 2001.

 

The Company’s operations used $0.5 million of cash during the thirdquarter of 2002, compared to providing $2.1 million of cash from operationsduring the third quarter of 2001. During the third quarter of 2002, the Company experienced a net decreasein receivables of $2.6 million, which is attributable to the Company’sdecreased billings to replace those collected. In addition, costs and estimated earnings in excess of billings oncontracts in progress decreased by approximately $0.3 million and billings inexcess of costs and estimated earnings on contracts in progress decreased by$1.0 million.

 

During 2002 and 2001, the Company maintained arevolving line of credit with a domestic bank. The Company had $1,966 outstanding in borrowings under the line of creditas of September 30, 2001.  As ofSeptember 30, 2002, borrowings under the line of credit were limited to thelesser of $3,000,000 or an available borrowing base equal to 75 percent of theCompany’s domestic accounts receivable (approximately $2,068 at September 30,2002 and $2,585 at December 31, 2001). Interest on borrowings under the line of credit is payable monthly.  The interest rate associated with the lineof credit is variable and at September 30, 2002, the interest rate was primeplus 2.75%.  During the quarter endingDecember 31, 2002, the interest rate will be prime plus 3.0%, and from January1, 2003 until the expiration of the line of credit on January 31, 2003, theinterest rate will be prime plus 3.25%. Borrowings under the line of credit are secured by substantially all theassets of the Company.  The line ofcredit was to expire on January 31, 2002. In January 2002, the bank extended the expiration date to January 31,2003.  The maximum borrowings availableunder the extended line of credit is $3,000,000 from February 2002 untilOctober 2002 and $2,700,000 from November 2002 to January 2003.

 

The line of credit agreement contains restrictivecovenants imposing limitations on payments of cash dividends, purchases orredemptions of capital stock, indebtedness and other matters.  At times during 2001 and the three monthsended September 30, 2002 and at both December 31, 2001 and September 30, 2002,the Company was not in compliance with certain covenants.  Because of the Company’s noncompliance withcertain covenants in the line of credit, the lender has the right to terminatethe line of credit and require repayment of all outstanding borrowings prior tothe line of credit’s scheduled termination date of January 31, 2003.  The Company does not presently havesufficient resources to repay the outstanding borrowings upon the terminationof the line of credit on January 31, 2003 or in the event the line of credit isotherwise terminated.  The Company iscontinuing to seek alternative financing from other sources to replace the lineof credit.  However, to date the Companyhas been unsuccessful in those efforts, and there can be no assurance that suchefforts will be successful.

 

The Company’s common stock is no longer listed fortrading on the Nasdaq National Market. Trading in the stock was suspended on November 19, 2001 when the Companywas unable to timely file its Quarterly

 

14

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Report on Form 10-Q for the third quarter of 2001.  On November 20, 2001, the Nasdaq staffdetermined that the Company’s stock should be delisted from Nasdaq.  The Company appealed the staffdetermination, and on January 25, 2002 the Listing Hearing and Review Panelupheld the staff determination and ruled that the Company’s stock be delistedfrom the Nasdaq National Market.  Thisruling was appealed to the Nasdaq Listing and Hearing Review Council, which, onJuly 2, 2002 upheld the ruling.  On July26, 2002, the NASD Board declined to call for review the delisting decision ofthe Listing and Hearing Review Council. The Company is presently taking steps to assure that its common stockwill be quoted on the OTC-Bulletin Board.

 

The fact that the Company’s stock is no longer listedfor trading on Nasdaq may impair the Company’s ability to raise needed capital,and will hinder the Company’s ability to acquire other companies using itsstock as consideration.

 

In addition, the Company is in breach of certaincovenants set forth in the documents relating to the issuance of the Company’sSeries A Preferred Stock, including the covenant that the Company’s CommonStock will continue to trade on Nasdaq. The holders of the Company’s outstanding Series A Preferred Stock havevarious remedies they can enforce as a result of the breach of the covenants bythe Company.  These remedies include theright to require the Company to redeem their shares of preferred stock.  Management has been in frequent communicationwith the holders of the Series A Preferred Stock and to date the preferredshareholders have not demanded redemption. The Company does not have adequate capital resources to redeem any ofthe Series A Preferred Stock in the event the holders of the Series A PreferredStock exercise their redemption rights.

 

The Company has received assessments from variousforeign taxing entities asserting unpaid taxes.  The Company does not presently have sufficient capital resourcesto pay the amounts that may ultimately be found to be owing with respect to theCompany’s foreign tax obligations.

 

The Company recently restated its financial statementsdating back to December 1999 because of certain accounting errors primarilyarising out of the Company’s European operations.  The restatement resulted in the Company incurring unusually largeaccounting, audit and legal fees, totaling approximately $850,000.  Payment of these unusual, one-time fees has,and will continue to, put a severe strain on the Company’s cash flow.

 

The Company is experiencing severe cash flowlimitations that are having a detrimental impact on the Company’s continuingability to generate revenue.

 

*This Report contains “forward-looking statements” within themeaning of the Private Securities Litigation Reform Act of 1995, which can beidentified by the use of forward-looking terminology such as “may,” “will,”“should,” “expect,” “anticipate,” “estimate,” or “continue,” or the negativethereof or other variations thereon or comparable terminology.  These forward-looking statements are subjectto risks and uncertainties that include, but are not limited to, thoseidentified in this report, described from time to time in the Company’s otherSecurities and Exchange Commission filings, or discussed in the Company’s pressreleases.  Actual results may varymaterially from expectations.*

 

**Item 3.    Quantitativeand Qualitative Disclosures About Market Risk**

 

The Company is exposed tovarious market risks, including changes in foreign currency exchange rates andinterest rate risks.  Market risk is thepotential loss arising from adverse change in market rates and prices, such asforeign currency exchange and interest rates. For the Company, these exposures are primarily related to the sale ofproduct to foreign customers and changes in interest rates.  The Company does not have any derivatives orother financial instruments for trading or speculative purposes.

 

15

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The Company is exposed tointerest rate changes primarily in relation to its revolving credit line debtwith a bank.  The fair value of theCompany’s total revolving credit line debt at September 30, 2001 was $2.0million.  Market risk was estimated asthe potential decrease (increase) in future earnings and cash flows resultingfrom a hypothetical 10% increase (decrease) in the Company’s estimated weightedaverage borrowing rate at September 30, 2001. Although most of the interest on the Company’s debt is indexed to amarket rate, there would be no material effect on the future earnings or cashflows related to the Company’s total debt for such a hypothetical change.

 

**Item 4.    Controls and Procedures**

 

Based on their most recent evaluation, which wascompleted within 90 days of the filing of this Form 10-Q, the Company’s ChiefExecutive Officer and the Company’s Senior Vice President and Chief FinancialOfficer believe the Company’s disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) are effective in timely alerting theCompany’s management to material information required to be included in this Form10-Q and other Exchange Act filings.

 

There were no significantchanges in the company’s internal controls or other factors that couldsignificantly affect these controls subsequentto the date of their evaluation and there were no significant deficiencies ormaterial weaknesses which required corrective actions.

 

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PART II – OTHER INFORMATION

 

**Item 3.    Defaults Upon Senior Securities**

 

The Company is in breach ofvarious covenants set forth in the documents relating to the creation, issuanceand sale of the Series A Preferred Stock, including the covenant that theCompany’s common stock would continue to be listed for trading on Nasdaq.  As a result of the breach of the covenantthat the Company’s common stock would continue to be listed for trading onNasdaq, the holders of Series A Preferred Stock have the right to demand thatthe Company redeem all or part of their outstanding Series A PreferredStock.  The redemption of all of theoutstanding shares of Series A Preferred Stock would require approximately $5.0million cash.

 

**Item 4:   Submission ofMatters to a Vote of Security Holders**

 

Bywritten resolution dated September 18, 2002, the holders of all 411 shares ofoutstanding Series A Preferred Stock consented to the amendment of theCompany’s Articles of Incorporation to change to December 31, 2002 the date ofthe automatic conversion of Series A Preferred Stock to common stock.

 

**Item 6.    Exhibits and Reports on Form 8-K**

 

(a)                                  Exhibits.

 

4.6                                 Articles of Amendment to the Articles of Incorporation, filed with theUtah Department of Commerce, Division of Corporations, on October 3, 2002

 

10.11                     Agreement of Purchase and Sale of Assets, betweenDaw Technologies, Inc. as Seller and Intelligent Enclosures, Inc. as Purchaser,dated October 31, 2002

 

99.1                           Certification of Chief Executive Officer

99.2                           Certification of Chief Financial Officer

 

(b)                                 Reports on Form 8-K.

 

A report on Form 8-K was filed on August 8, 2002reporting that Arthur Andersen LLP had terminated its relationship as theCompany’s independent audit firm.

 

A report on Form 8-K was filed on August 20, 2002reporting that the Company had appointed Tanner + Co. to replace ArthurAndersen LLP as the Company’s independent audit firm for the fiscal year endingDecember 31, 2002.

 

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SIGNATURES

 

Pursuant to the requirements ofSection 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned;thereunto duly authorized, on November 12, 2002.

 
|   |   |   | DAW TECHNOLOGIES, INC. |
|--------|--------|--------|------------------------|
|   |   |   |                   |   |
|   |   |   |                   |   |
|   |   |   | By:                    |  /s/ James C. Collings |   |
|   |   |   |                   | James  C. Collings |
|   |   |   |                   | Chief  Executive Officer |
|   |   |   |                   | Principal  Executive Officer |
|   |   |   |                   |   |
|   |   |   |                   |   |
|   |   |   |                   |   |
|   |   |   | By:                    |  /s/ Donald K. McCauley |   |
|   |   |   |                   | Donald  K. McCauley |
|   |   |   |                   | Senior  Vice President and Chief Financial Officer |
|   |   |   |                   | Principal Financial and  Accounting Officer |

 

 

**CERTIFICATIONS**

 

I, James C. Collings, certify that:

 

1.                    I havereviewed this quarterly report on Form 10-Q of Daw Technologies, Inc. (the“registrant”); 

 

2.                    Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report; 

 

3.                    Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report; 

 

4.                    Theregistrant’s other certifying officer and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have: 

 

a)                 designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared; 

 

b)                evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the “*Evaluation Date*”); and 

 

c)                 presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date; 

 

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5.                    Theregistrant’s other certifying officer and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee of theregistrant’s board of directors (or persons performing the equivalentfunction): 

 

a)                 all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and 

 

b)                any fraud, whetheror not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and 

 

6.                    Theregistrant’s other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses. 

 

 
| Date: November 12, 2002               |   |
|---------------------------------------|--------|
|                                  |   |
|                                  |   |
| /s/  James C.  Collings          |   |   |
| Name: James C. Collings               |   |
| Title:  Chief  Executive Officer |   |
|                                       |        |  |

 

 

I, Donald K. McCauley, certify that:

 

1.                    I have reviewed this quarterly report on Form10-Q of Daw Technologies, Inc. (the “registrant”); 

 

2.                    Based on my knowledge, this quarterly reportdoes not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances underwhich such statements were made, not misleading with respect to the periodcovered by this quarterly report; 

 

3.                    Based on my knowledge, the financialstatements, and other financial information included in this quarterly report,fairly present in all material respects the financial condition, results ofoperations and cash flows of the registrant as of, and for, the periodspresented in this quarterly report; 

 

4.                    The registrant’s other certifying officer andI are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have: 

 

a)                 designed such disclosure controls and proceduresto ensure that material information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared; 

 

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b)                evaluated the effectiveness of theregistrant’s disclosure controls and procedures as of a date within 90 daysprior to the filing date of this quarterly report (the “Evaluation Date”); and 

 

c)                 presented in this quarterly report ourconclusions about the effectiveness of the disclosure controls and proceduresbased on our evaluation as of the Evaluation Date; 

 

5.                    The registrant’s other certifying officer andI have disclosed, based on our most recent evaluation, to the registrant’sauditors and the audit committee of the registrant’s board of directors (orpersons performing the equivalent function): 

 

a)                 all significant deficiencies in the design oroperation of internal controls which could adversely affect the registrant’sability to record, process, summarize and report financial data and haveidentified for the registrant’s auditors any material weaknesses in internalcontrols; and 

 

b)                any fraud, whether or not material, thatinvolves management or other employees who have a significant role in theregistrant’s internal controls; and 

 

6.                    The registrant’s other certifying officer andI have indicated in this quarterly report whether or not there were significantchanges in internal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recent evaluation,including any corrective actions with regard to significant deficiencies andmaterial weaknesses. 

 

 
| Date: November 12, 2002  |                                               |
|--------------------------|----------------------------------------------------|
|                     |                                               |
|                     |                                               |
| /s/ Donald K. McCauley   |                                               |   |
| Name: Donald K. McCauley |                                               |
| Title:                   | Senior Vice President and  Chief Financial Officer |   |
|                          |                                                    |  |  |

 

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