<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K



[x]      Annual report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 for the fiscal year ended December 31, 1997 or

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934.

                             DAW TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

            UTAH                        0-21818                   87-0464280
(State or other jurisdiction     (Commission File No.)          (IRS Employer
      of incorporation)                                      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

           Securities registered pursuant to Section 12(b) of the Act:

                                      None

           Securities registered pursuant to Section 12(g) of the Act:

                                 Title of Class
                          Common Stock, $0.01 Par Value

         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 [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

         The aggregate market value of the Common Stock held by non-affiliates
of the Registrant, based upon the closing sale price of the Common Stock on the
NASDAQ National Market System on March 25, 1998, was approximately $17,449,000.
Shares of Common Stock held by each officer and director and by each person who
may be deemed to be an affiliate have been excluded.

         As of March 26, 1998, the Registrant had 12,407,977 shares of Common
Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

         The Registrant's definitive Proxy Statement relating to the Annual
Meeting of Shareholders scheduled for May 27, 1998 is incorporated by reference
in Part III of this report.
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                                TABLE OF CONTENTS

PART I ....................................................................    1

Item 1. Business ..........................................................    1

Item 2. Properties ........................................................    7

Item 3. Legal Proceedings .................................................    8

Item 4. Submission of Matters to a Vote of Security Holders ...............    8

PART II ...................................................................    9

Item 5. Market for Registrant's Common Equity and Related Shareholder
        Matters ...........................................................    9

Item 6. Selected Financial Data ...........................................   10

Item 7. Management's Discussion and Analysis of Financial Condition and
        Results of Operations .............................................   11

Item 8. Financial Statements and Supplementary Data .......................   15

Item 9. Changes in and Disagreements with Accountants on Accounting
        and Financial Disclosure ..........................................   15

PART III ..................................................................   16

Item 10, 11, 12 and 13 ....................................................   16

PART IV. ..................................................................   17

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ..   17

SIGNATURES ................................................................   19

FINANCIAL STATEMENTS ......................................................  F-1
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Information contained in this Report contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1996,
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.

                                     PART I

ITEM 1. BUSINESS.

INTRODUCTION

         Daw Technologies, Inc. (the "Company") is a leading supplier of
ultra-clean manufacturing environments, or cleanrooms, to the semiconductor
industry. The Company designs, engineers, manufactures, installs and services
all principal component systems for advanced cleanrooms. The Company is a
single-source provider of the entire cleanroom, providing make-up and
recirculating air handling systems, ceiling systems, wall systems and floor
systems. The Company also provides its customers with services to integrate the
design, installation and servicing of cleanrooms, including architectural
engineering and design, installation, testing, certification, tool fit-up, and
continuing on-site service and support. The Company believes its integrated
approach enables customers to benefit from accelerated cleanroom design and
installation, simplified project control, single-source performance
certification and cost effectiveness.

         Cleanrooms are critical to the semiconductor manufacturing process.
Process yields are highly dependent upon controlling contamination levels and
other environmental variables. These variables include the number of particles,
humidity, gasses, vibration, temperature and electro-magnetic fields. To be
competitive, semiconductor manufacturers must meet increasingly stringent
standards for cleanliness and environmental control in their fabrication
facilities ("fabs"). Moreover, because of shorter product life cycles and
competitive pressures, semiconductor manufacturers are demanding that new
cleanrooms be operational more quickly. The Company believes its advanced
systems and integrated solution allow it to effectively address the requirements
of efficient cleanroom design and installation.

         The Company markets its cleanrooms through a direct sales force to
customers building new fabs or renovating existing facilities. The majority of
its business comes from repeat sales to these customers.

INDUSTRY BACKGROUND

         The rapid pace of advances in semiconductor technology has led to
shorter semiconductor product and facility life cycles. To bring new
semiconductor products to market more rapidly, semiconductor manufacturers seek
to compress design and construction lead times for new fabs. As feature sizes
shrink and as wafer size, chip densities and the number of process steps
increase, environmental variables must be more stringently controlled. Even
slight deviations in key environmental parameters, most of which are controlled
within the cleanroom, can negatively affect yields. Achieving higher yields is
the motivating force behind many of the progressively more rigorous cleanroom
standards for semiconductor fabs.

         To meet the functional specifications required for these cleanrooms,
each part of the cleanroom must meet stringent technical requirements, and all
systems must be precisely integrated. In addition to the basic requirements for
contamination control, semiconductor cleanrooms must function seamlessly as part
of the overall production process. The cleanroom envelope might be viewed as a
process tool in the same manner as the lithography tools, deposition tools,
etching tools and other equipment inside the cleanroom.

         Because of shorter product life cycles and the need to ramp new
products up quickly, manufacturers are demanding that cleanrooms be designed and
installed more rapidly. Historically, semiconductor manufacturers have purchased
cleanroom component systems and related services from multiple vendors. Under
this "traditional" approach, vendors are selected through an iterative process
where requests for quotation ("RFQ") are issued, initial designs are prepared,
and revised bids are submitted. This evaluation and redesign may occur
repeatedly until final vendor selections are made. Following this process, final
designs are prepared and the project is initiated. Component systems purchased
in this fashion may be installed by the original vendor, or by non-affiliated
installers.


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INTEGRATED SOLUTION

         The Company's integrated solution incorporates design, engineering,
manufacturing, installation, testing, product development and on-going customer
support and services. In contrast to the traditional approach, the Company
believes that its integrated cleanroom approach provides customers with greater
project control by reducing the number of vendors, subcontractors and suppliers
and simplifying coordination of the project. The advantages of the Company's
integrated solution include:

         Accelerated Design and Installation. The integrated approach
facilitates improved coordination of the installation process thus allowing the
Company to meet the increasingly demanding schedules for the design and
construction of new fabs. Delays from scheduling conflicts are minimized, since
the Company manufactures and installs its own systems. Problems with system
integration are minimized, since the Company designs its systems for
compatibility. Components for newly-developed systems can be pre-assembled at
the factory to test tolerances and new designs prior to installation. As a
single source supplier, the Company can readily adapt to changes in scheduling
or design of any cleanroom system.

         Simplified Project Control. The Company's approach offers customers a
single point of contact for the cleanroom, avoiding the need for the customer to
coordinate the activities of multiple vendors. The Company believes that having
one company design, manufacture and install the entire cleanroom facilitates
coordination of the total construction.

         Single-Source Performance Guarantee. The Company certifies that the
cleanroom will meet the agreed upon performance specifications. The Company's
approach provides the customer a single point of accountability for the entire
cleanroom envelope. Although component manufacturers can design their individual
cleanroom components to meet the technical specifications provided by the fab
designer, they cannot effectively guarantee the as-built performance of the
entire cleanroom after their components have been integrated with other
manufacturer's components by a non-affiliated installer.

         Cost Effectiveness. Having a single vendor responsible for the design,
manufacture and installation of the entire cleanroom allows for significant
on-site overhead savings over the traditional multi-vendor approach. A portion
of these savings result from reduced administrative costs. By designing,
manufacturing and installing all major cleanroom system components, the Company
is able to avoid the redundancy that typically occurs with large, complex,
multiple supplier projects. In addition, the Company's customers benefit from
increased revenues resulting from bringing a new fab into operation in a shorter
time period.

COMPANY STRATEGY

         The Company's stated mission is to be the leading worldwide provider of
ultraclean manufacturing environments by providing totally integrated system
solutions. The Company's strategy for achieving this goal includes the following
elements:

         Expand Market Acceptance of Integrated Solution. The Company believes
its integrated solution best addresses semiconductor manufacturers' needs to
increase yields and expand or develop fabs as quickly as possible at a lower
total cost. A number of leading semiconductor companies have adopted the
Company's integrated solution, and the Company is focusing its marketing efforts
on encouraging broader market acceptance of this approach.

         Build Long-Term Customer Relationships with Industry Leaders. The
semiconductor industry is highly concentrated, with the top 10 semiconductor
manufacturers accounting for approximately 65% of capital expenditures. Most of
the Company's revenue is derived from sales to leading semiconductor
manufacturers. The Company's marketing strategy is focused on building long-term
relationships with the industry leaders, their architectural and engineering
firms and other parties involved in the cleanroom project. By building such
relationships, the Company is positioned to work with those advanced
semiconductor manufacturers that most benefit from its integrated approach.

         Expand Local Service Network. In order to provide timely and efficient
local customer service and support, the Company has established project
management, design and sales offices near major semiconductor manufacturing
centers. By expanding the Company's project management network and locating new
offices in major semiconductor manufacturing centers, the Company believes it is
in a better position to compete for service contracts. In addition, the Company
believes a local service network enables it to strengthen customer
relationships, expand sales leads and receive more direct customer feedback.


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         Expand International Business. Although the majority of the Company's
revenues have been generated from projects in North America, revenues from
international operations have increased over the last several years. The Company
will continue to seek to increase revenues from international projects by
expanding marketing efforts and bidding activities in the Asia/Pacific Rim
region and Europe. To support its international expansion strategy, the Company
has established design and engineering offices in Hsin-Chu, Taiwan, Livingston,
Scotland and Aix-en-Provence, Southern France. Information concerning revenues
summarized by geographical area is set forth in Note C of the footnotes to the
financial statements.

         Maintain Technological Leadership. The Company believes technological
capability is a significant factor in the sale of cleanroom solutions. The
Company seeks to develop technologically advanced solutions to its customers'
evolving needs. Many major new cleanrooms designed by the Company are customized
in some way to meet the manufacturer's needs. This customer-driven innovation
allows the Company to regularly improve its systems to respond to evolving
industry requirements. In addition, the Company seeks to expand its business
through strategic relationships, joint ventures and acquisitions and to extend
its business to related industry segments if appropriate.

CLEANROOM SYSTEMS AND SERVICES

         Each component of the cleanroom plays an important role. The cleanroom
consists of special high-performance air handling systems, ceiling modules and
highly efficient filters, wall partitions, raised-access flooring and state of
the art control systems. These systems provide a continuous flow of
ultrafiltered air from the ceiling to the floor to flush out particles and other
contaminants. The room is maintained at a slightly higher air pressure than
surrounding rooms so leaks, open doors, or other temporary openings cause clean
air to escape, rather than allow contaminated air to enter. Several important
measures must be considered in cleanroom design. They are: The "room class"
which defines the allowed number of particles per cubic foot of air, the number
of "air changes" which is the number of times per minute the air in the room is
completely replaced and the room "recovery rate" which is the amount of time it
takes for the room to become clean following contamination. It is also essential
that airflow through the cleanroom is unidirectional, where air flows through
all areas in essentially straight vertical paths, avoiding vortices and eddies
that could trap particles. The cleanroom must be designed to accommodate process
manufacturing equipment including piping and wiring, and permit the movement of
materials and personnel without compromising cleanliness. Cleanrooms are
designed to control humidity, gasses, noise, vibrations, temperature,
electro-magnetic fields, and other environmental variables.

         A typical eight-inch wafer production line includes 60,000-150,000
square feet of Class 1 or better cleanroom. Cleanrooms are rated according to
their "Class," the maximum number of particles greater than 0.12 microns found
in any cubic foot of cleanroom space. Leading edge cleanrooms for advanced
semiconductor fabrication are Class 1 or better. Virtually all of the Company's
contracts involve Class 100 or better cleanrooms.

         Component Systems.

         The Company manufactures all principal component systems which comprise
an integrated cleanroom, including make-up and recirculating air handlers,
fan-filter units, filtered ceiling systems, wall systems, and floor systems.
These components may be sold either as part of a fully integrated cleanroom or
as individual components for integration by non-affiliated installers.
Components are manufactured of non-shedding materials to mitigate microscopic
particles in the air stream that may have deleterious effects on the cleanroom.

         The Company's cleanroom component systems include the following:

         STRATUS(TM) Air Handlers. Stratus(TM) Air Handling Systems deliver
quiet, efficient and conditioned prefiltered air to clean manufacturing
facilities. The Company manufactures and installs recirculating air handling
systems, make-up air handling systems and localized fan filter units. The
Company's air handlers are designed to reduce noise, vibration and power
consumption and meet stringent standards defined by the industry. The moving
elements in a STRATUS(TM) recirculating air handler are balanced to less than 25
milli-inches per second of vibration and meet stringent noise standards. Fan and
motor bearings are rated in excess of the industry standards for continuous,
uninterrupted service. The Company offers digitally controlled systems that
instruct the air handler to adapt to changes in temperature, relative humidity,
pressure drop and other environmental factors using feedback from an array of
specialty sensors.

         AIR-FRAME(TM) Ceiling Systems. AIR-FRAME(TM) Ceiling Systems are
designed to provide ultra-clean air filtration and unidirectional airflow for
cleanroom application. Each system fully integrates lighting, ionization and
fire suppression into the ceiling modules for single point connection in the
field. Modules can be fully welded or stick-built in sizes ranging from 1' x 1'
to 10' x 24' and each are capable of supporting air handlers in excess of


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4,000lbs. Individual modules can be configured as tunnels or as large ballrooms
to form cleanrooms of virtually unlimited size and shape. The Company offers
seven different ceiling schemes. Each is tailored to a particular cleanroom
application to create optimal performance while maintaining absolute
flexibility, facilitating rapid modifications to evolving cleanrooms. Precision
modules (tolerance +0", -1/8") are custom-made of light weight
precision-extruded aluminum (tolerance + or - .003") and finished with a
nonshedding baked-on powder coat epoxy. Each module is carefully designed with
all appropriate column notches and structural hanging points to match existing
field conditions. Each module is taken directly off the powder coat line and
placed in an on-site Class 10,000 clean packaging area where they are prewired,
prelighted and clean packaged.

         The Company's lightweight aluminum modules permit installation by two
men and yet are strong enough to support a 4000lb. hanging load from any point
below the grid and a 250 lb. man-rating above the grid. Ceiling modules can be
designed with each filter individually ducted or as a pressure plenum. Plenum
sides can be closed or open to share airflow with adjacent plenums. Optional
filter dampers can be provided for finite airflow control.

         The Company has developed, tested and refined the Flushlight(TM) and
Flow Thru(TM) systems using a sophisticated computer airflow model. The airflow
through the grid and light cavity eliminates the vortex created by the grid. A
vortex caused by typical cleanroom ceiling systems is a turbulent zone below the
ceiling grid members that captures particulate and permits particulate migration
throughout the cleanroom.

NETWORK(TM) Wall Systems. NetWork(TM) Wall Systems separate cleanrooms into
distinct airflow zones. Network(TM) offers five different wall systems: 2"
studless self-supporting panels, -1/2" panel on aluminum stud, -1/4" batten
panels on steel stud, -1/4" furring panels, and 1 -3/4" 3 in 1 wall. The 1
-3/4" wall can be: A. 1 -3/4" studless, self-supporting panels; B. 1 -3/4"
panel on aluminum stud; or C. -1/4" panel on aluminum stud all fully compatible
with one another. Each of these wall systems has been developed to permit any
or all systems to be interfaced together maintaining a uniform appearance. A
typical installation might use 1/4" panels furred over existing walls, 2"
panels in the large ballroom areas and 1/2" panels on structural studs to
support Air-Frame(TM) ceiling modules and Stratus(TM) air handlers. Each panel
is constructed of .032" aluminum skins laminated to an aluminum honeycomb core
and finished with a nonshedding baked-on powder coat epoxy. Panels are held to
strict dimensional and structural tolerances with surface flatness varying less
than + or - .032", panel length and width accurate to + or - .040" and
deflection less than L/240 at 5 lbs. per square foot. The panel edge is
gasketed to provide a seal between varying cleanroom zones. Their lightweight
construction permits ease of installation and field modification for equipment
penetrations and bulkheading. Walls are demountable and non-progressive,
meaning individual panels may be removed or replaced without affecting
surrounding panels.

         MATRIX(TM) Raised Access Flooring. MATRIX(TM) Raised Access Floors have
been designed to meet the exacting air flow, structural and cleanliness
requirements of Class 0.1 to Class 1000 cleanrooms. MATRIX(TM) floors provide
maximum structural capability utilizing easily removable panels which meet the
special material and airflow requirements of cleanrooms. MATRIX(TM) panels are
available in a variety of finishes for corrosion resistance and conductivity
requirements. The Company recently introduced the Vari-Span structural system,
which reduces the number of pedestals needed to support the floor, allowing
design freedom for an open waffle slab and frees under-floor space for
additional process piping and conduits.

         Cleanroom Services

         As part of its integrated cleanroom solution, the Company provides its
customers with the services necessary to integrate the design, installation and
ongoing servicing of cleanrooms including:

         Design and Engineering. The Company seeks to become involved in
cleanroom design at an early stage of the semiconductor fab design process. The
Company has a design team of in-house architects, engineers and designers to
provide cleanroom systems which meet customers' specific requirements. The
principal component systems of the Company's cleanroom are designed for rapid
modification and quick expansion, providing flexibility in cleanroom
configuration to meet the changing facilities needs of its customers. Being
involved in the design of a new fabrication facility allows the Company to
provide information early on to its manufacturing teams regarding systems needs,
which further allows the Company to better plan its systems production schedule
and accelerate the delivery of finished product to its customers.

         Installation and Certification. The Company provides on-site
installation, testing and certification services. Cleanroom installation is
enhanced and expedited as Company personnel are cross-trained in all aspects of
cleanroom construction. This enables them to quickly recognize and correct
conflicts which arise during installation. Each cleanroom installation project
is headed by a project manager who is responsible for logistics and coordination
of the entire cleanroom project. The project manager is the primary contact with
the customer during the entire process.


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         Continuing Service and Support. The Company offers its installation
customers ongoing service and support at the project site, as well as after
market component sales. The Company intends to place further emphasis on service
and support contracts in the future. Customers often desire to have rooms
modified or to have tools substituted or moved. Ongoing service personnel
working at the project site perform equipment bulkheading, facilitate movement
of process equipment and perform maintenance. The Company's support teams have a
portable aluminum-working shop on-site which allows them to remove, modify,
adapt and re-install wall panels, flooring and other components without shutting
down the facility. Since they are generally the personnel who originally
installed the cleanroom, they are familiar with the design and layout of the
cleanroom and therefore are qualified to expedite layout changes and prevent
downtime. Several customers have had Company personnel on-site performing these
services for periods longer than one year. The Company's ongoing support program
is a key component in the Company's strategy. On-site personnel provide detailed
feedback on customers' ongoing design needs.

         For customers who do not elect to have the Company provide on-site
service, the Company provides service and spare parts on demand. Upon completion
of a project, the customer support representative develops customer profiles and
spare parts catalogues which are given to the customer.

CUSTOMERS

         The Company's principal customers are microelectronics manufacturers.
The Company has sold its component systems and cleanrooms to many of the world's
leading semiconductor, disk drive, and flat panel display manufacturers. A major
component of the Company's strategy is to develop long-term strategic
relationships with such manufacturers. In addition, the Company sells component
systems and cleanrooms to other manufacturers requiring ultra-clean
environments.

         Because of the nature of the Company's business and the size of
contracts it enters into with its customers, the Company typically has had one
to three customers in each year which accounted for more than 10% each of
revenues. Customers that account for a significant amount of revenues in one
year, however, do not necessarily remain significant in subsequent years.

SALES AND MARKETING

         The Company's marketing program is focused on expanding market
acceptance of the Company's integrated cleanroom approach and on building long
term strategic relationships. By offering its customers a full array of
cleanroom services, the Company is able to provide customers a single point of
contact for design, component procurement, installation and ongoing service.

         The Company sells its products utilizing a direct sales force in North
America and Europe. The Company uses independent sales representatives as well
as its direct sales force in the Asia/Pacific Rim region. The Company has design
and engineering offices in Livingston, Scotland and Aix-en-Provence, Southern
France which serve the European market. In addition the Company has an office in
Hsin-Chu, Taiwan, which serves the Asia/Pacific Rim region. Sales are generally
accomplished by building working relationships with microelectronics
manufacturers as well as architectural and engineering firms, industry
consultants, construction management companies and general contractors
specializing in the industry.

         Leads for new work are generated from a number of sources, including
the Company's in-house salespeople, sales representatives, project managers, and
field personnel who are in regular contact with present and prospective
customers. The Company also participates in industry trade shows. Typically the
Company, as well as the rest of the industry, is aware of the size, end use and
basic design of major projects during the earliest planning phases.


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PRODUCT DEVELOPMENT

         The Company's product development effort focuses on enhancing existing
products and developing new products to meet customer requirements. The Company
seeks to develop innovative products, be on the cutting edge of new
semiconductor technology including the 300mm manufacturing facility, and modify
existing products to make them less expensive to produce and easier to install.
This is partially accomplished by analyzing feedback from sales and service
personnel on industry needs and developments. The Company regularly tests new
ideas and techniques and measures the performance of new and existing products
using a new AMCA-certifiable semi-reverberant testing laboratory adjacent to its
manufacturing plant. The Company believes that its significant and growing
experience base in designing, installing and servicing cleanrooms and
manufacturing cleanroom components is a competitive advantage. The Company
incurred approximately $246,000, $282,000 and $255,000 in non-project related
research and development costs in 1997, 1996 and 1995, respectively.

INTELLECTUAL PROPERTY

         The Company currently holds seven United States patents with respect to
various aspects of its cleanroom wall systems, floor systems and air handling
systems. The patents expire at various times from May 2007 through January 2010.
The Company also has one patent application on file with the U.S. Patent and
Trademark Office and certain foreign offices. The Company may file patent
applications where appropriate to protect its proprietary technologies. Although
the Company's patents have value, the Company believes that the success of its
business depends more on innovation, technical expertise, and know-how of its
personnel and other factors. In addition, no assurance can be given that any
patents issued to the Company will not be challenged, invalidated or
circumvented, or that the rights thereunder will provide competitive advantages
to the Company.

         The Company also relies upon trade secret protection for its
confidential and proprietary information. There can be no assurance that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to the Company's trade secrets or
disclose such technology or that the Company can meaningfully protect its trade
secrets.

MANUFACTURING

         The Company's Salt Lake facility processes raw materials received in
the form of die-cast panels, extruded aluminum members, sheet metal, honeycomb
and various coverings and fasteners. These materials are modified and assembled
into pre-fabricated modules through a series of automated and manual steps which
may include cutting, milling, welding, perforating, measuring, assembling and
finishing. Each individual module is made in accordance with customized
fabrication drawings prepared by the Company's design staff.

         The Company's components are finished in a dry powder applied and baked
hybrid polyester-epoxy coating. After baking, this coating forms a monolithic,
non-particulating seal over the surface of the component. This finish is
available in many colors and is corrosion resistant. This finish outperforms
nickel chrome and other finishes by substantial margins in chemical resistance
and durability tests. This finish is normally conductive, but can be modified to
meet any desired static dissipative or electrical isolation properties.

         The Company's production staff is divided into self-directed working
teams. The team manufacturing components for a project interacts directly with
the project manager and the team installing the cleanroom. The close
relationship between the Company's manufacturing teams and installation teams
allows components to be altered rapidly in response to design changes initiated
by the customer's facility management team. The Company believes this
relationship and the accountability of the manufacturing team to site personnel
enhances the Company's quality control.

         The Company's installation teams are capable of modifying most
components to accommodate last-second changes and still meet specifications for
final fit and seal. The Company establishes a small shop at major project sites
to support bulkheading, tooling changes and other modifications requested by the
customer.


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COMPETITION

         The Company believes it is the largest supplier of integrated cleanroom
solutions providing design, engineering, manufacturing, installation, testing,
certification, and ongoing customer support. The Company competes with a number
of companies providing cleanroom products or services, many of which may have
significantly greater financial and capital resources than the Company. The
Company competes with architectural and engineering firms for the provision of
design and engineering services. Where appropriate, the Company attempts to work
with these companies as a subcontractor rather than as a direct competitor. The
Company faces competition from component manufacturers which include CleanPak
International and HuntAir for air handlers and ceilings, Clestra for ceilings,
Plascore and Unistrut for walls, and Hitachi, Hae Kwang and Tate for aluminum
raised flooring. The Company competes with specialized cleanroom integrators,
such as Meissner & Wurst, Takasago, and PCI for installation/on-site management
services.

         The Company believes the principal competitive factors in the cleanroom
industry are quality, time to completion, reliability, responsiveness for design
and installation, product performance and price. The order of importance of
these factors vary from year to year. The Company believes it competes favorably
with respect to such factors, although there can be no assurance that it will
continue to do so in the future. If the Company experiences success in marketing
its integrated approach, there can be no assurance that its competitors will not
duplicate such approach, through acquisitions, affiliations, internal
development or otherwise.

BACKLOG

         The Company's backlog consists of future revenue that the Company
expects to realize from work to be performed on uncompleted contracts, including
new contractual arrangements on which work has not begun. At December 31, 1997,
the Company's backlog was $15.7 million compared to $28.3 million at December
31, 1996. The Company's contracts, however, frequently allow the customer to
terminate the project at any time. If a customer terminates a project, the
Company would typically be entitled to progress payments earned to the date of
termination, plus reimbursement of certain costs associated with the contract.
Accordingly, the Company's backlog could be reduced if a customer terminates a
contract, and there can be no assurance that a customer will not terminate a
contract.


EMPLOYEES

         The Company employed approximately 366 full-time employees and 4
part-time employees on December 31, 1997, compared to 524 full-time employees
and 44 part-time employees on December 31, 1996. The Company's employees at its
Salt Lake City, Utah facility are not represented by a labor union. The Company
believes that its relationship with its employees is good. Where required by
local practice or customer contract, the Company utilizes union members for
on-site installation. In those instances, the Company has agreed to be bound by
collective bargaining agreements and has agreed to contribute to union sponsored
pension plans, including multi-employer pension plans. Under the Employee
Retirement Income Security Act of 1974, as amended, the Company may be liable to
a multi-employer plan upon its withdrawal from the plan for the Company's share
of the unfunded liabilities of the plan.


ITEM 2. PROPERTIES

         The Company leases approximately 221,000 square feet in two buildings
at its headquarters in Salt Lake City, Utah, of which approximately 163,000
square feet are used for manufacturing, 46,000 square feet are used for
administrative functions, and 12,000 square feet are used for testing and
research and development. The Company's principal offices and manufacturing
facility are leased through 2005, with renewal options for four five-year terms.

         The Company also leases administrative office space totaling
approximately 12,500 square feet in Mesa, Arizona; Austin, Texas; Santa Clara,
California; Hsin-Chu, Taiwan; Livingston, Scotland; and Aix-en-Provence,
Southern France with various lease expiration dates ranging from 1998 through
2006. The Company believes that its facilities are adequate for its current
needs and it could obtain additional space on commercially reasonable terms, if
needed.


                                       7
<PAGE>   10
ITEM 3. LEGAL PROCEEDINGS

         From time to time, the Company is subject to routine, non-material
litigation relating to claims made by or against the Company. The Company
believes it has made adequate provisions for these matters, and is not aware of
any material threatened or outstanding litigation against it.


ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.


                                       8
<PAGE>   11
                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

         The Company's Common Stock is listed and traded on the NASDAQ Stock
Market (National Market System) under the symbol "DAWK." The following table
sets forth, for the periods indicated, the high and low sale prices for the
Company's Common Stock, as reported on the NASDAQ Stock Market for the years
ended December 31, 1997 and 1996, respectively.

<TABLE>
<CAPTION>
                                              HIGH        LOW
                                            -------     -------

<S>                                         <C>         <C>
         YEAR ENDED DECEMBER 31, 1997:
              First Quarter                 $ 3.625     $ 2.500
              Second Quarter                  3.125       2.094
              Third Quarter                   2.500       1.750
              Fourth Quarter                  2.500       1.594

         YEAR ENDED DECEMBER 31, 1996:
              First Quarter                 $ 6.375     $ 4.375
              Second Quarter                  7.250       4.500
              Third Quarter                   5.000       3.437
              Fourth Quarter                  4.125       2.625
</TABLE>

         The Company did not pay or declare dividends on its Common Stock during
the years ended December 31, 1997, 1996 and 1995. The Company currently
anticipates that it will retain all available funds to finance its future growth
and business expansion. The Company does not presently intend to pay cash
dividends in the foreseeable future. Under the terms of the Company's revolving
line of credit agreement, the Company has agreed not to pay any dividends during
the term of this agreement.

         As of March 26, 1998, the Company had 12,407,977 shares of its Common
Stock outstanding, held by 139 shareholders of record, which does not include
shareholders whose shares are held in securities position listings.


                                       9
<PAGE>   12
ITEM 6. SELECTED FINANCIAL DATA

         The following table sets forth selected financial data of the Company.
The summary financial data in the table is derived from the financial statements
of the Company. The data should be read in conjunction with the financial
statements, related notes and other financial information included therein (in
thousands, except per share data).


<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                         -----------------------------------------------------------------
                                           1997           1996          1995          1994          1993
                                         --------       --------      --------      --------      --------
<S>                                      <C>            <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue                         $ 52,541       $112,826      $ 70,635      $ 47,732      $ 30,444
Cost of contracts                          47,272         97,364        63,484        39,579        24,703
                                         --------       --------      --------      --------      --------
Gross profit                                5,269         15,462         7,151         8,153         5,741
                                         --------       --------      --------      --------      --------
Selling, general and administrative
expenses                                    8,373         10,274         6,333         3,584         4,035
Research and Development                      246            282           255           157           126
Depreciation and amortization                 431            400           219           156           162
                                         --------       --------      --------      --------      --------
                                            9,050         10,956         6,807         3,897         4,323
                                         --------       --------      --------      --------      --------
Earnings (loss) from operations            (3,781)         4,506           344         4,256         1,418
Other income (expense), net                  (344)           352           119           359          (154)
                                         --------       --------      --------      --------      --------
Earnings (loss) before income taxes        (4,125)         4,858           463         4,615         1,264
Income taxes (benefit) .                   (1,866)         1,548           176         1,753           475
                                         --------       --------      --------      --------      --------
NET EARNINGS (LOSS)                      $ (2,259)      $  3,310      $    287      $  2,862      $    789
                                         ========       ========      ========      ========      ========
Earnings (loss) per common share
    Basic                                $  (0.18)      $   0.27      $   0.02      $   0.26      $   0.09
    Diluted                              $  (0.18)      $   0.27      $   0.02      $   0.25      $   0.08
Weighted-average common and
dilutive common equivalent shares
outstanding
    Basic                                  12,416         12,350        12,148        11,182         8,860
    Diluted                                12,416         12,393        12,365        11,370        10,171
</TABLE>


<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                -----------------------------------------------------------
                                  1997         1996         1995         1994         1993
                                -----------------------------------------------------------
<S>                             <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
Cash and cash equivalents       $ 5,802      $ 3,258      $ 5,885      $ 2,711      $   886
Working capital                  15,248       17,112       15,431       14,155        4,057
Total assets                     32,364       49,495       40,072       23,608       16,409
Total liabilities                11,664       26,557       20,663        7,355       10,410
Total shareholders' equity       20,700       22,938       19,409       16,253        5,998
</TABLE>


                                       10
<PAGE>   13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

GENERAL

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

         The Company is an integrated systems solution provider of cleanrooms
and cleanroom component systems for the semiconductor industry. In recent years,
the Company has typically had one to three significant customers, each of which
accounted for more than 10% of the Company's annual revenues; these customers do
not necessarily remain significant in subsequent years. The semiconductor
industry has been historically cyclical in nature and continues to be adversely
affected by a cyclical downturn that began in 1996.

         The current industry downturn has resulted in lower capital spending by
semiconductor manufacturers during the third and fourth quarters of 1996 and
throughout 1997. Management believes the downturn is nearing its end but may
continue through the first and second quarters of 1998. How quickly any recovery
will take place is still subject to significant uncertainty. The downturn has
resulted in fewer contracts available to bid, a significant increase in price
competition on contracts that were awarded, and reduced margins on such
contracts. During 1997, the Company experienced fewer new contract awards
resulting in a decrease in the Company's backlog from $28.3 million at December
31, 1996 to $15.7 million at December 31, 1997. Although the Company has
experienced an increase in the contract bidding activity during the third and
fourth quarters of 1997 compared to each of the previous four quarters,
management believes that the above-described events adversely affected its
revenues and results of operations for 1997 and anticipates the industry
downturn will continue to adversely affect its revenues and profitability
through the first and second quarters of 1998.

         Although there is uncertainty surrounding the timing of a recovery in
the semiconductor industry, management continues to believe that changes taking
place in the industry should result in expanded semiconductor industry capital
expenditures in the long-term. Delays in the ramp-up of 300mm technology have
delayed the expected construction of the whole series of 300mm fabs worldwide.
Due, in part, to the lack of 300mm process tools, weaker than expected demand,
and the current focus on lowering process geometries from .25m to .18m, the
300mm effort has slowed by at least twelve months. In response to the current
downturn, management has taken steps to reduce the Company's cost structure
including a reduction in the Company's work force of more than thirty percent
during 1997. During 1998, management will monitor the Company's cost structure
and take appropriate actions as considered necessary, but continue to develop
state of the art cleanroom technology and provide world-class support to the
Company's customers.

         The Company's contract revenue and operating results fluctuate
substantially from quarter to quarter depending on such factors as the timing of
significant customer orders, the timing of revenue and cost recognition,
variations in contract mix, changes in customer buying patterns, fluctuations in
the semiconductor equipment market, utilization of capacity, manufacturing
productivity and efficiency, availability of key components and trends in the
economies of the geographical regions in which the Company operates.

         The Company uses the percentage-of-completion method of accounting for
its long-term contracts. The Company recognizes revenue in proportion to the
costs incurred to date in relation to the total anticipated costs. Revenue
recognized may not be the same as progress billings to the customer.
Underbillings are reflected in an asset account (costs and estimated earnings in
excess of billings on contracts in progress), and overbillings are reflected in
a liability account (billings in excess of costs and estimated earnings on
contracts in progress).

         The Company generates revenue in three geographic regions; North
America, Asia/Pacific Rim and Europe. Contracts in the Asia/Pacific Rim region
are generally denominated in United States dollars. Although risk of
fluctuations in currency value does not affect such dollar-denominated
contracts, changes in the relative value of the dollar could make the Company
less competitive in this region. Contracts to be performed in Europe may be
denominated in local currency, and the Company bears the risk of changes in the
relative value of the dollar and the local currencies. 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
collapse of the Korean marketplace in particular, has forced Korean suppliers to
look outside their historical business relationships for new markets. 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.


                                       11
<PAGE>   14
RESULTS OF OPERATIONS

Contract revenue
<TABLE>
<CAPTION>
                                    1997    Change      1996     Change     1995
                                    ----    ------      ----     ------     ----

<S>                               <C>       <C>       <C>         <C>      <C>
Contract revenue (thousands)      $52,541   (53.4)%   $112,826    59.7%    $70,635
</TABLE>

         Contract revenue for 1997 decreased by 53.4% to $52.5 million from
$112.8 million in 1996. This decrease is directly related to the downturn in the
semiconductor industry as more fully discussed above. The downturn has resulted
in fewer contracts being constructed during the year ended December 31, 1997
compared with the year ended December 31, 1996. The decrease in the Company's
backlog at December 31, 1997 compared to the backlog at December 31, 1996 is
attributed to fewer contracts available to bid. During 1996, contract revenue
increased by 59.7% to $112.8 million from $70.6 million in 1995. The increase in
revenues is attributable to a large backlog at the beginning of 1996 that
resulted in strong contract activity in the first half of 1996 and numerous
large contracts that the Company was awarded during the first and second
quarters of 1996 that resulted in additional revenue as the contracts progressed
during the third and fourth quarters of 1996.

         North America - Contract revenue for the year ended December 31, 1997
decreased by 54.4% to $34.0 million from $74.4 million for the year ended
December 31, 1996. As a percentage of total revenue North America decreased to
64.7% in 1997 compared to 66.0% in 1996. The decrease in contract revenue is
attributed to the semiconductor industry downturn resulting in fewer and smaller
contracts available during 1997 than in 1996.

         Contract revenue for the year ended December 31, 1996 increased by
68.6% to $74.4 million from $44.2 million for the year ended December 31, 1995.
As a percentage of total revenue North America increased to 66.0% in 1996
compared to 62.5% in 1995. The increase is the result of numerous contracts
received in North America. These contracts were larger than the Company had
received historically and were completed on schedules that were much faster than
the Company had historically been required to perform.

         Asia/Pacific Rim - Contract revenue for the year ended December 31,
1997 decreased by 42.1% to $9.6 million from $16.6 million for the year ended
December 31, 1996. As a percentage of total revenue Asia/Pacific revenue
increased to 18.3% in 1997 compared to 14.7% in 1996. The fluctuation is
attributed to the worldwide semiconductor industry downturn compounded by the
uncertainty of the Asian financial environment. Several large cleanroom projects
that were in the bidding process have been delayed indefinitely. The delays in
these projects had a major impact on Asia/Pacific revenue during the fourth
quarter of 1997.

         Contract revenue for 1996 decreased by 16.6% to $16.6 million from
$19.9 million for the year ended December 31, 1995. As a percentage of total
revenue Asia/Pacific decreased to 14.7% in 1996 compared to 28.1% in 1995. Two
factors contributed to the decrease in Asia/Pacific revenue. First, during 1995
the Company recognized revenue for two significantly large contracts in Taiwan.
These contracts were substantially completed during 1995. Second, the
semiconductor industry downturn impacted Taiwan and other Asian countries to the
extent that the Company did not have the same opportunity to bid on contracts in
1996 that it had during 1995.

         Europe - Contract revenue for the year ended December 31, 1997
decreased by 58.8% to $9.0 million from $21.8 million for the year ended
December 31, 1996. As a percentage of total revenue European revenue decreased
to 17.1% in 1997 compared to 19.3% in 1996. The decrease is attributed to two
factors. First, the worldwide semiconductor industry downturn has delayed the
investment into the European community by most major semiconductor manufacturers
resulting in fewer contracts available during 1997 compared to 1996. Second,
during 1996 the Company was involved in an unusually large project in France
that generated a significant amount of revenue during 1996 that was not
available to the Company during 1997.

         Contract revenue for 1996 increased by 229.8% to $21.8 million from
$6.6 million for the year ended December 31, 1995. As a percentage of total
revenue Europe increased to 19.3% in 1996 compared to 9.4% in 1995. The increase
is attributed to two contracts of significant size received in early 1996 and
substantially completed by the end of the year.


                                       12
<PAGE>   15
         Gross Profit
<TABLE>
<CAPTION>
                                    1997    Change      1996     Change     1995
                                    ----    ------      ----     ------     ----

<S>                               <C>       <C>       <C>       <C>        <C>

Gross profit (thousands)          $5,269    (65.9)%    $15,462   116.2%    $7,151
Percentage of contract revenue      10.0%                 13.7%              10.1%
</TABLE>

         Gross profit for the year ended December 31, 1997 decreased by 65.9% to
$5.3 million from $15.5 million for the year ended December 31, 1996. Gross
profit decreased as a percentage of revenue to 10.0% for 1997 compared to 13.7%
for 1996. The decrease in gross margin is the direct result of the semiconductor
industry downturn (see discussion above.) The downturn has resulted in a
competitive bidding process, and contracts awarded during 1997 are at margins
less than the Company experienced in 1996. In addition, contract sizes through
1997 were significantly smaller.

         Gross profit for 1996 increased by 116.2% to $15.5 million from $7.2
million in 1995 and increased as a percentage of contract revenue to 13.7% in
1996 from 10.1% in 1995. This increase is the result of: continual improvement
in the Company's manufacturing facility creating greater efficiencies and less
costs to produce product; and better project management resulting in less
problems at the construction sites which allows the Company to install its
product with less time and labor expense. Contracts received during 1996 also
were generally bid at higher margins than those received during 1995. Also
affecting the increase from 1995 to 1996 were significant events during 1995
that contributed to the Company realizing smaller margins during 1995. These
events included the Company's continued expansion of manufacturing facilities
and a product failure during the second quarter of 1995. The expansion created
manufacturing inefficiencies, project delays and overruns resulting in higher
than expected cost of contracts during 1995. The product failure was the result
of defective motors purchased from a third party vendor and resulted in a one
time charge to costs of contracts of approximately $1.5 million.

Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
                                         1997    Change      1996     Change    1995
                                         ----    ------      ----     ------    ----

<S>                                     <C>      <C>        <C>       <C>      <C>
Selling, general and
  administrative expenses (thousands)   $8,373   (18.5)%    10,274     62.2%   $6,333
Percentage of contract revenue            15.9%                9.1%               9.0%
</TABLE>

         Selling, general and administrative expenses for 1997 decreased 18.5%
to $8.4 million, from $10.3 million, but increased as a percentage of revenue to
15.9% for the year ended December 31, 1997 compared to 9.1% for the year ended
December 31, 1996. The decrease in actual dollars spent on selling, general and
administrative expenses in 1997 compared with 1996 is the result a reduction in
general and administrative headcount completed during the first and second
quarters of 1997.

         Selling, general and administrative expenses for 1996 increased 62.2%
to $10.3 million, or 9.1% of contract revenue, from $6.3 million, or 9.0% of
contract revenue, in 1995. The increase in selling, general and administrative
expenses is the result of increased sales activity during 1996 compared with
1995 worldwide and a full year of costs associated with the Company's
Asia/Pacific office. The Asia/Pacific office was only operational for six months
during 1995. Selling, general and administrative expenses as a percentage of
contract revenue has remained relatively constant from 1995 to 1996.

Research and Development
<TABLE>
<CAPTION>
                                     1997    Change      1996     Change     1995
                                     ----    ------      ----     ------     ----

<S>                                  <C>     <C>         <C>       <C>      <C>
Research and
  Development expense (thousands)    $246    (12.8)%     $282      10.6%     $255
Percentage of contract revenue        0.5%                0.2%                0.4%
</TABLE>

         Research and development expense decreased slightly in actual dollars
spent from 1996 to 1997. This decrease was not material. Management believes
that the Company will increase its research and development expenses during
1998, both in actual dollars spent and as a percentage of revenue in order to
develop innovative products, to be on the cutting edge of the 300 millimeter
manufacturing facility technology and to modify existing products to be less
expensive to produce and easier to install.

         Research and development expense increased slightly from 1995 to 1996.
This increase was the result of research and development projects that were
based on specific customers and contracts.


                                       13
<PAGE>   16
Depreciation and Amortization
<TABLE>
<CAPTION>
                                        1997    Change      1996     Change     1995
                                        ----    ------      ----     ------     ----

<S>                                    <C>      <C>         <C>      <C>      <C>
Depreciation and
  amortization expense (thousands)      $431     7.8%       $400      82.6%     $219
Percentage of contract revenue           0.8%                0.4%                0.3%
</TABLE>

         Depreciation and amortization expense during 1997 increased by 7.8% to
$431,000, or 0.8% of contract revenue, from $400,000, or 0.4% of contract
revenue, in 1996. This increase is the result of a full years depreciation
expense on leasehold improvements, furniture, fixtures, computer equipment and
software purchased during 1996.

         Depreciation and amortization expense in 1996 increased by 82.6% to
$400,000, or 0.4% of contract revenue, from $219,000, or 0.3% of contract
revenue, in 1995. This increase is the result of the purchase of leasehold
improvements, furniture, fixtures, computer equipment and software required for
the increased sales, marketing and administrative activities during 1996.


Other Income (Expense), net
<TABLE>
<CAPTION>
                                      1997      Change      1996     Change    1995
                                      ----      ------      ----     ------    ----

<S>                                 <C>        <C>          <C>      <C>       <C>

Other income (expense) (thousands)    $(344)   (197.7)%     $352     195.8%    $119
Percentage of contract revenue         (0.7)%                0.3%               0.2%
</TABLE>

         Other income (expense) decreased in 1997 to $(344,000) from $352,000 in
1996. The decrease in other income (expense) is the result of foreign currency
losses recognized during 1997 resulting from the decline in Taiwan dollars
throughout 1997 and a litigation settlement included as part of other income
during 1996.

         Other income (expense) increased in 1996 to $352,000 from $119,000 in
1995. The increase is generally the result of the net effect of an increase in
interest expense and a settlement on litigation with a third party vendor for
defective motors.


Income Taxes (Benefit)
<TABLE>
<CAPTION>
                                               1997      Change      1996     Change    1995
                                               ----      ------      ----     ------    ----

<S>                                          <C>         <C>        <C>      <C>       <C>

Income taxes expense (benefit) (thousands)   $(1,866)    (220.5)%   $1,548     779.5%   $176
Percentage of contract revenue                  (3.6)%                 1.4%              0.2%
</TABLE>

         The effective tax rate (benefit) for 1997 was approximately (45)%
compared to 32% for 1996 and 38% for 1995. The decrease in the effective tax
rate from 1996 to 1997 is primarily the result of a tax benefit resulting from
the loss before taxes, calculated at the statutory federal rate (see Note I of
Notes To Financial Statements). The decrease from 1995 to 1996 was primarily the
result of tax benefits the Company was able to utilize during 1996 on foreign
sales which were taxed in the Company's foreign sales corporation.



LIQUIDITY AND CAPITAL RESOURCES

         Working capital at December 31, 1997 was $15.2 million compared to
$17.1 million at December 31, 1996. This includes cash and cash equivalents of
$5.8 million and $3.3 million at December 31, 1997 and 1996 respectively.
Receivables, including retentions, (see Note D of Notes to Financial Statements)
decreased to $12.5 million at December 31, 1997 compared to $27.4 million at
December 31, 1996. This decrease was the result of lower revenues from fewer
contracts during 1997 compared to 1996. Days sales outstanding (the ratio
between receivables, excluding retention, and average daily revenue taken over
the year) decreased to 67 days at December 31, 1997, from 72 days at December
31, 1996.

         The Company's operations provided $7.9 million of cash during 1997,
compared to using $3.4 million of cash in 1996. During 1997, the Company
experienced a decrease in receivables of $14.7 million as a result of the
decline in revenues and a decrease in accounts payable and accrued expenses of
approximately $5.1 million.

         At December 31, 1997, the Company had a line of credit totaling $8.0
million or the available borrowing base. The Company had $1.2 million in
borrowings against the line at December 31, 1997. Amounts drawn under the line
bears interest at the bank's prime rate (8.50% at December 31, 1997) and are due
no later than June 30,


                                       14
<PAGE>   17
1998, with options to renew the agreement on an annual basis. The line is
secured by certain domestic accounts receivable and inventory. In addition, at
December 31, 1997, the Company maintained a guidance line of credit with a
domestic bank used to facilitate the issuance of letters of credit. The facility
allows for letters of credit to be issued up to the lesser of $3.0 million or
the available borrowing base. No letters of credit were open under this facility
at December 31, 1997. The facility expires July 31, 1998, with options to renew
the agreement on an annual basis.

         During 1997, the Company used $349,000 for the purchase of property and
equipment. The Company anticipates that its capital expenditures in 1998 for
routine additions and replacements of property, plant, and equipment will be
approximately $1.3 million. These purchases will be financed through long-term
debt or capital leases.

         Management believes that existing cash balances, borrowings available
under the lines of credit, and cash generated from operations will be adequate
to meet the Company's anticipated cash requirements through December 31, 1998.
However, in the event the Company experiences adverse operating performance or
above-anticipated capital expenditure requirements, additional financing may be
required. There can be no assurance that such additional financing, if required,
would be available on favorable terms if at all.


IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS

         None. (See Notes To Financial Statements A-14)




FACTORS AFFECTING FUTURE RESULTS

         The Company's future operations will be impacted by, among other
factors, the length and severity of the current economic downturn in the
semiconductor industry as more fully discussed above. The length and severity of
the current economic downturn in the semiconductor industry remains subject to a
high degree of uncertainty. The Company's operations are also subject to
additional risks and uncertainties that could result in actual operating results
differing materially from anticipated operating results and past operating
results and trends. These risks and uncertainties include pricing pressures,
cancellations of existing contracts, timing of significant customer orders,
increased competition, and changes in semiconductor and cleanroom technology.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The Company's financial statements and notes are included herein
beginning on page F-1. The supplementary data is included herein immediately
following the signature page of this report on Form 10-K.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

         There has been no Form 8-K filed reporting a change of accountants or
reporting disagreements on any matter of accounting principle, practice,
financial statement disclosure or auditing scope or procedure during the years
covered by this report.



                                       15
<PAGE>   18
                                    PART III


ITEM 10, 11, 12 AND 13

         These items are incorporated by reference to the Company's definitive
Proxy Statement relating to the Annual Meeting of Shareholders scheduled for May
27, 1998. The definitive Proxy Statement will be filed with the Commission not
later than 120 days after December 31, 1997, pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.


                                       16
<PAGE>   19
                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

         (a)      Documents Filed as Part of this Report:

                  (1)   Financial Statements. The following financial statements
         are filed with this report beginning on page F-1:

                  --    Report of Independent Certified Public Accountants

                  --    Balance Sheets as of December 31, 1997 and 1996

                  --    Statements of Operations for the Years Ended December
                        31, 1997, 1996 and 1995

                  --    Statements of Shareholders' Equity for the Years Ended
                        December 31, 1997, 1996 and 1995

                  --    Statements of Cash Flows for the Years Ended December
                        31, 1997, 1996 and 1995

                  --    Notes to Financial Statements

                  (2)   Financial Statement Schedule. The following financial
         statement schedules for the years ended December 31, 1997, 1996 and
         1995 are included herein beginning on page S-1:

                  --    Report of Independent Certified Public Accountants on
                        Schedule

                  --    Schedule II - Valuation and Qualifying Accounts

         All other schedules have been omitted because the information is not
required, or if required the information required therein is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements or notes thereto.

         (b)      Reports on Form 8-K:

                  None.

         (c)      Exhibits:

                  The following exhibits required by Item 601 of Regulation
         S-K are filed herewith or have been filed previously with the
         Commission as indicated below:


                                       17
<PAGE>   20
                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
REGULATION S-K
EXHIBIT NO.                         DESCRIPTION                                 SEQUENTIAL PAGE NO.
---------------   -----------------------------------------------------     --------------------------

<S>               <C>                                                       <C>
            3.1   Restated Articles of Incorporation*                       [Form 10-KSB for the year
                                                                            ended December 31, 1993,
                                                                            Exhibit No. 3.1]

            3.2   Bylaws of the Company*                                    [Form 10-KSB for the year
                                                                            ended December 31, 1992,
                                                                            Exhibit No. 3.2]

           10.1   Agreement and Plan of Merger*                             [Form 8-K dated October
                                                                            1992, Exhibit 10.1]

           10.2   1993 Stock Option Plan*                                   [Form 10-KSB for the year
                                                                            ended December 31, 1993,
                                                                            Exhibit 10.4]

           10.3   Amendment No. 1 to 1993 Stock Option Plan*                [Form 10-Q for quarter
                                                                            ended June 30, 1996,
                                                                            Exhibit 10.1]

           10.4   Amendment No. 2 to 1993 Stock Option Plan*                [Form 10-K for the year
                                                                            ended December 31, 1996,
                                                                            Exhibit 10.4]

           10.5   Revolving Domestic and LC Line of Credit Agreements       Filed herewith.


           10.6   Lease Agreement for Salt Lake City facility*              [Form 10-KSB for the year
                                                                            ended December 31, 1993,
                                                                            Exhibit 10.6]

           10.7   Amendment to Lease Agreement*                             [Form 10-K for the year
                                                                            ended December 31, 1995,
                                                                            Exhibit 10.5]

           10.8   Flanders Shareholder Agreement*                           [Form 10-KSB for the year
                                                                            ended December 31, 1994,
                                                                            Exhibit No. 10.8]

           10.9   Flanders Purchase Option Agreement*                       [Form 10-KSB for the year
                                                                            ended December 31, 1994,
                                                                            Exhibit No. 10.9]

           23.1   Consent of Independent Certified Public Accountants.      Filed herewith.

             27   Financial Data Schedule                                   Filed herewith.
</TABLE>

-------------------------

*  These exhibits are incorporated herein by reference.

      (d)   Financial Statement Schedules:

            See Item 14(a)(2) of this report.



                                       18
<PAGE>   21
                                   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 March 26, 1998.

                                   DAW TECHNOLOGIES, INC.

                                   By:   /s/ Ronald W. Daw
                                      ------------------------------------------
                                            Ronald W. Daw
                                            Chairman of the Board, President and
                                             Chief Executive Officer


         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 26, 1998.

<TABLE>
<CAPTION>
         SIGNATURE                  CAPACITY IN WHICH SIGNED
-----------------------------       --------------------------------------------

<S>                                 <C>
/s/ Ronald W. Daw                   Chairman of the Board, President, Chief
-----------------------------       Executive Officer and Director (Principal
Ronald W. Daw                       executive officer)

/s/ David R. Grow                   Executive Vice President, Chief Operating
-----------------------------       Officer, Chief Financial Officer (Principal
David R. Grow                       financial and accounting officer)

/s/ Robert G. Chamberlain           Director
-----------------------------
Robert G. Chamberlain


/s/ Charles L. Bates, Jr.           Director
-----------------------------
Charles L. Bates, Jr.


/s/ James S. Jardine                Director
-----------------------------
James S. Jardine

/s/ Robert J. Frankenberg           Director
-----------------------------
Robert J. Frankenberg
</TABLE>



                                       19
<PAGE>   22
                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Daw Technologies, Inc.


We have audited the accompanying balance sheets of Daw Technologies, Inc. as of
December 31, 1997 and 1996, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Daw Technologies, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.



                                            GRANT THORNTON LLP


Salt Lake City, Utah
February 25, 1998


                                      F-1
<PAGE>   23
Daw Technologies, Inc.

BALANCE SHEETS
(in thousands, except share data)

<TABLE>
<CAPTION>
                                                              December 31,
                                                            -----------------
                                                             1997      1996
                                                            -------   -------
<S>                                                         <C>       <C>
                           ASSETS
CURRENT ASSETS
  Cash and cash equivalents...............................  $ 5,802   $ 3,258
  Contracts receivable, net...............................   12,472    27,394
  Costs and estimated earnings in excess of billings
    on contracts in progress..............................    3,702     7,169
  Inventories.............................................    1,363     1,583
  Deferred income taxes...................................      352       318
  Other current assets....................................    2,144     1,996
                                                            -------   -------
      Total current assets................................   25,835    41,718

PROPERTY AND EQUIPMENT -- NET, AT COST....................    6,304     7,693
DEFERRED INCOME TAXES.....................................      135        --
OTHER ASSETS..............................................       90        84
                                                            -------   -------
                                                            $32,364   $49,495
                                                            =======   =======
            LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable and accrued liabilities................  $ 5,700   $10,782
  Billings in excess of costs and estimated
    earnings on contracts in progress.....................    3,005     7,505
  Lines of credit.........................................    1,230     5,696
  Current portion of long-term obligations................      652       623
                                                            -------   -------
       Total current liabilities..........................   10,587    24,606
LONG-TERM OBLIGATIONS, less current portion...............    1,077     1,730
DEFERRED INCOME TAXES.....................................       --       221
COMMITMENTS AND CONTINGENCIES.............................       --        --
SHAREHOLDERS' EQUITY
  Preferred stock, authorized 10,000,000 shares of
    $.01 par value; none issued and outstanding...........       --        --
  Common stock, authorized 50,000,000 shares of
    $.01 par value; issued and outstanding 12,407,977
    shares in 1997 and 12,400,543 shares in 1996..........      124       124
  Additional paid-in capital..............................   15,209    15,188
  Retained earnings.......................................    5,367     7,626
                                                            -------   -------
       Total shareholders' equity.........................   20,700    22,938
                                                            -------   -------
                                                            $32,364   $49,495
                                                            =======   =======
</TABLE>
        The accompanying notes are an integral part of these statements.

                                      F-2
<PAGE>   24
                             Daw Technologies, Inc.

                            STATEMENTS OF OPERATIONS

                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                      Year ended December 31,
                                             -------------------------------------------
                                                 1997            1996            1995
                                             -----------     -----------     -----------
<S>                                          <C>             <C>             <C>
Contract revenue                             $    52,541     $   112,826     $    70,635
Cost of contracts                                 47,272          97,364          63,484
                                             -----------     -----------     -----------
    Gross profit                                   5,269          15,462           7,151

Operating expenses
  Selling, general and administrative              8,373          10,274           6,333
  Research and development                           246             282             255
  Depreciation and amortization                      431             400             219
                                             -----------     -----------     -----------
                                                   9,050          10,956           6,807
                                             -----------     -----------     -----------
    Earnings (loss) from operations               (3,781)          4,506             344

Other income (expense)
  Interest                                          (295)           (663)           (129)
  Other income (expense), net                        (49)          1,015             248
                                             -----------     -----------     -----------
                                                    (344)            352             119
                                             -----------     -----------     -----------
    Earnings (loss) before income taxes           (4,125)          4,858             463
Income taxes (benefit)                            (1,866)          1,548             176
                                             -----------     -----------     -----------
    NET EARNINGS (LOSS)                      $    (2,259)    $     3,310     $       287
                                             ===========     ===========     ===========


Earnings (loss) per common share
  Basic                                      $     (0.18)    $      0.27            0.02
  Diluted                                          (0.18)           0.27            0.02
Weighted-average common and dilutive
  common equivalent shares outstanding
  Basic                                       12,415,957      12,350,172      12,147,837
  Diluted                                     12,415,957      12,393,356      12,364,989
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      F-3

<PAGE>   25
                             Daw Technologies, Inc.

                       STATEMENTS OF SHAREHOLDERS' EQUITY

                       (in thousands, except share data)

                  Years ended December 31, 1997, 1996 and 1995

<TABLE>
<CAPTION>
                                                                Addi-
                                                               tional
                                               Common          paid-in          Retained
                                                stock          capital          earnings           Total
                                               ------          -------          --------          -------
<S>                                            <C>             <C>              <C>               <C>
Balances as of January 1, 1995                 $  117          $12,107          $ 4,029           $16,253

Common stock issued pursuant to
  exercise of warrants, 400,000 shares              4            1,969               --             1,973

Common stock issued pursuant to
  exercise of warrants, 189,000 shares              2              646               --               648

Tax benefit from exercise of stock options         --              248               --               248

Net earnings for 1995                              --               --              287               287
                                               ------          -------          -------           -------
Balances as of December 31, 1995                  123           14,970            4,316            19,409

Common stock issued pursuant to
  exercise of 900 warrants and 46,500
  options and purchase of 22,889 shares
  pursuant to employee stock purchase plan          1              195               --               196

Tax benefit from exercise of stock options         --               23               --                23

Net earnings for 1996                              --               --            3,310             3,310
                                               ------          -------          -------           -------
Balances as of December 31, 1996                  124           15,188            7,626            22,938

Common stock issued pursuant to the
  purchase of 43,738 shares pursuant
  to employee stock purchase plan                  --               84               --                84

Common stock purchased and retired
  of 36,304 shares                                 --              (63)              --               (63)

Net loss for 1997                                  --               --           (2,259)           (2,259)
                                               ------          -------          -------           -------
Balances as of December 31, 1997               $  124          $15,209          $ 5,367           $20,700
                                               ======          =======          =======           =======
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      F-4

<PAGE>   26
                             Daw Technologies, Inc.

                            STATEMENTS OF CASH FLOWS

                       (in thousands, except share data)

<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                            ---------------------------
                                                              1997      1996      1995
                                                            -------   --------  -------
<S>                                                         <C>       <C>       <C>
Increase (decrease) in cash and cash equivalents
  Cash flows from operating activities
    Net earnings (loss)                                     $(2,259)  $  3,310  $   287
    Adjustments to reconcile net earnings (loss) to net
      cash provided by (used in) operating activities
      Depreciation and amortization                           1,724      1,649      875
      (Gain) loss on disposition of property and
        equipment                                                (7)         6       35
      Provision for losses on contracts receivable              180        330       30
      Deferred income taxes (benefit)                          (390)      (145)      48
      Changes in assets and liabilities
        Contract receivables                                 14,742    (13,010)  (3,137)
        Costs and estimated earnings in excess
          of billings on contracts in progress                3,467      3,761   (5,697)
        Inventories                                             220       (105)    (303)
        Other current assets                                   (148)    (1,555)      48
        Accounts payable
          and accrued liabilities                            (5,082)    (1,490)   6,092
        Billings in excess of costs and estimated
          earnings on contracts in progress                  (4,500)     3,806    3,013
        Other assets                                             (6)        (2)     (41)
                                                            -------   --------  -------
          Net cash provided by (used in)
            operating activities                              7,941     (3,445)   1,250
                                                            -------   --------  -------
Cash flows from investing activities
  Payments for purchase of property
    and equipment                                              (349)    (2,929)  (4,996)
  Proceeds from disposition of property
    and equipment                                                21         31       --
                                                            -------   --------  -------
          Net cash used in
            investing activities                               (328)    (2,898)  (4,996)
                                                            -------   --------  -------

</TABLE>

                                  (continued)

                                      F-5

<PAGE>   27
                             Daw Technologies, Inc.

                     STATEMENTS OF CASH FLOWS -- CONTINUED

                       (in thousands, except share data)


<TABLE>
<CAPTION>
                                                              Year ended December 31,
                                                         --------------------------------
                                                           1997        1996        1995
                                                         --------    --------    --------
<S>                                                      <C>         <C>         <C>
Cash flows from financing activities
  Proceeds from issuance of long-term obligations             --          --       2,791
  Net change in lines of credit                           (4,466)      4,196       1,500
  Payments of long-term debt                                  --          --         (92)
  Payments for purchase and retirement of
    common stock                                             (63)         --          --
  Proceeds from issuance of stock                             84         219       2,869
  Payments on obligations under capital leases              (624)       (699)       (148)
                                                         -------     -------      ------
          Net cash provided by (used in)
            financing activities                          (5,069)      3,716       6,920
                                                         -------     -------      ------
          Net increase (decrease) in cash
            and cash equivalents                           2,544      (2,627)      3,174
Cash and cash equivalents at beginning of year             3,258       5,885       2,711
                                                         -------     -------      ------
Cash and cash equivalents at end of year                 $ 5,802     $ 3,258      $5,885
                                                         =======     =======      ======

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid during the year for
  Interest                                               $   295     $   663      $  129
  Income taxes                                               438       1,055         320

NONCASH INVESTING AND FINANCING ACTIVITIES

Capital lease obligations of $173 and $2,908 for
property and equipment acquisitions were incurred
during 1996 and 1995, respectively.
</TABLE>


        The accompanying notes are an integral part of these statements.

                                      F-6
<PAGE>   28
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         A summary of the significant accounting policies consistently applied
         in the preparation of the accompanying financial statements follows.

         1.       Business activity

         Daw Technologies, Inc. (the Company) is a supplier of ultra-clean
         manufacturing environments, or cleanrooms, to the semiconductor
         industry (operating in one business segment). The Company designs,
         engineers, manufactures, installs and services all principal component
         systems for advanced cleanrooms.

         2.       Method of accounting for long-term contracts

         The accompanying financial statements have been prepared using the
         percentage-of-completion method of accounting and, therefore, take into
         account the costs, estimated earnings and revenue to date on contracts
         not yet completed. For most contracts, the revenue recognized is that
         portion of the total contract price that cost incurred to date bears to
         anticipated final total cost, based on current estimates of cost to
         complete. Revenue from cost-plus-fixed-fee contracts is recognized on
         the basis of costs incurred during the period plus the fee earned,
         measured by the cost-to-cost method.

         Contract costs include all direct and allocable indirect labor,
         benefits, materials unique to or installed in the project,
         subcontractor cost allocations, including employee benefits and
         equipment expense. At the time a loss on a contract becomes known, the
         entire amount of the estimated ultimate 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
         are reflected in the accounting period in which the facts which require
         the revision become known. Costs attributable to contract claims or
         disputes are carried in the accompanying balance sheets only when
         realization is probable. These costs are recorded at the lesser of
         actual costs incurred or the amount expected to be realized. It is
         reasonably possible that estimates by management related to contracts
         can change in the future.



                                      F-7
<PAGE>   29
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

         2.       Method of accounting for long-term contracts - continued

         The current asset, "costs and estimated earnings in excess of billings
         on contracts in progress," represents revenues recognized in excess of
         amounts billed (under- billings), and the current liability, "billings
         in excess of costs and estimated earnings on contracts in progress,"
         represents billings in excess of revenues recognized (over-billings).
         The amount of revenue recognized is not related to the progress
         billings to customers.

         3.       Depreciation and amortization

         Property and equipment are stated at cost. Depreciation and
         amortization are provided for in amounts sufficient to relate the cost
         of depreciable assets to operations over their estimated service lives.
         Leased property under capital leases and leasehold improvements are
         amortized over the shorter of the lives of the respective leases or
         over the service lives of the asset. The straight-line method of
         depreciation is followed for financial reporting purposes. Accelerated
         methods of depreciation are used for tax purposes.

         4.       Income taxes

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

         5.       Cash and cash equivalents

         The Company considers all highly liquid debt instruments with an
         original maturity of three months or less when purchased to be cash
         equivalents.



                                      F-8
<PAGE>   30
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

         6.       Inventories

         Inventories consist of raw materials and are stated at the lower of
         cost or market. Cost is determined principally by the first-in,
         first-out method.

         7.       Net earnings (loss) per share

         Basic earnings (loss) per common share (BEPS) is based on the weighted
         average number of common shares outstanding during each period. Diluted
         earnings (loss) per common share are based on shares outstanding
         (computed as under BEPS) and dilutive potential common shares.
         Potential common shares included in the dilutive earnings (loss) per
         share calculation include stock options awarded (Note S).

         8.       Research and development costs

         The Company conducts research and development to develop new products
         or product improvements not directly related to a specific project.
         Research and development costs have been charged to expense as
         incurred.

         9.       Concentrations

         The Company's financial instruments that are exposed to concentration
         of credit risk consist primarily of cash and cash equivalents and
         receivables. The Company provides credit according to the terms of the
         individual project contracts, in the normal course of business,
         primarily to semi-conductor manufacturers.

         Approximately 31% (40% in 1996) of receivables are with three different
         customers. In addition, approximately 42% (41% in 1996) of receivables
         are due from entities located outside of North America, primarily
         Europe and Asia. Of the total receivables, approximately 6% are
         denominated in foreign currencies (13% at December 31, 1996). The
         Company routinely evaluates the financial strength of its customers and
         monitors each account to minimize the risk of loss.


                                      F-9
<PAGE>   31
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

         9.       Concentrations - continued

         The Company maintains cash and cash equivalents at several financial
         institutions. Accounts at each domestic institution are insured by the
         FDIC up to $100. Uninsured domestic balances aggregate to approximately
         $229 at December 31, 1997 ($1,412 in 1996). The Company also maintains
         cash and cash equivalents in foreign accounts. These uninsured balances
         aggregate to $5,709 at December 31, 1997 ($2,413 in 1996).

         10.      Retentions

         Many of the Company's contracts allow retentions, typically 5-10% of
         the amount billed, to be withheld from each progress payment by the
         customer until the project reaches substantial completion.

         11.      Estimates and assumptions

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amounts of revenues
         and expenses during the reporting period. Actual results could differ
         from those estimates.

         12.      Fair value of financial instruments

         The carrying value of the Company's cash and cash equivalents,
         contracts receivable and accounts payable, accrued liabilities and
         lines of credit approximate their fair values.

         13.      Reclassifications

         Certain reclassifications have been made to the 1996 and 1995 financial
         statements to conform with the 1997 presentation.



                                      F-10
<PAGE>   32
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

         14.      Recently issued accounting pronouncements not yet adopted

         Comprehensive income

         In September 1997, the Financial Accounting Standards Board (FASB)
         issued Statement of Financial Accounting Standards No. 130 (SFAS 130),
         "Reporting Comprehensive Income." SFAS 130 requires entities presenting
         a complete set of financial statements to include details of
         comprehensive income that arise in the reporting period. Comprehensive
         income consists of net earnings or loss for the current period and
         other comprehensive income, which consists of revenue, expenses, gains,
         and losses that bypass the statement of earnings and are reported
         directly in a separate component of equity. Other comprehensive income
         includes, for example, foreign currency items, minimum pension
         liability adjustments, and unrealized gains and losses on certain
         investment securities. SFAS 130 requires that components of
         comprehensive income be reported in a financial statement that is
         displayed with the same prominence as other financial statements. This
         statement is effective for fiscal years beginning after December 15,
         1997 and requires restatement of prior period financial statements
         presented for comparative purposes.

         Disclosure of segments

         Also in September 1997, the FASB issued Statement of Financial
         Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of
         an Enterprise and Related Information." This statement requires an
         entity to report financial and descriptive information about their
         reportable operating segments. An operating segment is a component of
         an entity for which financial information is developed and evaluated by
         the entity's chief operating decision maker to assess performance and
         to make decisions about resource allocation. Entities are required to
         report segment profit or loss, certain specific revenue and expense
         items and segment assets based on financial information used internally
         for evaluating performance and allocating resources. This statement is
         effective for fiscal years beginning after December 15, 1997 and
         requires restatement of prior period financial statements presented for
         comparative purposes.

         Management does not believe that the adoption of SFAS 130 and SFAS 131
         will have a material effect on the Company's financial statements.



                                      F-11
<PAGE>   33
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE B - CAPITAL TRANSACTIONS

         During 1997, the Company received $84 from the issuance of 43,738
         shares of common stock. The Company purchased and retired 36,304 shares
         of common stock.

         During 1996, the Company received $196 from the issuance of 22,889
         shares of common stock, upon the exercise of 46,500 common stock
         options and the exercise of 900 shares of common stock warrants.

         During 1996, the shareholders of the Company approved an employee stock
         purchase plan. The maximum number of shares of common stock that may be
         issued under the plan is 750,000 shares. Employees are eligible upon
         completion of 90 days employment. Eligible employees may designate 2%
         to 15% (up to $25) of eligible compensation to be withheld for the
         purchase of stock. Price per share is 85% of the lower closing trading
         price of the stock on the applicable offering commencement date or
         offering termination date. Offering periods are six months in length
         beginning on May 1 and November 1 of each year. Employees purchased
         43,738 shares under the plan in 1997 (22,889 in 1996).


NOTE C - INTERNATIONAL OPERATIONS

         Financial information summarized by geographic area for the years ended
         December 31, 1997, 1996, and 1995, is as follows.

<TABLE>
<CAPTION>
                                                      North
                        1997                         America          Europe      Asia/Pacific     Consolidated
         -------------------------------------       -------          ------      ------------     ------------

<S>                                                  <C>             <C>          <C>              <C>
         Net revenues - unaffiliated customers       $ 33,969        $  8,983        $  9,589        $ 52,541
         Loss from operations                            (283)         (2,668)           (830)         (3,781)
         Identifiable assets                           18,655           8,262           5,447          32,364
</TABLE>

<TABLE>
<CAPTION>
                                                      North
                        1996                         America         Europe       Asia/Pacific     Consolidated
         -------------------------------------       -------          ------      ------------     ------------

<S>                                                  <C>             <C>          <C>              <C>
         Net revenues - unaffiliated customers       $ 74,429       $ 21,828        $ 16,569        $112,826
         Earnings (loss) from operations                5,341           (794)            (41)          4,506
         Identifiable assets                           30,202         10,389           8,904          49,495
</TABLE>


                                      F-12
<PAGE>   34
                             Daw Technologies, Inc.

                         NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                       (in thousands, except share data)

NOTE C - INTERNATIONAL OPERATIONS - CONTINUED

<TABLE>
<CAPTION>
                                            North
          1995                             America   Europe    Asia/Pacific   Consolidated
---------------------------------------    -------   ------    ------------   ------------
<S>                                       <C>        <C>       <C>            <C>
Net revenues - unaffiliated customers..    $44,156    $6,619    $19,860        $70,635
Earnings (loss) from operations........       (639)    1,455       (472)           344
Identifiable assets....................     29,865     4,602      5,605         40,072
</TABLE>

Foreign currency transaction losses totaling approximately $225 for 1997 are
included in other income. Foreign currency transactions for 1996 and 1995 were
not significant.

NOTE D - CONTRACTS RECEIVABLE

     Contracts receivable consist of the following:

<TABLE>
<CAPTION>
                                           1997           1996
                                         --------       --------
<S>                                       <C>            <C>
Current receivables ...................   $ 9,666        $22,353
Retentions receivable .................     3,209          5,417
                                          -------        -------
                                           12,875         27,770
Less allowance for doubtful accounts ..      (403)          (376)
                                          -------        -------
Contracts receivable ..................   $12,472        $27,394
                                          =======        =======
</TABLE>

NOTE E - OTHER CURRENT ASSETS

     Other current assets consist of the following:

<TABLE>
<CAPTION>
                                           1997            1996
                                          -------        -------
<S>                                       <C>            <C>
Taxes receivable .......................   $1,358         $   --
Prepaid foreign taxes ..................      172          1,120
Miscellaneous receivables and deposits..      278            552
Prepaid expenses .......................      336            324
                                           ------         ------
                                           $2,144         $1,996
                                           ======         ======
</TABLE>

                                      F-13
<PAGE>   35
                             Daw Technologies, Inc.

                         NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                       (in thousands, except share data)


NOTE F - PROPERTY AND EQUIPMENT

     Property and equipment and estimated useful lives consist of the following:

<TABLE>
<CAPTION>
                                                Years        1997      1996
                                             ------------   -------   -------
<S>                                          <C>            <C>       <C>
     Equipment                                    5-10      $ 4,150   $ 4,088
     Furniture and fixtures                       3-5         2,588     2,432
     Leasehold improvements                  life of lease    2,605     2,514
     Equipment under capital leases               5-10        4,067     4,067
     Vehicles                                     3-5           317       331
                                                            -------   -------
                                                             13,727    13,432

     Less accumulated depreciation
       and amortization including $2,332
       and $1,653 for equipment under
       capital leases at 1997 and 1996,
       respectively                                          (7,423)   (5,739)
                                                            -------   -------
                                                            $ 6,304   $ 7,693
                                                            =======   =======
</TABLE>


NOTE G - CONTRACTS IN PROGRESS

     Costs incurred to date and estimated earnings and the related progress
     billings to date on contracts in progress are as follows:

<TABLE>
<CAPTION>
                                                        1997      1996
                                                       -------   -------
<S>                                                    <C>       <C>
     Total costs and estimated earnings                $108,215  $112,396
     Progress billings to date                          107,518   112,732
                                                       --------  --------
                                                       $    697  $   (336)
                                                       ========  ========
</TABLE>

The above are included in the balance sheets under the following captions:

<TABLE>
<CAPTION>
                                                        1997      1996
                                                       -------   -------
<S>                                                    <C>       <C>
     Costs and estimated earnings in excess
       of billings on contracts in progress            $  3,702  $  7,169

     Billings in excess of costs and estimated
       earnings on contracts in progress                 (3,005)   (7,505)
                                                       --------  --------
                                                       $    697  $   (336)
                                                       ========  ========
</TABLE>


                                      F-14
<PAGE>   36
                             Daw Technologies, Inc.

                         NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                       (in thousands, except share data)


NOTE H -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES


     Accounts payable and accrued liabilities consist of the following:



<TABLE>
<CAPTION>

                                                               1997       1996
                                                               ----       ----
<S>                                                           <C>       <C>

     Trade accounts payable                                   $2,729    $ 6,120
     Other accrued liabilities                                 1,515      1,668
     Employees salaries, incentive pay,
       vacation and payroll taxes                              1,090      1,808
     Reserve for contract estimates and warranties               366        575
     Accrued income taxes payable                                 --        611
                                                              ------    -------
                                                              $5,700    $10,782
                                                              ======    =======

</TABLE>


NOTE I -- INCOME TAXES

     Components of income taxes (benefit) are as follows:

<TABLE>
<CAPTION>

                                                              1997         1996      1995
                                                              ----         ----      ----
<S>                                                         <C>           <C>        <C>
     Current
       Federal                                              $(1,171)      $1,288     $111
       State                                                   (305)         330       17
       Foreign                                                   --           75       --
                                                            -------       ------     ----
                                                             (1,476)       1,693      128


     Deferred
       Federal                                                 (379)        (119)      42
       State                                                    (11)         (26)       6
                                                            -------       ------     ----
                                                               (390)        (145)      48
                                                            -------       ------     ----
     Income taxes (benefit)                                 $(1,866)      $1,548     $176
                                                            =======       ======     ====
</TABLE>


                                      F-15
<PAGE>   37
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE I - INCOME TAXES - CONTINUED

         The income tax expense (benefit) reconciled to the tax computed at the
         statutory Federal rate of 34% is as follows:

<TABLE>
<CAPTION>
                                                        1997           1996           1995
                                                       -------        -------        -------
<S>                                                    <C>            <C>            <C>
         Tax (benefit) at federal statutory rate       $(1,403)       $ 1,652        $   157
         Nondeductible expenses                             11             41             23
         State income taxes, net of federal
            income tax benefit                            (234)           234             12
         Foreign sales corporation exemption              (167)          (333)           (54)
         All other                                         (73)           (46)            38
                                                       -------        -------        -------
                                                       $(1,866)       $ 1,548        $   176
                                                       =======        =======        =======
</TABLE>

         Deferred income taxes related to the following:

<TABLE>
<CAPTION>
                                                                 1997         1996
                                                                -----        -----
<S>                                                             <C>          <C>
         Current deferred tax assets
             Allowance for doubtful accounts                    $ 150        $ 147
             Accrued expenses and reserves                        202          171
                                                                -----        -----
                                                                $ 352        $ 318
                                                                =====        =====
         Long-term deferred tax assets (liabilities)
             Excess book depreciation and amortization          $(226)       $(221)
             Foreign tax credit carryforwards                     162           --
             Alternative minimum tax credit carryforwards         199           --
                                                                -----        -----
                                                                $ 135        $(221)
                                                                =====        =====
</TABLE>

The foreign tax credit carry forward of $162 expires during 2001. Management
believes it is more likely than not that the Company will have sufficient
foreign and domestic income to utilize the credits before expiration.



                                      F-16
<PAGE>   38
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE J- LINES OF CREDIT

         During 1997, the Company maintained a revolving line of credit with a
         domestic bank for the lesser of $8,000 or the available borrowing base.
         The interest rate is computed at the bank's prime rate (8.50% at
         December 31, 1997) and requires monthly payments of interest. The
         Company had $1,230 in borrowings against the line at December 31, 1997
         ($4,216 at December 31, 1996) . The line of credit expires June 30,
         1998. The line of credit is collateralized by certain domestic
         receivables and inventories. The line of credit agreement contains
         restrictive covenants imposing limitations on payments of cash
         dividends, purchases or redemptions of capital stock, indebtedness and
         other matters. At December 31, 1997, the Company was out of compliance
         on certain indebtedness covenants for which they obtained a waiver
         subsequent to year end.

         Also during 1997, the Company maintained a guidance line of credit with
         a domestic bank used to facilitate the issuance of letters of credit.
         The facility allows for letters of credit to be issued up to the lesser
         of $3,000 or the available borrowing base. The facility expires July
         31, 1998. In addition, the facility maintains the same restrictive
         covenants and collateral requirements as the above mentioned revolving
         line of credit. No letters of credit were open under this facility at
         December 31, 1997.

         In addition, during 1997 and 1996, the Company maintained another
         revolving line of credit with a domestic bank for $3,500 with a
         variable rate of interest of prime (8.50% at December 31, 1996). The
         line matured during 1997, and has not been renewed. The outstanding
         balance against the line at December 31, 1996 was $1,480. The line was
         collateralized by certain international receivables and inventories.
         This line also contained restrictive covenants imposing limitations on
         purchases or redemptions of capital stock, indebtedness and other
         matters.


NOTE K - LONG-TERM OBLIGATIONS

         The Company has entered into capital lease obligations with various
         financial institutions and leasing organizations that carry interest
         rates ranging from 4% to 11.5%. The leases are collateralized by
         equipment. Payments approximate $65 monthly including interest.



                                      F-17
<PAGE>   39
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE K - LONG-TERM OBLIGATIONS - CONTINUED

         The following is a schedule by year of future minimum lease payments
         under capital leases, together with the present value of the net lease
         payments as of December 31, 1997.

<TABLE>
<S>                                                             <C>
              Year ending December 31,
                1998                                            $  779
                1999                                               632
                2000                                               539
                2001                                                10
                                                                ------
              Total minimum leases payments                      1,960
              Less amount representing interest                    231
                                                                ------
              Present value of net minimum lease payments        1,729
              Less current portion                                 652
                                                                ------
              Long-term portion                                 $1,077
                                                                ======
</TABLE>

NOTE L - OPERATING LEASES

         The Company leases buildings, machinery and equipment under operating
         leases. The building leases expire in 2000 and 2005. The machinery and
         equipment leases expire through 2000. The following is a schedule, by
         year, of future minimum rental payments as of December 31, 1997.

<TABLE>
<S>                                        <C>
              Year ending December 31,
                1998                       $1,961
                1999                        1,724
                2000                          972
                2001                          636
                2002                          583
              Thereafter                    1,234
                                           ------

                                           $7,110
                                           ======
</TABLE>

         The building leases provide for payment of property taxes, insurance,
         and maintenance costs by the Company. Rental expense for operating
         leases totaled $1,670, $737 and $564 for 1997, 1996 and 1995
         respectively.

         The Company has an option to renew one building lease for four
         additional five year periods upon expiration of the current term in
         2005.


                                      F-18
<PAGE>   40
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE M - BENEFIT PLANS

         1.       Savings Plan

         The Company has established a 401(k) savings plan covering all
         non-union employees 21 years of age and older. The Company, at its
         discretion, matches 50 percent of employee contributions up to a
         maximum matching contribution of 3 percent of the employee's annual
         salary. Contributions are made at the discretion of the Board of
         Directors. The Company's contributions to the plan were $176, $184 and
         $30 for the years ended December 31, 1997, 1996 and 1995, respectively.

         2.       Multi-Employer Pension Plans

         The Company contributes to several multi-employer pension plans for
         employees covered by collective bargaining agreements. Employees
         covered by these plans are engaged solely in on-site installation of
         cleanrooms. These plans are not administered by the Company and
         contributions are determined in accordance with provisions of
         negotiated labor contracts. The Company's contributions to the
         multi-employer pension plans totaled approximately $303, $484 and $263
         or 3.9%, 2.3% and 2.0% of gross payroll of covered employees,
         respectively, for the years ended December 31, 1997, 1996 and 1995.
         Information with respect to the Company's proportionate share of the
         excess, if any, of the actuarially computed value of vested benefits
         over the total pension plans' net assets is not available from the
         plans' administrators.

         The Multi-Employer Pension Plan Amendments Act of 1980 (The "Act")
         significantly increased the pension responsibilities of participating
         employers. Under the provision of the Act, if the plans terminate or
         the Company withdraws, the Company could be subject to a withdrawal
         liability. Management has no intention of undertaking any action which
         could subject the Company to any withdrawal liability which would have
         a material effect on the Company's financial condition.


NOTE N - LEGAL PROCEEDINGS AND CLAIMS

         The Company is engaged in various lawsuits and claims, either as
         plaintiff or defendant, in the normal course of business. In the
         opinion of management, based upon advice of counsel, the ultimate
         outcome of these lawsuits will not have a material impact on the
         Company's financial statements.



                                      F-19
<PAGE>   41
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE O - PRIMARY CUSTOMERS

         The Company has typically had one to three customers in each year which
         accounted for more than 10% each of revenues; these customers do not
         necessarily remain significant in subsequent years. These major
         customers are typically general contractors of fabrication facilities.

         The Company's major customers and revenue received therefrom are as
         follows:

<TABLE>
<CAPTION>
                                 1997          1996          1995
                              ---------       -------       -------
<S>                           <C>             <C>           <C>
              Company A       $      --       $21,371       $    --
              Company B           7,241        17,916            --
              Company C              --        16,247            --
              Company D              --            --         8,654
              Company E              --            --         7,883
              Company F              --            --         7,624
</TABLE>


NOTE P - RELATED PARTY TRANSACTIONS

         Daw Incorporated is a regional interior specialties contracting company
         based in Utah. Certain stockholders of Daw Incorporated own more than
         50% of the Company's common stock.

         The Company purchased goods and services from Daw Incorporated totaling
         $223, $1,118, and $525 in 1997, 1996, and 1995, respectively.

         Although the Company and Daw Incorporated maintain separate insurance
         policies, the Company understands that its insurance carriers consider
         the experience of both Daw Incorporated and the Company in establishing
         the Company's rate for workers compensation coverage because of the
         common ownership. This common ownership may also affect the Company's
         ability to make elections regarding contributions to its 401(k) plan
         which differ materially from Daw Incorporated's separate plan.
         Management of the Company does not believe these matters have
         materially affected the financial condition or results of operations of
         the Company.

         A member of the board of directors works for a law firm which provided
         legal services to the Company approximating $138 and $137 in 1997 and
         1996, respectively.



                                      F-20
<PAGE>   42
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE Q - WARRANTS AND OPTIONS

         During 1996, the Board of Directors and the shareholders amended the
         Company's 1993 Stock Option Plan (Plan) to increase the number of
         shares reserved for issuance by 250,000. In addition, the amendment
         extended the life of the Plan for one year, to expire in 1998, and
         eliminated the limit on the number of options that can be granted in
         any given year. Also, the amendment limits to 100,000 the number of
         options that can be granted to any one individual in any given year.
         The Plan is a non-qualified plan, and the options granted thereunder
         are non-qualified stock options.

         Under the amended Plan, 1,250,000 shares of common stock were reserved
         for issuance upon exercise of options. The Plan provides that options
         to purchase a maximum of 1,075,000 shares may be granted to eligible
         employees (including employees who are directors or officers) and
         options to purchase a maximum of 175,000 shares may be granted to
         non-employee directors.

         The exercise price for stock options granted under the Plan may not be
         less than 100% of the fair market value of a share of common stock on
         the date the option is granted. Options granted under the Plan after
         October 24, 1996 expire through 2007. Options granted prior to or on
         October 24, 1996 expire through 2001.

         The Company granted options to purchase 55,000 shares, 272,000 shares
         and 255,000 shares in 1997, 1996 and 1995, respectively, of the
         Company's common stock of which 20,000 shares in 1997, 40,000 shares in
         1996 and 30,000 shares in 1995 respectively, were granted to
         non-employee directors. Additionally, 30,000 shares, 111,500 shares,
         and 63,500 shares, were granted to executive officers (including
         officers who are directors), during 1997, 1996, and 1995, respectively.
         Also, 5,000 shares, 120,500 shares and 161,500 shares in 1997, 1996,
         and 1995, respectively, were granted to other employees of the Company.
         On October 24, 1996 all options with an exercise price greater than
         $3.50 were re-priced to $3.50, which was the market price of the
         Company stock on that date.


                                      F-21
<PAGE>   43
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE Q - WARRANTS AND OPTIONS - CONTINUED

         The Company has adopted only the disclosure provisions of Financial
         Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
         (FAS123). Therefore, the Company continues to account for stock based
         compensation under Accounting Principles Board Opinion No. 25, under
         which no compensation cost has been recognized. Had compensation cost
         for the stock based compensation been determined based upon the fair
         value of the awards at the grant date consistent with the methodology
         prescribed by FAS123, the Company's net earnings (loss) and earnings
         (loss) per share would have been reduced (or increased) to the
         following pro forma amounts:


<TABLE>
<CAPTION>
                                                                       1997       1996       1995
                                                                    ---------   -------   ------
<S>                                             <C>                 <C>         <C>       <C>
              Net earnings (loss)               As reported         $ (2,259)   $ 3,310   $  287
                                                Pro forma             (2,458)     2,976      185
              Earnings (loss) per
                 share-basic                    As reported            (0.18)      0.27     0.02
                                                Pro forma              (0.20)      0.24     0.01

              Earnings (loss) per               As reported            (0.18)      0.27     0.02
                 share-assuming dilution        Pro forma              (0.20)      0.24     0.01


</TABLE>

         These pro forma amounts may not be representative of future disclosures
         because they do not take into effect pro forma compensation cost
         related to grants made before 1995. The fair value of these options was
         estimated at the date of grant using the modified Black-Scholes
         American option-pricing model with the following weighted-average
         assumptions for 1997, 1996 and 1995: expected volatility of 53% (56%
         for 1996 and 1995); risk-free interest rate of 6.05% (6.04% for 1996
         and 1995); and expected life of 9.6 years (4.7 for 1996 and 1995). The
         weighted-average fair value of options granted was $1.60 and $2.19 in
         1997 and 1996, respectively.

         Option pricing models require the input of highly subjective
         assumptions including the expected stock price volatility. Also, the
         Company's employee stock options have characteristics significantly
         different from those of traded options, and changes in the subjective
         input assumptions can materially affect the fair value estimate.
         Management believes the best input assumptions available were used to
         value the options and that the resulting option values are reasonable.


                                      F-22
<PAGE>   44
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE Q - WARRANTS AND OPTIONS - CONTINUED

         Changes in the Company's stock options and warrants are as follows:
<TABLE>
<CAPTION>
                                                                                               Weighted-
                                                                                                average
                                                              Stock         Exercise           exercise
                                             Warrants        options          price              price
                                            ---------       --------      -------------       ----------

<S>                                         <C>             <C>           <C>                 <C>
              Outstanding at
                 January 1, 1995             407,500         526,000      $ 2.50 - 6.63       $   4.23
                  Granted                         --         255,000        6.25 - 8.58           6.69
                  Exercised                 (400,000)       (189,000)       2.50 - 5.75           3.44
                  Canceled or expired             --         (54,500)       3.56 - 6.63           5.96
                                            --------        --------
              Outstanding at
                 December 31, 1995             7,500         537,500        2.50 - 8.58           5.50
                  Granted                         --         272,000        3.00 - 5.88           3.68
                  Exercised                     (900)        (46,500)       2.50 - 5.75           2.87
                  Canceled or expired             --         (26,500)       3.56 - 6.63           6.06
                                            --------        --------
              Outstanding at
                 December 31, 1996             6,600         736,500        2.50 - 3.50           3.41
                  Granted                         --          55,000        1.94 - 3.00           2.24
                  Exercised                       --              --          --                    --
                  Canceled or expired         (6,600)        (98,500)       2.50 - 3.50           3.30
                                            --------        --------
              Outstanding at
                 December 31, 1997                --         693,000        1.94 - 3.50           3.32
                                            ========        ========

              Exercisable at
                 December 31, 1997                --         535,500      $ 3.00 - 3.50       $   3.44
                                            ========        ========
</TABLE>


         The weighted-average remaining contractual life of options outstanding
         at December 31, 1997 is 4.3 years.


                                      F-23
<PAGE>   45
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE R - QUARTERLY FINANCIAL RESULTS (UNAUDITED)

         Quarterly financial results for the years ended December 31, 1997,
         1996, and 1995 are as follows:

<TABLE>
<CAPTION>
                                                                                                   Net
                                                                                                earnings
                                                                 Earnings         Net          (loss) per
                                 Contract         Gross        (loss) from      earnings         common
                   1997          revenue      profit (loss)     operations       (loss)       share-basic
            ----------------     --------     -------------    -----------      --------      -----------

<S>                              <C>          <C>              <C>              <C>           <C>
            First quarter        $ 16,795       $  2,583        $    327        $    182        $   0.02
            Second quarter         16,463          2,398              97              15              --
            Third quarter          11,453          2,036              46              48              --
            Fourth quarter          7,830         (1,748)         (4,251)         (2,504)          (0.20)
                                 --------       --------        --------        --------        --------
                                 $ 52,541       $  5,269        $ (3,781)       $ (2,259)       $  (0.18)
                                 ========       ========        ========        ========        ========

                1996
            ----------------
            First quarter        $ 23,383       $  3,341        $    986        $    618        $   0.05
            Second quarter         27,049          3,242             575             654            0.05
            Third quarter          30,009          4,478           1,713           1,015            0.08
            Fourth quarter         32,385          4,401           1,232           1,023            0.09
                                 --------       --------        --------        --------        --------
                                 $112,826       $ 15,462        $  4,506        $  3,310        $   0.27
                                 ========       ========        ========        ========        ========

                1995
            ----------------
            First quarter        $ 16,803       $  2,873        $  1,381        $    889        $   0.08
            Second quarter         13,948           (591)         (2,468)         (1,440)          (0.12)
            Third quarter          17,398          2,489             368             242            0.02
            Fourth quarter         22,486          2,380           1,063             596            0.04
                                 --------       --------        --------        --------        --------
                                 $ 70,635       $  7,151        $    344        $    287        $   0.02
                                 ========       ========        ========        ========        ========
</TABLE>



                                      F-24
<PAGE>   46
                             Daw Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1997, 1996 and 1995

                        (in thousands, except share data)


NOTE S - EARNINGS (LOSS) PER COMMON SHARE

         During 1997, the Financial Accounting Standards Board issued Statement
         of Financial Accounting Standard No. 128, "Earnings per Share". This
         statement changed the method in which earnings (loss) per share are
         determined. The new standard requires the computation of basic earnings
         (loss) per share and earnings (loss) per share assuming dilution (Note
         A7). Adoption of this statement has been applied retroactively and the
         1996 and 1995 earnings per share (EPS) amounts have been recomputed
         applying the new standard and has not had a material impact on earnings
         (loss) per share. Options to purchase 693,000 shares of common stock at
         $1.94 to $3.50 a share were outstanding at December 31, 1997. They were
         not included in the computation of loss per share because they would
         have had an anti-dilutive effect on the 1997 loss per share.

         The following data show the shares used in computing earnings (loss)
         per common share including dilutive potential common stock:

<TABLE>
<CAPTION>
                                                                  Year ended  December 31,
                                                       --------------------------------------------
                                                          1997             1996             1995
                                                       ----------       ----------       ----------

<S>                                                    <C>              <C>              <C>
         Common shares outstanding
            entire period                              12,400,543       12,330,254       11,741,254

         Net weighted average common shares
            issued during period                           15,414           19,918          406,583
                                                       ----------       ----------       ----------

         Weighted average number of common
            shares used in basic EPS                   12,415,957       12,350,172       12,147,837

         Dilutive effect of stock options                      --           40,455          212,356

         Dilutive effect of warrants                           --            2,729            4,796
                                                       ----------       ----------       ----------

         Weighted average number of common
            shares and dilutive potential common
            shares used in diluted EPS                 12,415,957       12,393,356       12,364,989
                                                       ==========       ==========       ==========
</TABLE>



                                      F-25
<PAGE>   47
                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS
                                   ON SCHEDULE



Board of Directors
Daw Technologies, Inc.



In connection with our audit of the financial statements of Daw Technologies,
Inc. referred to in our report dated February 25, 1998, which is included in the
annual report to shareholders and Form 10-K, we have also audited Schedule II -
valuation and qualifying accounts for each of the three years in the period
ended December 31, 1997. In our opinion, this schedule presents fairly, in all
material respects, the information required to be set forth therein.


                                            GRANT THORNTON LLP


Salt Lake City, Utah
February 25, 1998


                                      S-1
<PAGE>   48
                             DAW TECHNOLOGIES, INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (IN THOUSANDS)


<TABLE>
<CAPTION>
            COLUMN A                        COLUMN B              COLUMN C              COLUMN D      COLUMN E
--------------------------------------------------------------------------------------------------------------
                                                                 ADDITIONS
--------------------------------------------------------------------------------------------------------------
                                                                          (2)
                                                            (1)        CHARGED TO
                                           BALANCE AT    CHARGED TO       OTHER                      BALANCE AT
                                          BEGINNING OF    COSTS AND     ACCOUNTS      DEDUCTIONS -     END OF
          DESCRIPTION                       PERIOD        EXPENSES      DESCRIBE       WRITE-OFFS      PERIOD
--------------------------------------------------------------------------------------------------------------
<S>                                       <C>            <C>           <C>            <C>            <C>


Allowance for doubtful accounts
    Year ended December 31, 1997            $ 376           $ 180        $  --          $(153)         $ 403
    Year ended December 31, 1996              140             330           --            (94)           376
    Year ended December 31, 1995              138              30           --            (28)           140


Reserve for contract estimates
    Year ended December 31, 1997            $ 575           $ 654        $  --          $(863)         $ 366
    Year ended December 31, 1996              438             940           --           (803)           575
    Year ended December 31, 1995              313             513           --           (388)           438
</TABLE>




                                       S-2
<PAGE>   49
                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
REGULATION S-K
EXHIBIT NO.                         DESCRIPTION                                 SEQUENTIAL PAGE NO.
---------------   -----------------------------------------------------     --------------------------

<S>               <C>                                                       <C>
            3.1   Restated Articles of Incorporation*                       [Form 10-KSB for the year
                                                                            ended December 31, 1993,
                                                                            Exhibit No. 3.1]

            3.2   Bylaws of the Company*                                    [Form 10-KSB for the year
                                                                            ended December 31, 1992,
                                                                            Exhibit No. 3.2]

           10.1   Agreement and Plan of Merger*                             [Form 8-K dated October
                                                                            1992, Exhibit 10.1]

           10.2   1993 Stock Option Plan*                                   [Form 10-KSB for the year
                                                                            ended December 31, 1993,
                                                                            Exhibit 10.4]

           10.3   Amendment No. 1 to 1993 Stock Option Plan*                [Form 10-Q for quarter
                                                                            ended June 30, 1996,
                                                                            Exhibit 10.1]

           10.4   Amendment No. 2 to 1993 Stock Option Plan*                [Form 10-K for the year
                                                                            ended December 31, 1996,
                                                                            Exhibit 10.4]

           10.5   Revolving Domestic and LC Line of Credit Agreements       Filed herewith.


           10.6   Lease Agreement for Salt Lake City facility*              [Form 10-KSB for the year
                                                                            ended December 31, 1993,
                                                                            Exhibit 10.6]

           10.7   Amendment to Lease Agreement*                             [Form 10-K for the year
                                                                            ended December 31, 1995,
                                                                            Exhibit 10.5]

           10.8   Flanders Shareholder Agreement*                           [Form 10-KSB for the year
                                                                            ended December 31, 1994,
                                                                            Exhibit No. 10.8]

           10.9   Flanders Purchase Option Agreement*                       [Form 10-KSB for the year
                                                                            ended December 31, 1994,
                                                                            Exhibit No. 10.9]

           23.1   Consent of Independent Certified Public Accountants.      Filed herewith.

             27   Financial Data Schedule                                   Filed herewith.
</TABLE>

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*  These exhibits are incorporated herein by reference.

      (d)   Financial Statement Schedules:

            See Item 14(a)(2) of this report.