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                       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, 1999 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)

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<CAPTION>
<S>                              <C>                        <C>
            UTAH                       0-21818                  87-0464280
----------------------------     ---------------------      -------------------
(State or other jurisdiction     (Commission File No.)         (IRS Employer
      of incorporation)                                     Identification No.)
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                               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 [ ] No [x]

        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 April 11, 2000, was approximately $14,166,439.
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 April 14, 2000, the Registrant had 12,832,454 shares of Common
Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

        The Registrant's definitive Proxy Statement relating to the Annual
Meeting of Shareholders scheduled for July 28, 2000 is incorporated by reference
in Part III of this report.

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                                TABLE OF CONTENTS


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


ITEM 1. BUSINESS...............................................................................         1


ITEM 2. PROPERTIES.............................................................................         9


ITEM 3. LEGAL PROCEEDINGS......................................................................         9


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................         9


PART II .......................................................................................        10


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.................        10


ITEM 6.  SELECTED FINANCIAL DATA...............................................................        11


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS ................................................................        12

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...........................        19

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................................        19


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
         DISCLOSURE............................................................................        19


PART III.......................................................................................        20


ITEM 10, 11, 12 AND 13.........................................................................        20


PART IV .......................................................................................        21

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......................        21

SIGNATURES.....................................................................................        23

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
certain principal component systems for advanced cleanrooms. The Company is a
single-source provider of the entire cleanroom system. The Company 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"). The Company believes its integrated solution allows 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.

        The Company also provides contract manufacturing services on an OEM
basis for various customers. This includes but is not limited to metal
fabrication and assembly of a various range of products such as air-entrance
systems used in high-volume commercial retail establishments, the application of
powder epoxy paint for a variety of products, and sleeper cabs for semi-tractor
trailers.

        The Company also has a division (Intelligent Enclosures) that provides
mini-environments and tool enclosure systems for semiconductor capital equipment
process-tool suppliers. Tool enclosures and mini-environments control
particulates, temperature and humidity, and airborne molecular contamination of
the process tool.

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 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.


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        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.

        Historically, the semiconductor industry has been very cyclical in
nature and has seen sudden and dramatic changes in demand for its products.
Capital spending by semiconductor manufacturers closely follows the trend in the
sale of chips. As chip sales rise, so too does capital spending. From 1988 to
1996, chip sales increased from roughly $50 billion per year to almost $150
billion. In response to this tremendous growth in sales, chip manufacturers
increased capital spending in new equipment and fab facilities from around $12
billion to almost $45 billion during the same time period. Since their peak in
1995, chip sales have dropped to around $122 billion in 1998, thus causing a
dramatic decrease in capital expenditures by the industry over that period of
time. Various industry analysts have reported that in 1999 chip sales increased
by 20% over 1998 levels which indicate that the three year downturn may be
ending. In addition, analysts predict that chip sales for 2000 may increase by
an additional 30 to 40 percent over 1999 chip sales.

INTEGRATED SOLUTION

        The Company's integrated solution incorporates design, engineering,
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. Problems with system
integration are minimized, since the Company designs the system for
compatibility. 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, reducing the need for the customer to
coordinate the activities of multiple vendors. The Company believes that having
one company design, engineer 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 system. 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 components of
other manufacturers.

        Cost Effectiveness. Having a single vendor responsible for the design
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 and installing the
cleanroom system, the Company is able to reduce 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.


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COMPANY STRATEGY

        The Company's stated mission is to provide customer-focused solutions to
its customers. The Company's strategy for achieving this goal includes the
following elements:

        Focus On Customers Who Accept Integrated Solutions. The Company believes
it will be most successful if it targets customers whose purchasing philosophy
is consistent with an integrated solutions approach, rather than customers who
focus on separate components and services.

        Build Long-Term Customer Relationships. Most of the Company's cleanroom
revenue is derived from sales to customers who recognize the value of an
integrated solutions philosophy. The Company's marketing strategy is focused on
building long-term relationships with these customers, 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
customers that most benefit from its integrated approach.

        Local Service Network. In order to provide timely and efficient local
customer service and support, the Company has project management, design and
sales offices in Europe and the United States. In addition, the Company believes
a local service network enables it to strengthen customer relationships, expand
sales leads and receive more direct customer feedback.

        Expand International Business. Although the majority of the Company's
revenues have been generated from projects in North America, the Company
believes there are significant opportunities for expansion in Europe and Asia.
The Company will seek to increase revenues from international projects by
expanding marketing efforts and bidding activities in Europe first, and then in
Asia in 2001. 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.

        Diversification of Revenue Base. As a result of the recent downturn in
the semiconductor industry, the Company's revenue base from cleanroom sales has
been severely impacted by reduced capital spending by semiconductor companies.
To reduce the Company's dependence on this highly cyclical industry, the Company
has begun to diversify its operations and pursue revenue sources from other
products and industries. It is the Company's objective to obtain 40% of its
revenues from non-cleanroom sources by applying its product and engineering
expertise in custom metal fabrication, airflow systems, and other OEM contract
manufacturing opportunities.

        The Company anticipates that contract manufacturing will become a
significant division of the Company within a few years. Additionally, the
development of its new air entrance system for large national retail centers
holds for significant revenue and profitability growth. To date, all of the
Company's diversification initiatives have utilized existing design and
engineering resources as well as manufacturing equipment at its Salt Lake City
facility, thus requiring minimal capital resources and more fully utilizing
existing equipment and facilities.


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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 allowing 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.

        While the Company has previously announced its plans to pursue a foundry
strategy for the manufacture of cleanroom components by selling its cleanroom
component manufacturing business unit, it continues to manufacture component
systems on a limited basis until a buyer or joint venture partner can be
identified. The Company is in discussion with several interested parties.

        The Company manufactures all principal component systems that 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,
uninterupted 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
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


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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 lightweight
precision-extruded aluminum (tolerance "-.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 4000#. 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 "-.032", panel
length and width accurate to "-.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 generally allows the
Company to provide prompt information to its manufacturing teams regarding
systems needs, which further allows the Company to better plan its systems


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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 training process improves the ability of company
personnel to recognize and correct conflicts that 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.

        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 generally allows them to remove,
modify, adapt and re-install wall panels, flooring and other components without
shutting down the facility. Since the Company's support team generally consists
of the personnel who originally installed the cleanroom, they are generally
familiar with the design and layout of the cleanroom and therefore are able to
expedite layout changes and prevent downtime. The Company's ongoing support
program is a key component in the Company's strategy. Several customers have
requested that they have Company personnel on-site performing these services for
periods longer than one year. 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 that are given to the customer.

CUSTOMERS

        The Company's principal cleanroom 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.

        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 that accounted for approximately 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. In
its strategy to diversify into businesses utilizing its core competencies and
technologies, a variety of business opportunities may arise for the Company.
Because of various market dynamics factors, the product and customer mix
involved in the Company's diversification strategy may change from time to time.
As of December 31, 1999, the Company has established one significant customer
for its sleeper cabs, the loss of which would have a material adverse effect on
that business.

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 has transferred ownership of its Asia branch to
a former employee and does not intend to commence construction on contracts for
cleanroom projects in Asia until at least January 2001. The Company has design
and engineering offices in Livingston, Scotland that serve the European market.
In addition, the Company has project


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site offices throughout the United States and Europe. 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 a limited number of 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.

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 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 believes that its significant experience in designing,
installing and servicing cleanrooms and manufacturing cleanroom components is an
advantage to the Company in securing new contracts. The Company has also
incurred product development expenses related to its effort to diversify its
business that has resulted in its sleeper cab and commercial air handling
products. The Company incurred approximately $214,000, $293,000 and $246,000 in
non-project related research and development costs in 1999, 1998 and 1997,
respectively.

INTELLECTUAL PROPERTY

        The Company currently holds nine 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 may 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

        While the Company has previously announced its plans to pursue a foundry
strategy for the manufacture of cleanroom components by selling its cleanroom
component manufacturing business unit, it continues to manufacture component
systems on a limited basis until a buyer or joint venture partner can be
identified. The Company is in discussion with several interested parties.

        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


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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.

COMPETITION

        The Company believes it is one of the largest supplier's of integrated
cleanroom solutions providing design, engineering, component supply,
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 supplier rather than as a
direct competitor. The Company competes with specialized cleanroom integrators,
such as M&W Lander, Takasago, PCI, and others 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 varies 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, 1999,
the Company's backlog was $19.7 million, compared to $12.8 million at December
31, 1998. 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 260 full-time employees and 42
part-time employees as of December 31, 1999, compared to 311 full-time employees
and 46 part-time employees as of December 31, 1998. 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.


                                       8


<PAGE>   11
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 3,200 square feet in Austin, Texas and Livingston, Scotland with
various lease expiration dates ranging from 2000 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.



ITEM 3. LEGAL PROCEEDINGS.

        From time to time, the Company is subject to routine 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.


                                       9


<PAGE>   12
                                     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, 1999 and 1998, respectively.


<TABLE>
<CAPTION>
                                          HIGH        LOW
                                         ------      ------
<S>                                      <C>         <C>
YEAR ENDED DECEMBER 31, 1999:
     First Quarter ................      $1.969      $1.000
     Second Quarter ...............       1.500       1.094
     Third Quarter ................       1.469       0.688
     Fourth Quarter ...............       0.813       0.500

YEAR ENDED DECEMBER 31, 1998:
     First Quarter ................      $1.906      $1.219
     Second Quarter ...............       2.938       1.375
     Third Quarter ................       2.313       1.219
     Fourth Quarter ...............       1.219       0.656
</TABLE>


        The Company did not pay or declare dividends on its Common Stock during
the years ended December 31, 1999, 1998 and 1997. 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 April 14, 2000, the Company had 12,832,454 shares of its Common
Stock outstanding, held by 138 shareholders of record, which does not include
shareholders whose shares are held in securities position listings.


                                       10


<PAGE>   13
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,
                                           -------------------------------------------------------------------
                                             1999           1998           1997           1996          1995
                                           --------       --------       --------       --------      --------
<S>                                        <C>            <C>            <C>            <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................      $ 45,206       $ 53,078       $ 52,541       $112,826      $ 70,635
Cost of goods sold ..................        43,576         51,223         47,272         97,364        63,484
                                           --------       --------       --------       --------      --------
Gross profit ........................         1,630          1,855          5,269         15,462         7,151
                                           --------       --------       --------       --------      --------
Selling, general and
administrative expenses .............         7,405          6,513          8,373         10,274         6,333
Research and development ............           214            293            246            282           255
Depreciation and amortization .......           412            563            431            400           219
Restructuring charges ...............         1,839              -              -              -             -
                                           --------       --------       --------       --------      --------
                                              9,870          7,369          9,050         10,956         6,807
                                           --------       --------       --------       --------      --------
Earnings (loss) from operations .....        (8,240)        (5,514)        (3,781)         4,506           344
Other income (expense), net .........          (493)          (483)          (344)           352           119
                                           --------       --------       --------       --------      --------
Earnings (loss) before income .......        (8,733)        (5,997)        (4,125)         4,858           463
taxes
Income taxes (benefit) ..............        (1,092)        (2,075)        (1,866)         1,548           176
                                           ========       ========       ========       ========      ========
NET EARNINGS (LOSS) .................      $ (7,641)      $ (3,922)      $ (2,259)      $  3,310      $    287
                                           ========       ========       ========       ========      ========
Earnings (loss) per common share
    Basic ...........................      $  (0.61)      $  (0.32)      $  (0.18)      $   0.27      $   0.02
    Diluted .........................      $  (0.61)      $  (0.32)      $  (0.18)      $   0.27      $   0.02
Weighted-average common and
dilutive common equivalent
shares outstanding
    Basic ...........................        12,502         12,440         12,416         12,350        12,148
    Diluted .........................        12,502         12,440         12,416         12,393        12,365
</TABLE>


<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                         -----------------------------------------------------------
                                          1999         1998         1997         1996         1995
                                         -------      -------      -------      -------      -------
<S>                                      <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
Cash and cash equivalents .........      $   296      $ 2,140      $ 5,802      $ 3,258      $ 5,885
Working capital ...................        2,886       10,674       15,248       17,112       15,431
Total assets ......................       26,075       30,841       32,364       49,495       40,072
Total liabilities .................       15,567       12,714       11,664       26,557       20,633
Total shareholders' equity ........       10,508       18,127       20,700       22,938       19,409
</TABLE>


                                       11


<PAGE>   14
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's principal line of business is an integrated systems
solution provider of cleanrooms and cleanroom component systems for the
semiconductor industry. In recent years, the Company has typically had one to
three significant customers, each of whom accounted for approximately 10% or
more of the Company's annual revenues; these customers do not necessarily remain
significant in subsequent years. The semiconductor industry has been
historically cyclical in nature and continues to be adversely affected by the
industry downturn that began in the latter part of 1996. Capital spending by
semiconductor manufacturers has always closely followed chip sales. As chip
sales increased from around $50 billion per year in the late 1980's to a peak of
$150 billion in 1995, capital spending on equipment and facilities by the chip
manufacturers surged to $45 billion from about $12 billion during the same
period of time. As chip sales have declined over the past three years to about
$122 billion in 1999, capital spending on new equipment and facilities plunged
to less than $30 billion in 1998. Various industry analysts have reported that
in 1999 chip sales increased by 20% which indicates that the recent downturn may
be ending. In addition, analysts predict that chip sales for 2000 may increase
by an additional 30 to 40 percent. The Company's recovery cycle in relation to
the award of cleanroom projects lags behind the semiconductor manufacturers'
recovery in relation to chip sales.

        The Company's operating results have been severely impacted by the
reduced capital spending of the semiconductor industry during the past three
years. While the industry has shown signs of recovery from time to time over the
past three years, it has been consistently disappointed by continued declines.
Management believes the downturn is nearing its end and the industry is on the
road to recovery. The timing or likelihood or any such recovery that will take
place is still subject to significant uncertainty. The downturn in 1999
generally resulted in fewer contracts available to bid, a significant increase
in price competition on contracts that were awarded, and reduced margins on such
contracts. However, beginning in the fourth quarter of 1999, the Company
experienced growth in new contract awards resulting in an increase in the
Company's backlog from $12.8 million at December 31, 1998 to $19.7 million at
December 31, 1999. Additionally, during the first quarter of 2000, the Company
has experienced a significant increase in contract bidding and contract awards
at significantly higher gross margins than at any time during the three-year
industry downturn.

        Although there is uncertainty regarding the condition and prospects of a
full recovery in the semiconductor industry, management continues to believe
that changes taking place in the industry should result in expanded
semiconductor industry capital expenditures. Delays in the ramp-up of 300mm
technology have delayed the expected construction of a whole series of 300mm
fabs worldwide, although during the fourth quarter of 1999 construction of some
of these delayed fabs was initiated. In response to the current downturn,
management has continued to take steps to reduce the Company's cost structure
including an approximate 26% cut in wages in 1999 as compared to 1998.
Previously, in 1998, the Company reduced its work force by more than fifty
percent. During 2000, management will closely monitor the Company's cost
structure and take appropriate actions as considered necessary, but will
continue to develop state-of-the-art cleanroom technology, provide world-class
support to the Company's customers, and continue its diversification strategy.

        In response to reduced revenue generated by the sale of cleanrooms, the
Company has recently undertaken several initiatives to expand its revenue base
beyond the semiconductor industry and to reduce its reliance on this
historically cyclical business. The Company has developed an air entrance system
used by large national retail chains in their new "superstores". Air entrances
are used in lieu of conventional swinging and sliding doors to help the store
maintain comfort in the front of the store, reduce liability and increase and
optimize the traffic flow in and out of the store. The Company's air entrance
system was developed by applying its advanced cleanroom air movement and
filtration technology resulting in a technically superior air entrance system.
This product also shows great promise of providing increased gross profit over
the next two years. Additionally, the Company has entered into several contract
manufacturing agreements whereby the Company manufactures products owned and
marketed by third parties. During the first quarter of 1998, the Company


                                       12


<PAGE>   15
announced its entrance into the transportation industry where it started
producing sleeper cabs for heavy-duty trucks. By applying similar wall panel
systems technology used in cleanrooms the Company produces a stronger, more
durable, and lighter weight product than traditional sleeper cabs. This
technology may eventually be applied to other products in the transportation
industry. It is the Company's objective to develop and maintain 40% of its
revenues from sources outside of the semiconductor industry by applying its
product and engineering expertise in custom metal fabrication, airflow systems
and panel production to similar type products used in other industries.

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

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

        The Company generates revenue in two geographic regions; North America
and Europe. Although risk of fluctuations in currency value does not affect such
dollar-denominated contracts, changes in the relative value of the dollar could
make the Company less competitive in various markets. Contracts to be performed
in Europe may be denominated in local currency, and the Company bears the risk
of changes in the relative value of the dollar and the local currencies.
Devaluation of world currencies against the U.S. dollar has created extreme
price competitiveness from Korean, Japanese, and German manufacturers and
integrators of systems. The Company has in the past and may in the future
attempt to hedge against currency fluctuations on contracts denominated in local
currencies. There can be no assurance, however, that such hedging will fully
insulate the Company from fluctuations or will not expose the Company to
additional risks of loss.

        The Company's business and operations have not been materially affected
by inflation during the periods for which financial information is presented.


RESULTS OF OPERATIONS

Revenue from operations


<TABLE>
<CAPTION>
                                           1999        Change         1998         Change         1997
                                         -------      -------        -------      -------        -------
<S>                                      <C>          <C>            <C>          <C>            <C>
Cleanrooms and Related Products ...      $33,758        (27.9)%      $46,298        (11.9)%      $52,541
Other Products ....................       11,448         68.8 %        6,780        100.0 %            -
Total Revenue .....................      $45,206        (14.8)%      $53,078          1.0%       $52,541
</TABLE>


        Revenue from cleanrooms and related products decreased 27.9% in 1999 to
$33.8 million from $46.3 million in 1998. The decrease was due to the continued
downturn in the semiconductor industry's capital expenditures for new fab
facilities as more fully discussed above. During 1998, cleanroom contract
revenue decreased by 11.9% to $46.3 million from $52.5 million in 1997. This
decrease is primarily related to the downturn in the semiconductor industry as
discussed above.

        Revenue from other products increased to $11.4 million in 1999 from $6.8
million in 1998. During 1998, revenue from other products was $6.8 million as
compared to $0.0 in 1997. The increase is due to the start-up and continuation
of new lines of business, including the Company's line of sleeper cabs, contract


                                       13


<PAGE>   16
manufacturing, and other product sales that were non-existent in 1997.

        North America - Cleanroom revenue for the year ended December 31, 1999
decreased by 15.3% to $19.9 million from $23.5 million for the year ended
December 31, 1998. As a percentage of total cleanroom revenue, North America
revenue increased to 58.9% in 1999 compared to 50.8% in 1998. The decrease in
North America contract revenue is primarily related to the continued downturn in
the semiconductor industry as more fully discussed above.

        Revenue from other products of $11.4 million was primarily attributable
to sales of sleeper cabs and various contract manufactured products sold only in
North America in 1999.

        Cleanroom revenue for the year ended December 31, 1998 decreased by
25.1% to $23.5 million from $31.4 million for the year ended December 31, 1997.
As a percentage of total revenue, North America revenue decreased to 50.8% in
1998 compared to 59.8% in 1997. The decrease is the result of fewer contracts
received in North America due to the decline in capital spending by the
semiconductor industry.

        Asia/Pacific Rim - Cleanroom revenue for the year ended December 31,
1999 decreased by 72.4% to $2.7 million from $9.8 million for the year ended
December 31, 1998. As a percentage of total cleanroom revenue Asia/Pacific
revenue decreased to 8.1% in 1999 compared to 21.2% in 1998. The decrease in
revenue and percentage was directly related to the continued downturn in the
semiconductor industry in the Asia/Pacific Rim and the Company's decision to
pull out of this region. The Company has transferred ownership of its Asia
branch to a former employee and does not intend to pursue contracts for
cleanroom projects in Asia until January 2001.

        Cleanroom revenue for December 31, 1998 increased by 2.7% to $9.8
million from $9.5 million for the year ended December 31, 1997. As a percentage
of total cleanroom revenue, Asia/Pacific revenue increased to 21.2% in 1998
compared to 18.2% in 1997. The increase in revenue and percentage was primarily
due to the award of a significant project in China. The contract was
subsequently placed on indefinite suspension due to the uncertainty of the Asian
market.

        Europe - Cleanroom revenue for the year ended December 31, 1999
decreased by 13.8% to $11.2 million from $13.0 million for the year ended
December 31, 1998. As a percentage of total cleanroom revenue, European revenue
increased to 33.1% in 1999 compared to 28.0% in 1998. Although the worldwide
downturn in the semiconductor industry continued in 1999, it does not appear to
have affected the European segment as dramatically as the Asian and North
American markets.

        Cleanroom revenue for 1998 increased by 12.0% to $13.0 million from
$11.6 million for the year ended December 31, 1997. As a percentage of total
cleanroom revenue, Europe revenue increased to 28.0% in 1998 compared to 22.0%
in 1997. While the semiconductor industry has experienced a worldwide downturn,
it did not appear to have affected the European segment as dramatically as the
Asian and North American markets. Additionally, the Company was able to win
contracts in new countries that it had not contracted business in previously.


                                       14


<PAGE>   17
Gross Profit


<TABLE>
<CAPTION>
                                   1999          Change           1998          Change          1997
                                 --------       --------        --------       --------        --------
<S>                              <C>            <C>             <C>            <C>             <C>
Gross profit ..............      $  1,630          (12.1)%      $  1,855          (64.8)%      $  5,269
Percentage of revenues ....           3.6%                           3.5%                          10.0%
</TABLE>


        Gross profit for the year ended December 31, 1999 decreased by 12.1% to
$1.6 million from $1.9 million for the year ended December 31, 1998. Gross
profit increased as a percentage of revenue to 3.6% for 1999 compared to 3.5%
for 1998. The Company believes the decrease in gross margin is primarily the
result of the semiconductor industry downturn, which generally resulted in fewer
contracts available to bid, a significant increase in price competition on
contracts that were awarded, and reduced margins on such contracts. The downturn
has resulted in fewer contracts awarded and those that were awarded were done so
after a highly competitive bidding process placing significant downward pressure
on pricing and thus resulting in lower margins.

        Gross profit for 1998 decreased by 64.8% to $1.9 million from $5.3
million in 1997, and decreased as a percentage of contract revenue to 3.5% in
1998 from 10.0% in 1997. The decrease in gross profit was the direct result of
the substantial reductions in contracts awarded from 1997 to 1998 as the
semiconductor industry entered its second year of its downturn. As the downturn
gained momentum throughout 1998, the Company had fewer contracts to which it
could allocate its fixed manufacturing overhead costs the Company had put in
place in prior years as a result of anticipated contract awards.

Selling, General and Administrative Expenses


<TABLE>
<CAPTION>
                                           1999          Change          1998          Change           1997
                                         --------       --------       --------       --------        --------
<S>                                      <C>            <C>            <C>            <C>             <C>
Selling, general and
  Administrative expenses .........      $  7,405           13.7%         6,513          (22.2)%      $  8,373
Percentage of revenues ............          16.4%                         12.3%                          15.9%
</TABLE>


        Selling, general and administrative expenses for 1999 increased 13.7% to
$7.4 million, from $6.5 million, and increased as a percentage of revenue to
16.4% for the year ended December 31, 1999 compared to 12.3% for the year ended
December 31, 1998. The increase in selling, general and administrative expenses
in 1999 compared with 1998 was primarily the result of a difference in the
calculation of the manufacturing overhead expense "allocation" to direct cost of
goods sold. The Company allocates a portion of its overhead costs associated
with the direct manufacture of its products to costs of goods sold. While
combined selling, general and administrative expenses for payroll and other
overhead expenses decreased by approximately $2.0 million from 1998 to 1999, the
overhead "allocation" costs (associated with the direct manufacture of its
products to costs of goods sold and then reclassified as direct costs) was
approximately $2.9 million more in 1998 than 1999.

        Selling, general and administrative expenses for 1998 decreased 22.2% to
$6.5 million, or 12.3% of contract revenue, from $8.4 million, or 15.9% of
revenue, in 1997. The decrease in selling, general and administrative expenses
was the result of an aggressive cost reduction program as well as significant
headcount reductions completed during the fourth quarter of 1998 during which
approximately 300 employees were laid off, thus reducing payroll and related
expenses.

Research and Development


<TABLE>
<CAPTION>
                                          1999        Change         1998        Change       1997
                                         ------       ------        ------       ------       ------
<S>                                      <C>          <C>           <C>          <C>          <C>
Research and
  Development expense .............      $  214        (27.0)%      $  293         19.1%      $  246
Percentage of revenues ............         0.5%                       0.6%                      0.5%
</TABLE>


        Research and development expense decreased slightly in actual dollars
spent from 1998 to 1999. Management believes that the Company will increase its
research and development expenses during 2000, both in actual dollars spent and
as a percentage of revenue in order to develop innovative products associated
with


                                       15


<PAGE>   18
cleanrooms and with the Company's efforts to diversify its products. Also,
research and development expenses will be increased in the continued effort to
modify existing products to be less expensive to produce and easier to install.

        Research and development expense increased slightly from 1997 to 1998.
This increase was the result of more research and development projects
associated with the Company's diversification efforts.

Depreciation and Amortization


<TABLE>
<CAPTION>
                                          1999        Change         1998        Change        1997
                                         ------       ------        ------       ------       ------
<S>                                      <C>          <C>           <C>          <C>          <C>
Depreciation and
  Amortization expense ............      $  412        (26.8)%      $  563         30.6%      $  431
Percentage of revenues ............         0.9%                       1.1%                      0.8%
</TABLE>


        Depreciation and amortization expense during 1999 decreased by 26.8% to
$412,000, or 0.9% of revenue, from $563,000, or 1.1% of revenues, in 1998. This
decrease was the result of some leasehold improvements, furniture, fixtures,
computer equipment and software becoming fully depreciated in 1999.

        Depreciation and amortization expense in 1998 increased by 30.6% to
$563,000, or 1.1% of revenues, from $431,000, or 0.8% of revenues, in 1997. This
increase was the result of a full year depreciation expense on leasehold
improvements, furniture, fixtures, computer equipment and software purchased
during 1998.

Other Income (Expense), net


<TABLE>
<CAPTION>
                                          1999         Change         1998         Change        1997
                                         ------        ------        ------        ------       ------
<S>                                      <C>           <C>           <C>           <C>          <C>
Other income (expense) ............      $ (493)          2.1%       $ (483)         40.4%      $ (344)
Percentage of revenues ............         1.1%                        0.9%                       0.7%
</TABLE>


        Other income (expense) increased in 1999 to $493,000 from $483,000 in
1998. This modest increase was largely due to an increase in interest expense in
1999 resulting from an increase in the average line of credit rate on the
Company's revolving line of credit over 1998.

Restructuring charges


<TABLE>
<CAPTION>
                                           1999          Change           1998           Change          1997
                                         --------       --------        --------        --------       --------
<S>                                      <C>            <C>             <C>             <C>            <C>
Restructuring charges .............      $  1,839            0.0%              -             0.0%             -
Percentage of revenues ............           4.1%                          (0.0)%                         (0.0)%
</TABLE>


        Restructuring charges were largely due to the disposition of the
Company's Asia/Pacific office, and the write-down of inventory associated with
the decision to divest itself of the Company's cleanroom component manufacturing
division. The Company has previously announced its plans to pursue a foundry
strategy for the manufacture of cleanroom components by selling its cleanroom
component manufacturing business unit. It continues to manufacture component
systems on a limited basis until a buyer or joint venture partner can be
identified. The Company is in discussion with several interested parties.

Income Taxes (Benefit)


<TABLE>
<CAPTION>
                                           1999           Change           1998           Change          1997
                                         --------        --------        --------        --------       --------
<S>                                      <C>             <C>             <C>             <C>            <C>
Income taxes (benefit) ............      $ (1,092)          (47.4)%      $ (2,075)           11.2%      $ (1,866)
Percentage of revenues ............          (2.4)%                          (3.9)%                         (3.6)%
</TABLE>


        The changes in the effective tax rates for all periods relate primarily
to the amount of deferred tax assets recorded and the amount of offsetting
valuation allowances provided against such assets. (see Note J of Notes to the
Consolidated Financial Statements).


                                       16


<PAGE>   19

        In addition, the increase from 1997 to 1998 was partially the result of
tax benefits the Company was able to utilize from its foreign sales corporation.



LIQUIDITY AND CAPITAL RESOURCES

        Working capital at December 31, 1999 was $2.9 million compared to $10.7
million at December 31, 1998. This included cash and cash equivalents of
$296,000 and $2.1 million at December 31, 1999 and 1998 respectively.
Receivables, including retentions, (see Note D of Notes to Financial Statements)
decreased to $7.4 million at December 31, 1999 compared to $8.9 million at
December 31, 1998. This decrease was the result of lower revenues from fewer
contracts during 1999 compared to 1998. Day's sales outstanding (the ratio
between receivables, excluding retention, and average daily revenue taken over
the year) decreased to 66 days at December 31, 1999, from 61 days at December
31, 1998.

        The Company's operations used $1.4 million of cash during 1999, compared
to using $6.9 million of cash in 1998. During 1999, the Company experienced a
decrease in receivables of $1.5 million as a result of the decline in revenues,
an increase in accounts payable and accrued expenses of approximately of $3.6
million as a result of more restrictive covenants associated with the Company's
revolving line of credit, an increase in inventories of $1.4 million, and a
decrease in Costs and estimated earnings in excess of billings on contracts in
progress of $2.6 million.

        The Company maintained a revolving line of credit with a domestic bank
for the lesser of $6.0 million or the available borrowing base for the period
ended December 31, 1999 and $6.0 million for the period ended December 31, 1998.
The interest rate is computed at the bank's prime rate plus 5% (13.5 percent at
December 31, 1999) and requires monthly payments of interest. Subsequent to year
end the bank lowered its interest rate computation to the bank's prime rate plus
3%, but has informed the Company that it will restore the rate to prime plus 5%
again as of May 31, 2000. The line of credit expired June 30, 1999 and was
extended to August 31, 2000. The line of credit is collateralized by certain
domestic receivables and inventories. The line of credit agreement contains
restrictive covenants imposing limitations on payments of cash dividends,
purchases or redemptions of capital stock, indebtedness and other matters. At
times during 1999 and at December 31, 1999, the Company was out of compliance on
certain indebtedness covenants. Subsequent to year end, the Company signed an
extension of the line of credit through August 31, 2000 which included a waiver
for the non-compliance with the covenants as of December 31, 1999. The Company
is currently reviewing several financing alternatives.

        During 1999, the Company used $189,000 for the purchase of property and
equipment and realized $122,000 from the sale of property and equipment. The
Company anticipates that its capital expenditures in 1999 for routine additions
and replacements of property, and equipment will be less than $250,000. These
purchases will be financed through long-term debt or capital leases.

        Management believes that existing cash balances, borrowings available
under the line of credit, cash generated from operations, and proceeds from a
scheduled $5.0 million private equity placement will be adequate to meet the
Company's anticipated cash requirements through December 31, 1999. However, in
the event the Company experiences adverse operating performance,
above-anticipated capital expenditure requirements, or is unable to complete the
private equity placement or to renew its existing line of credit, additional
financing may be required. There can be no assurance that such additional
financing, if required, would be available on favorable terms if at all.


                                       17


<PAGE>   20
YEAR 2000 ISSUES

        In 1998 and 1999 the Company developed a comprehensive plan to address
year 2000 issues. The areas of focus were as follows: i) the Company's
information technology systems; ii) the Company's non-information technology
systems (i.e. machinery, equipment and devices which utilize built in or
embedded technology); and iii) third party suppliers and customers. During the
first quarter of 2000 the Company did not suffer any negative effects from the
advent of the year 2000 regarding the Company's information technology system,
non-information technology systems or third party suppliers and customers. No
assurance can be given that the Company will not be materially adversely
affected by future year 2000 issues.



IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS

        None.



FACTORS AFFECTING FUTURE RESULTS

        The Company's operations are subject to 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.


                                       18


<PAGE>   21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

        The Company is exposed to interest rate changes primarily in relation to
its revolving credit line debt with a bank. The fair value of the Company's
total revolving credit line debt at December 31, 1999 was $5.3 million. Market
risk was estimated as the potential decrease (increase) in future earnings and
cash flows resulting from a hypothetical 10% increase (decrease) in the
Company's estimated weighted average borrowing rate at December 31, 1999.
Although most of the interest on the Company's debt is indexed to a market rate,
there would be no material effect on the future earnings or cash flows related
to the Company's total debt for such a hypothetical change.

        The Company's financial position is not materially affected by
fluctuations in currencies against the U.S. dollar, since assets held outside
the United States are negligible. The Company's sensitivity analysis of the
effects of changes in foreign currency exchange rates does not factor in a
potential change in sales levels of local currency prices, as the preponderance
of its foreign sales occur over short periods of time or are denominated in U.S.
dollars.



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.


                                       19


<PAGE>   22
                                    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
July 28, 2000. The definitive Proxy Statement will be filed with the Commission
not later than 120 days after December 31, 1999, pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended.


                                       20


<PAGE>   23
                                     PART IV


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

        (a)    Documents Filed as Part of this Report:


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

               --     Report of Independent Certified Public Accountants

               --     Consolidated Balance Sheets as of December 31, 1999 and 1998

               --     Consolidated Statements of Operations for the Years Ended December 31,
                      1999, 1998 and 1997

               --     Consolidated Statements of Shareholders' Equity for the Years Ended
                      December 31, 1999, 1998 and 1997

               --     Consolidated Statements of Cash Flows for the Years Ended December 31,
                      1999, 1998 and 1997

               --     Notes to Consolidated Financial Statements

               (2)    Financial Statement Schedule. The following
                      financial statement schedule for the years ended December 31, 1999,
                      1998 and 1997 is included herein beginning on page S-1:

               --     Report of Independent Certified Public Accountants on Schedule

               --     Schedule II - Valuation and Qualifying Accounts
</TABLE>


        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:


                                       21


<PAGE>   24
                                  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,
                                                                    1994, 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, 1997,
                                                                    Exhibit 10.1

        10.4    Amendment No. 2 to 1993 Stock Option Plan*          Form 10-K for the year
                                                                    ended December 31,
                                                                    1997, Exhibit 10.4

        10.5    Revolving Domestic Line of Credit Agreement         Filed herewith.
                as Amended by the Fifth Extension Agreement

        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,
                                                                    1996, Exhibit 10.5

          21    Subsidiaries of the Registrant                      Filed herewith.

        23.1    Consent of Independent Certified Public             Filed herewith.
                Accountants.

          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.


                                       22


<PAGE>   25
                                   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 April 14, 2000.

                                   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 April 14, 2000.


<TABLE>
<CAPTION>
         SIGNATURE                           CAPACITY IN WHICH SIGNED
         ---------                           ------------------------
<S>                                  <C>
/s/ Ronald W. Daw                    Chairman of the Board, President, Chief
-------------------------------      Executive Officer, Director and Acting
Ronald W. Daw                        Chief Financial Officer (Principal
                                     executive officer and Acting Principal
                                     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

/s/ Ginger Gore-Giovale              Director
-------------------------------
Ginger Gore-Giovale
</TABLE>


                                       23


<PAGE>   26
                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
Daw Technologies, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheets of Daw
Technologies, Inc. and Subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. 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 consolidated financial position of Daw Technologies,
Inc. and Subsidiaries as of December 31, 1999 and 1998, and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.



                                          /s/ Grant Thornton LLP


Salt Lake City, Utah
April 7, 2000




                                      F-1
<PAGE>   27

                     Daw Technologies, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

                                     Assets
<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                                -----------------
                                                                                  1999     1998
                                                                                --------  -------
<S>                                                                            <C>       <C>
CURRENT ASSETS
   Cash and cash equivalents                                                   $    296  $  2,140
   Accounts receivable, net                                                       7,447     8,904
   Costs and estimated earnings in excess
     of billings on contracts in progress                                         4,994     7,546
   Inventories, net                                                               2,612     1,233
   Deferred income taxes                                                            425       655
   Other current assets                                                           2,569     2,391
                                                                                --------  -------

         Total current assets                                                    18,343    22,869
PROPERTY AND EQUIPMENT - NET, AT COST                                             3,402     4,859
DEFERRED INCOME TAXES                                                             3,364     1,921
OTHER ASSETS                                                                        966     1,192
                                                                                --------  -------

                                                                               $ 26,075  $ 30,841
                                                                                ========  =======

                      LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Checks written in excess of cash in bank                                    $    248  $      -
   Accounts payable and accrued liabilities                                       8,117     4,749
   Billings in excess of costs and estimated
     earnings on contracts in progress                                            1,373     1,635
   Lines of credit                                                                5,258     5,254
   Current portion of long-term obligations                                         461       557
                                                                                --------  -------

         Total current liabilities                                               15,457    12,195
LONG-TERM OBLIGATIONS, less current portion                                         110       519
COMMITMENTS AND CONTINGENCIES                                                         -         -
SHAREHOLDERS' EQUITY
   Preferred stock, authorized 10,000,000 shares of
     $0.01 par value; none issued and outstanding                                     -         -
   Common stock, authorized 50,000,000 shares of
     $0.01 par value; issued and outstanding 12,513,114
     shares in 1999 and 12,479,711 shares in 1998                                   125       125
   Additional paid-in capital                                                    16,579    16,557
   Retained earnings (deficit)                                                   (6,196)    1,445
                                                                                --------  -------

         Total shareholders' equity                                              10,508    18,127
                                                                                --------  -------

                                                                               $ 26,075  $ 30,841
                                                                                ========  =======
</TABLE>

               The accompanying notes are an integral part of these statements.




                                      F-2
<PAGE>   28

                     Daw Technologies, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                                 Year ended December 31,
                                                         ----------------------------------------
                                                             1999          1998          1997
                                                         ------------  ------------  ------------
<S>                                                     <C>           <C>           <C>
Revenues                                                $     45,206  $     53,078  $     52,541
Cost of goods sold                                            43,576        51,223        47,272
                                                         ------------  ------------  ------------
         Gross profit                                          1,630         1,855         5,269
Operating expenses
   Selling, general and administrative                         7,405         6,513         8,373
   Research and development                                      214           293           246
   Depreciation and amortization                                 412           563           431
   Restructuring charges                                       1,839             -             -
                                                         ------------  ------------  ------------

                                                               9,870         7,369         9,050
                                                         ------------  ------------  ------------

         Loss from operations                                 (8,240)       (5,514)       (3,781)
Other income (expense)
   Interest                                                     (658)         (459)         (295)
   Other, net                                                    165           (24)          (49)
                                                         ------------  ------------  ------------
                                                                (493)         (483)         (344)
                                                         ------------  ------------  ------------

         Loss before income taxes                             (8,733)       (5,997)       (4,125)
Income taxes (benefit)                                        (1,092)       (2,075)       (1,866)
                                                         ------------  ------------  ------------

         Net LOSS                                       $     (7,641) $     (3,922) $     (2,259)
                                                         ============  ============  ============

Loss per common share
   Basic                                                $      (0.61) $      (0.32) $      (0.18)
   Diluted                                                     (0.61)        (0.32)        (0.18)
Weighted-average common and dilutive
  common equivalent shares outstanding
   Basic                                                  12,501,980    12,440,121    12,415,957
   Diluted                                                12,501,980    12,440,121    12,415,957
</TABLE>









               The accompanying notes are an integral part of these statements.



                                      F-3
<PAGE>   29

                     Daw Technologies, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                        (in thousands, except share data)

                  Years ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                     Addi-
                                                                     tional    Retained
                                                          Common    paid-in    earnings
                                                           stock    capital   (deficit)    Total
                                                         ---------  --------  ---------  ---------
<S>                                                     <C>        <C>       <C>        <C>
Balances as of January 1, 1997                          $      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 - 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

Common stock issued pursuant to the purchase
  of 44,711 shares pursuant to employee stock
  purchase plan and 27,023 shares issued pursuant
  to the acquisition of another company                          1     1,348         -      1,349

Net loss for 1998                                                -         -    (3,922)    (3,922)
                                                         ---------  --------  ---------  ---------

Balances as of December 31, 1998                               125    16,557     1,445     18,127

Common stock issued pursuant to the purchase of
  33,403 shares pursuant to employee stock
  purchase plan                                                  -        22         -         22

Net loss for 1999                                                -         -    (7,641)    (7,641)
                                                         ---------  --------  ---------  ---------

Balances as of December 31, 1999                        $      125 $  16,579 $  (6,196) $  10,508
                                                         =========  ========  =========  =========
</TABLE>




               The accompanying notes are an integral part of these statements.


                                      F-4
<PAGE>   30

                     Daw Technologies, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                        (in thousands, except share data)


<TABLE>
<CAPTION>
                                                                       Year ended December 31,
                                                                     ----------------------------
                                                                       1999      1998      1997
                                                                     --------  --------  --------
<S>                                                                 <C>       <C>       <C>
Increase (decrease) in cash and cash equivalents
   Cash flows from operating activities
      Net loss                                                      $ (7,641) $ (3,922) $ (2,259)
      Adjustments to reconcile net loss to net
      cash provided by (used in) operating activities
         Depreciation and amortization                                 1,724     1,808     1,724
         (Gain) loss on disposition of property
           and equipment                                                 147         -        (7)
         Provision for losses on accounts receivable                     360       100       180
         Deferred income taxes                                        (1,213)   (2,089)     (390)
         Changes in assets and liabilities
           Account receivables                                         1,097     3,468    14,742
           Costs and estimated earnings in excess
             of billings on contracts in progress                      2,552    (3,844)    3,467
           Inventories                                                (1,379)      190       220
           Other current assets                                         (178)     (224)     (148)
           Accounts payable
             and accrued liabilities                                   3,368    (1,042)   (5,082)
           Billings in excess of costs and estimated
             earnings on contracts in progress                          (262)   (1,370)   (4,500)
           Other assets                                                   31        10        (6)
                                                                     --------  --------  --------

               Net cash provided by (used in)
                 operating activities                                 (1,394)   (6,915)    7,941
                                                                     --------  --------  --------

   Cash flows from investing activities
      Payments for purchase of property
        and equipment                                                   (189)     (167)     (349)
      Proceeds from disposition of property
        and equipment                                                    122         -        21
                                                                     --------  --------  --------

               Net cash used in
                 investing activities                                    (67)     (167)     (328)
                                                                     --------  --------  --------
</TABLE>


                                   (continued)


                                      F-5
<PAGE>   31

                     Daw Technologies, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                        (in thousands, except share data)


<TABLE>
<CAPTION>
                                                                        Year ended December 31,
                                                                     -----------------------------
                                                                       1999      1998      1997
                                                                     --------  --------   -------
<S>                                                                  <C>       <C>        <C>
   Cash flows from financing activities
      Increase in checks written in excess of cash in bank               248         -          -
      Net change in lines of credit                                        4     4,024     (4,466)
      Payments for purchase and retirement of
        common stock                                                       -         -        (63)
      Proceeds from issuance of stock                                     22        49         84
      Payments on long-term obligations                                 (657)     (653)      (624)
                                                                     --------  --------   -------

               Net cash provided by (used in)
                 financing activities                                   (383)    3,420     (5,069)
                                                                     --------  --------   -------

               Net increase (decrease) in cash
                 and cash equivalents                                 (1,844)   (3,662)     2,544

Cash and cash equivalents at beginning of year                         2,140     5,802      3,258
                                                                     --------  --------   -------

Cash and cash equivalents at end of year                            $    296  $  2,140   $  5,802
                                                                     ========  ========   =======


Supplemental disclosures of cash flow information

Cash paid during the year for
   Interest                                                         $    627  $    459   $    295
   Income taxes                                                            -        11        438
</TABLE>


Noncash investing and financing activities

During 1998, the Company issued 27,023 shares of common stock in connection with
the acquisition of the net assets of another company (Note T). This transaction
resulted in an increase to the following balance sheet accounts:

<TABLE>
<S>                                                                 <C>
   Inventories                                                      $     60
   Other current assets                                                   23
   Property and equipment                                                 50
   Other assets                                                        1,258
   Accounts payable                                                      (91)
                                                                     --------

   Common stock                                                     $  1,300
                                                                     ========
</TABLE>

Capital lease obligations of $152 for property and equipment acquisitions were
incurred during 1999.




        The accompanying notes are an integral part of these statements.



                                      F-6
<PAGE>   32

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (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. and Subsidiaries (the Company) is a 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 also manufactures and sells other products that
      are manufactured similar to cleanrooms, and provides contract
      manufacturing services on an OEM basis for various customers.

      2.  Principles of consolidation

      The consolidated financial statements include the accounts and operations
      of the Company and its wholly owned subsidiaries, Daw Technologies, Europe
      Ltd., which was organized in June 1999, and Translite Systems, Inc., which
      was organized in October 1999, (inactive). All material intercompany
      accounts and transactions have been eliminated in consolidation.

      3.  Method of accounting for long-term contracts

      Revenue recorded for contracts in the accompanying financial statements is
      recognized using the percentage-of-completion method and, therefore, take
      into account the costs, estimated earnings and revenue to date on
      contracts not yet completed. 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>   33

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      3.  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.

      4.  Other revenue recognition

      The Company recognizes revenues on its other product sales and contract
      manufacturing services when the product is shipped and title passes to the
      customer.

      5.  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.

      6.  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.

      7.  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>   34
                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)



NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      8.  Inventories

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

      9.  Net earnings (loss) per share

      The Company follows the provisions of Statement of Financial Accounting
      Standards No. 128 "Earnings Per Share" (SFAS No. 128). SFAS No. 128
      requires the presentation of basic and diluted EPS. Basic EPS are
      calculated by dividing earnings (loss) available to common shareholders by
      the weighted-average number of common shares outstanding during each
      period. Diluted EPS are similarly calculated, except that the
      weighted-average number of common shares outstanding includes common
      shares that may be issued subject to existing rights with dilutive
      potential.

      10. 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.

      11. 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 49 percent (41 percent in 1998) of receivables are with
      three different customers. In addition, approximately 30 percent (25
      percent in 1998) of receivables are due from entities located outside of
      North America, primarily Europe and Asia. Of the total receivables,
      approximately 30 percent are denominated in foreign currencies (5 percent
      at December 31, 1998). The Company routinely evaluates the financial
      strength of its customers and monitors each account to minimize the risk
      of loss.




                                      F-9
<PAGE>   35

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      11. 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 were approximately $2,125 at
      December 31, 1998 (none in 1999). The Company also maintains cash and cash
      equivalents in foreign accounts. These uninsured balances are
      approximately $288 at December 31, 1999 ($1,494 in 1998).

      12. Retentions receivable

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

      13. Intangible assets

      Intangible assets are amortized on the straight-line method over the
      estimated useful life or the terms of the respective agreement or patent,
      whichever is shorter. The original estimated useful lives range from 2-15
      years. On an ongoing basis, management reviews the valuation and
      amortization of intangible assets to determine possible impairment by
      comparing the carrying value to the undiscounted estimated future cash
      flows of the related assets and necessary adjustments, if any, are
      recorded.

      14. 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.

      15. 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 due to their short-term nature.



                                      F-10
<PAGE>   36

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

      16. Stock options

      The Company has elected to follow Accounting Principles Board Opinion No.
      25, "Accounting for Stock Issued to Employees" (APB 25) and related
      interpretations in accounting for its employee stock options rather than
      adopting the alternative fair value accounting provided for under FASB
      Statement 123, "Accounting for Stock-Based Compensation" (SFAS 123).

      17. Reclassifications

      Certain reclassifications have been made to the 1998 and 1997 financial
      statements to conform with the 1999 presentation.


NOTE B - CAPITAL TRANSACTIONS

      During 1999, 1998 and 1997, the Company received $22, $49 and $84 from the
      issuance of 33,403, 44,711 and 43,738 shares of common stock,
      respectively.

      In 1998, the Company also issued 27,023 shares of common stock to acquire
      the net assets of Intelligent Enclosures Corporation (Note T).

      The Company purchased and retired 36,304 shares of common stock during
      1997.

      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 from 2
      percent to 15 percent (up to $25) of eligible compensation to be withheld
      for the purchase of stock. Price per share is 85 percent 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
      33,403, 44,711 and 43,738 shares under the plan in 1999, 1998 and 1997,
      respectively.






                                      F-11
<PAGE>   37

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE C - INTERNATIONAL OPERATIONS

      Financial information summarized by geographic area for the years ended
      December 31, 1999, 1998 and 1997, is as follows:

<TABLE>
<CAPTION>
                                              North
                      1999                    America      Europe    Asia/Pacific Consolidated
      -------------------------------------  ---------   ---------   -----------  ------------
<S>                                         <C>         <C>         <C>          <C>
      Net revenues - unaffiliated customers $  31,437   $  11,058   $     2,711  $     45,206
      Loss from operations                     (6,272)        471        (2,439)       (8,240)
      Identifiable assets                      16,801       9,274             -        26,075
</TABLE>

<TABLE>
<CAPTION>
                                               North
                      1998                    America      Europe    Asia/Pacific Consolidated
      -------------------------------------  ---------   ---------   -----------  ------------
<S>                                         <C>         <C>         <C>          <C>
      Net revenues - unaffiliated customers $  30,507   $  12,965   $     9,606  $     53,078
      Loss from operations                     (4,316)        (42)       (1,156)       (5,514)
      Identifiable assets                      21,352       6,453         3,036        30,841
</TABLE>

<TABLE>
<CAPTION>
                                               North
                      1997                    America      Europe    Asia/Pacific Consolidated
      -------------------------------------  ---------   ---------   -----------  ------------
<S>                                         <C>         <C>         <C>          <C>
      Net revenues - unaffiliated customers $  31,413   $  11,574   $     9,554  $     52,541
      Loss from operations                       (283)     (2,668)         (830)       (3,781)
      Identifiable assets                      18,655       8,262         5,447        32,364
</TABLE>

      Foreign currency transaction losses totaling approximately $1 for 1999
      ($203 for 1998) are included in other income. Foreign currency
      transactions for 1997 were not significant.


NOTE D - ACCOUNTS RECEIVABLE

      Accounts receivable consist of the following:

<TABLE>
<CAPTION>
                                                                       1999      1998
                                                                     --------   -------
<S>                                                                 <C>        <C>
        Trade accounts receivable                                   $  1,662   $  1,397
        Contract receivables                                           5,707      7,140
        Retentions receivable                                            378        982
                                                                     --------   -------
                                                                       7,747      9,519
        Less allowance for doubtful accounts                             300        615
                                                                     --------   -------

        Accounts receivable                                         $  7,447   $  8,904
                                                                     ========   =======
</TABLE>


                                      F-12
<PAGE>   38

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)


NOTE E - INVENTORIES

      Inventories consist of the following:

<TABLE>
<CAPTION>
                                                                           1999      1998
                                                                         --------  --------
<S>                                                                     <C>       <C>
        Raw materials                                                   $    523  $  1,533
        Work in process                                                    2,389         -
                                                                         --------  --------
                                                                           2,912     1,533
        Less allowance for obsolescence                                      300       300
                                                                         --------  --------

                 Total                                                  $  2,612  $  1,233
                                                                         ========  ========
</TABLE>


NOTE F - OTHER CURRENT ASSETS

      Other current assets consist of the following:

<TABLE>
<CAPTION>
                                                                           1999      1998
                                                                         --------  --------
<S>                                                                     <C>       <C>
        Income taxes receivable                                         $    222  $    360
        Refundable foreign taxes                                           2,185     1,666
        Miscellaneous receivables and deposits                                22       188
        Prepaid expenses                                                     140       177
                                                                         --------  --------

                                                                        $  2,569  $  2,391
                                                                         ========  ========
</TABLE>


NOTE G - PROPERTY AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                             Years         1999      1998
                                                         -------------   --------  --------
<S>                                                      <C>            <C>       <C>
       Equipment                                             5-10       $  2,093  $  4,221
       Furniture and fixtures                                 3-5          1,322     2,734
       Leasehold improvements                            life of lease     2,626     2,605
       Equipment under capital leases                        5-10          3,720     4,067
       Vehicles                                               3-5            246       317
                                                                         --------  --------
                                                                          10,007    13,944
       Less accumulated depreciation and amortization
         including $3,227 and $3,002 for equipment under
         capital leases at 1999 and 1998, respectively                     6,605     9,085
                                                                         --------  --------
                                                                        $  3,402  $  4,859
                                                                         ========  ========
</TABLE>



                                      F-13
<PAGE>   39


                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE H - 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>
                                                                       1999       1998
                                                                     --------   --------
<S>                                                                 <C>        <C>
        Total costs and estimated earnings                          $   7,437  $ 118,265
        Progress billings to date                                       3,816    112,354
                                                                     --------   --------

                                                                    $   3,621  $   5,911
                                                                     ========   ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                       1999       1998
                                                                     --------   --------
<S>                                                                 <C>        <C>
        Costs and estimated earnings in excess
          of billings on contracts in progress                      $  4,994   $   7,546
        Billings in excess of costs and estimated
          earnings on contracts in progress                           (1,373)     (1,635)
                                                                     --------   --------

                                                                    $  3,621   $   5,911
                                                                     ========   ========
</TABLE>


NOTE I - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

      Accounts payable and accrued liabilities consist of the following:

<TABLE>
<CAPTION>
                                                                       1999     1998
                                                                     -------   -------
<S>                                                                 <C>       <C>
        Trade accounts payable                                      $  6,597  $  2,847
        Other accrued liabilities                                        304       219
        Employees salaries, incentive pay,
          vacation and payroll taxes                                     895     1,017
        Reserve for contract estimates and warranties                    321       666
                                                                     -------   -------

                                                                    $  8,117  $  4,749
                                                                     =======   =======
</TABLE>





                                      F-14
<PAGE>   40


                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE J - INCOME TAXES

      Components of income taxes (benefit) are as follows:

<TABLE>
<CAPTION>
                                                             1999      1998      1997
                                                            -------  --------  -------
<S>                                                        <C>      <C>       <C>
       Current
          Federal                                          $   106  $    12   $(1,171)
          State                                                 16        2      (305)
          Foreign                                                -        -         -
                                                            -------  --------  -------
                                                               122       14    (1,476)
       Deferred
          Federal                                           (1,511)  (1,809)     (379)
          State                                                297     (280)      (11)
                                                            -------  --------  -------
                                                            (1,214)  (2,089)     (390)
                                                            -------  --------  -------
       Income taxes (benefit)                              $(1,092) $(2,075)  $(1,866)
                                                            =======  ========  =======
</TABLE>

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

<TABLE>
<CAPTION>
                                                             1999      1998      1997
                                                            -------  --------  -------
<S>                                                        <C>      <C>       <C>
       Tax (benefit) at federal statutory rate             $(2,969) $(2,039)  $(1,403)
       Nondeductible expenses                                    5       12        11
       State income taxes, net of federal
         income tax benefit                                   (288)    (198)     (234)
       Foreign sales corporation exemption                       -        -      (167)
       Change in valuation allowance                         2,187        -         -
       All other, net                                          (27)     150       (73)
                                                            -------  --------  -------
                                                           $(1,092) $(2,075)  $(1,866)
                                                            =======  ========  =======
</TABLE>

      Deferred income taxes related to the following:

<TABLE>
<CAPTION>
                                                             1999      1998
                                                            -------  --------
<S>                                                        <C>      <C>
       Current deferred tax assets
          Allowance for doubtful accounts                  $   112  $   230
          Accrued expenses and reserves                        313      425
                                                            -------  --------
                                                           $   425  $   655
                                                            =======  ========
</TABLE>


                                      F-15
<PAGE>   41
                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE J - INCOME TAXES - CONTINUED

<TABLE>
<CAPTION>
                                                             1999      1998
                                                            -------  --------
<S>                                                        <C>      <C>
       Long-term deferred tax assets (liabilities)
          Excess book depreciation and amortization        $   (37) $   (79)
          Foreign tax credit carryforwards                     162      162
          Alternative minimum tax credit carryforwards         198      199
          Net operating loss carryforward                    5,228    1,639
          Valuation allowance                               (2,187)       -
                                                            -------  --------

                                                           $ 3,364  $ 1,921
                                                            =======  ========
</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.

      The Company has sustained net operating losses in each of the periods
      presented. As of December 31, 1999, the Company had net operating loss
      carryforwards for tax reporting purposes of approximately $14,016 expiring
      in various years through 2019. Since realization of these net operating
      loss carryforwards is uncertain a valuation allowance has been recorded to
      reduce the net deferred tax asset to an amount which management believes
      is more likely than not to be utilized. The increase in the valuation
      allowance was $2,187 for the year ended December 31, 1999 and $0 for 1998
      and 1997.


NOTE K - LINES OF CREDIT

      During 1999 and 1998, the Company maintained a revolving line of credit
      with a domestic bank for the lesser of $6,000 or the available borrowing
      base. The interest rate is computed at 13 percent and requires monthly
      payments of interest. The Company had $5,258 in borrowings against the
      line at December 31, 1999 ($5,254 at December 31, 1998). The line of
      credit expired October 31, 1999 and was extended to December 31, 1999. 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 times
      during 1999 and at December 31, 1999, the Company was out of compliance on
      certain indebtedness covenants. Subsequent to year end the Company signed
      an extension of the line of credit through August 31, 2000 which included
      a waiver for the non-compliance with the covenants as of December 31,
      1999. The Company is currently reviewing several financing alternatives.




                                      F-16
<PAGE>   42

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE L - LONG-TERM OBLIGATIONS

      The Company has entered into capital leases with various financial
      institutions and leasing organizations that carry interest rates ranging
      from 4 percent to 11.5 percent. The leases are collateralized by
      equipment. Payments approximate $44 monthly including interest.

      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, 1999:

<TABLE>
<S>                                                                   <C>
             Year ending December 31,
                2000                                                  $   499
                2001                                                       55
                2002                                                       32
                2003                                                       19
                2004                                                       18
                                                                       -------

             Total minimum leases payments                                623

             Less amount representing interest                             52
                                                                       -------

             Present value of net minimum lease payments                  571

             Less current portion                                         461
                                                                       -------

             Long-term portion                                        $   110
                                                                       =======
</TABLE>

NOTE M - 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, 1999:

<TABLE>
<S>                                                                   <C>
             Year ending December 31,
                2000                                                  $ 1,372
                2001                                                      734
                2002                                                      647
                2003                                                      633
                                                                       -------
                2004                                                      633
                Thereafter                                                303
                                                                       -------

                                                                       $ 4,322
                                                                       =======
</TABLE>




                                      F-17
<PAGE>   43

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE M - OPERATING LEASES - CONTINUED

      The building leases provide for payment of property taxes, insurance, and
      maintenance costs by the Company. Rental expense for operating leases
      totaled $2,314, $2,212 and $1,670 for 1999, 1998 and 1997, 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.


NOTE N - 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 $147, $189 and $176 for the years ended
      December 31, 1999, 1998 and 1997, 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 $128, $269 and $303, respectively, for the years ended
      December 31, 1999, 1998 and 1997. 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.




                                      F-18
<PAGE>   44

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE O - 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
      position or results of operations.


NOTE P - PRIMARY CUSTOMERS

      The Company has typically had one to three customers in each year which
      accounted for more than 10 percent 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>
                                               1999        1998        1997
                                              -------    -------     -------
<S>                                          <C>        <C>         <C>
           Company A                         $10,625    $ 6,580     $     -
           Company B                           5,337          -           -
           Company C                           4,508      7,912           -
           Company D                               -          -       7,241
</TABLE>


NOTE Q - RELATED PARTY TRANSACTIONS

      Daw Incorporated is a regional interior specialties contracting company
      based in Utah. Certain stockholders of Daw Incorporated own approximately
      34 percent of the Company's common stock.

      The Company purchased goods and services from Daw Incorporated totaling
      $71, $447, and $223 in 1999, 1998 and 1997, respectively.

      A member of the board of directors works for a law firm which provided
      legal services to the Company approximating $19, $171 and $138 in 1999,
      1998 and 1997, respectively.




                                      F-19
<PAGE>   45

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE R - 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, 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 percent 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 2008. Options granted prior to or on
      October 24, 1996 expire through 2011.

      The Company granted options to purchase 311,500 shares and 55,000 shares
      in 1998 and 1997, (none in 1999), respectively, of the Company's common
      stock. The options were granted to the following:

<TABLE>
<CAPTION>
                                                1999        1998        1997
                                              ---------   --------   ---------
<S>                                           <C>         <C>        <C>
           Directors                                 -      20,000     20,000

           Executive officers, including
             officers who are directors              -      60,000     30,000

           Other employees                           -     231,500      5,000
                                              ---------   --------   ---------

                                                     -     311,500     55,000
                                              =========   ========   =========
</TABLE>

      On February 24, 1998, certain options with an exercise price greater than
      $1.40 were adjusted to $1.40, which was the market price of the Company's
      stock on that date. At that date, vesting was extended by one year for
      those options adjusted. These adjustments resulted in a new measurement
      date under interpretations to Accounting Principles Board Opinion No. 25.




                                      F-20
<PAGE>   46

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE R - WARRANTS AND OPTIONS - CONTINUED

      The Company has adopted only the disclosure provisions of Financial
      Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
      (FAS 123). 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 FAS
      123, the Company's net loss and loss per share would have been increased
      to the following pro forma amounts:

<TABLE>
<CAPTION>
                                                                   1999     1998       1997
                                                                 -------   ------    -------
<S>                                      <C>                    <C>       <C>       <C>
            Net loss                     As reported            $(7,641)  $(3,922)  $(2,259)
                                         Pro forma               (7,815)   (4,074)   (2,458)
            Loss per share-basic         As reported              (0.61)    (0.32)    (0.18)
                                         Pro forma                (0.63)    (0.33)    (0.20)
            Loss per share-diluted       As reported              (0.61)    (0.32)    (0.18)
                                         Pro forma                (0.63)    (0.33)    (0.20)
</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
      1999, 1998 and 1997: expected volatility of 101 percent (53 percent for
      1998 and 1997); risk-free interest rate of 5.51 percent (6.05 percent for
      1998 and 1997); and expected life of 10 years (9.6 for 1997 and 1996). The
      weighted-average fair value of options granted was $1.17 and $1.60 in 1998
      and 1997, 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-21
<PAGE>   47

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE R - WARRANTS AND OPTIONS - CONTINUED

      Changes in the Company's stock options and warrants are as follows:

<TABLE>
<CAPTION>
                                                                                    Weighted-
                                                  Shares                             average
                                         ------------------------     Exercise      exercise
                                                          Stock        price         price
                                           Warrants      options      per share     per share
                                         -----------   ----------   -------------  -----------
<S>                                      <C>           <C>         <C>            <C>
        Outstanding at January 1, 1997        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
           Granted                                -       311,500    0.84 - 2.66       2.28
           Exercised                              -             -            -            -
           Canceled or expired                    -      (135,500)   1.38 - 3.50       3.05
                                         -----------   ----------
        Outstanding at December 31,
          1998                                    -       869,000    0.84 - 3.50       1.99
           Granted                                -             -            -            -
           Exercised                              -             -            -            -
           Canceled or expired                    -      (127,500)   1.40 - 2.66       1.78
                                         -----------   ----------
        Outstanding at December 31,
          1999                                    -       741,500    0.84 - 3.50       2.03
                                         ===========   ==========
        Exercisable at December 31,
          1999                                    -       636,000     0.84 - 3.50      1.99
                                         ===========   ==========
        Exercisable at December 31,
          1998                                    -             -          -              -
                                         ===========   ==========
        Exercisable at December 31,
          1997                                    -       535,500     3.00 - 3.50      3.44
                                         ===========   ==========
</TABLE>

      A summary of the status of the options outstanding under the Company's
      stock option plan at December 31, 1999 is presented below:

<TABLE>
<CAPTION>
                                              Outstanding                  Exercisable
                                   ---------------------------------   --------------------
                                                Weighted-
                                                average       Weighted-            Weighted-
                                                remaining     average              average
                                     Number     contractual   exercise   Number    exercise
      Range of exercise prices     outstanding  life (years)   price   exercisable  price
      ------------------------     -----------  ------------   -----   -----------  -----
<S>                                <C>          <C>          <C>       <C>         <C>
           $ 0.84 - $ 1.25            40,000      8.82       $ 0.97      30,000    $ 0.92
           $ 1.26 - $ 1.50           391,000      5.94         1.40     370,750      1.40
           $ 1.51 - $ 2.00                 -        -          -              -         -
           $ 2.01 - $ 2.50            20,000      7.89         2.22      20,000      2.22
           $ 2.51 - $ 3.00           150,500      8.41         2.66      75,250      2.66
           $ 3.00 - $ 3.50           140,000      5.94         3.41     140,000      3.41
                                   ----------                          ---------

           $ 0.84 - $ 3.50           741,500      6.65       2.03       636,000      1.99
                                   ==========                          =========
</TABLE>


                                      F-22
<PAGE>   48
                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE S - EARNINGS (LOSS) PER COMMON SHARE

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

<TABLE>
<CAPTION>
                                                           1999           1998         1997
                                                        -----------   -----------  -----------
<S>                                                     <C>           <C>          <C>
           Common shares outstanding
             entire period                              12,479,711    12,407,977   12,400,543

           Net weighted average common shares issued
             during period                                  22,269        32,144       15,414
                                                        -----------   -----------  -----------

           Weighted average number of common shares
             used in basic EPS                          12,501,980    12,440,121   12,415,957

           Dilutive effect of stock options                      -             -            -

           Dilutive effect of warrants                           -             -            -
                                                        -----------   -----------  -----------

           Weighted average number of common shares
             and dilutive potential common shares
             used in diluted EPS                        12,501,980    12,440,121   12,415,957
                                                        ===========   ===========  ===========
</TABLE>

      For the years ended December 31, 1999, 1998 and 1997, all of the options
      and warrants that were outstanding, as described in Note R, were not
      included in the computation of diluted EPS because to do so would have
      been anti-dilutive.


NOTE T - BUSINESS ACQUISITION

      On April 22, 1998, the first closing date, the Company acquired the net
      assets of Intelligent Enclosures Corporation. The transaction was
      accounted for as a purchase and the transaction is to be completed on
      April 22, 2000, the second closing date. At the first closing date, the
      Company delivered 27,023 shares of common stock. At the second closing
      date, the Company will issue additional shares of common stock at the
      average per share closing price for the 20 consecutive trading days prior
      to the second closing date, which in addition to the original 27,023
      shares will equal $1,300.





                                      F-23
<PAGE>   49
                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE U - SEGMENT INFORMATION

      The Company has two reportable segments for the year ended December 31,
      1999, namely 1) cleanrooms and related products and 2) other manufactured
      goods. Prior to 1998, the Company operated in one segment. The accounting
      policies of the segments are the same as those described in the summary of
      significant accounting policies. The Company evaluates performance of each
      segment based on earnings or loss from operations. The Companies
      reportable segments are similar in manufacturing processes and are tracked
      similarly in the accounting system. The manufacturing process for each
      segment uses the same manufacturing facilities and overhead is allocated
      similarly to each segment. It is not practical to determine the total
      assets per segment and depreciation by segment because each segment uses
      the same manufacturing facility. Identifiable assets by segment are
      reported below. The Company allocates certain general and administrative
      expenses, consisting primarily of facilities expenses, utilities, and
      manufacturing overhead.

      Segment information for the cleanrooms and related products and other
      manufactured goods are as follows:

<TABLE>
<CAPTION>
                                                     1999        1998       1997
                                                   ---------  ---------  ---------
<S>                                               <C>        <C>        <C>
         Revenues
            Cleanrooms and related products       $ 33,758   $  46,298  $  52,541
            Other products                          11,448       6,780          -
                                                   ---------  ---------  ---------

               Totals                             $ 45,206   $  53,078  $  52,541
                                                   =========  =========  =========

         Operating profit (loss)
            Cleanrooms and related products       $ (6,907)  $  (6,005) $  (3,781)
            Other products                          (1,333)        491          -
                                                   ---------  ---------  ---------

               Totals                             $ (8,240)  $  (5,514) $  (3,781)
                                                   =========  =========  =========


         Total assets
            Cleanrooms and related products       $ 15,640   $ 15,053   $  16,174
            Other products                           2,284      1,397           -
            Manufacturing and corporate assets       8,151     14,391      16,190
                                                   ---------  ---------  ---------

               Totals                             $ 26,075   $ 30,841   $  32,364
                                                   =========  =========  =========
</TABLE>






                                      F-24
<PAGE>   50
                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE V - REVENUES

      Revenues by country are based on the location of the project for long-term
      projects and by the location of the customer for other manufactured
      products and are as follows:

<TABLE>
<CAPTION>
                                                1999        1998        1997
                                              ---------   --------   ---------
<S>                                          <C>         <C>        <C>
           Canada                            $  11,827   $   6,666  $       -
           United Kingdom                        7,330       6,692      2,068
           Peoples Republic of China               382       7,092      2,389
           Italy                                     -       3,568          -
           Taiwan                                2,711       2,319      3,910
           Malaysia                                  -           -      2,669
           Israel                                3,098       2,058      4,449
           France                                  248         644      4,999
           All others                                -         198        644
                                              ---------   --------   ---------

                 Total export revenues          25,596      29,237     21,128

           United States                        19,610      23,841     31,413
                                              ---------   --------   ---------

                 Total revenues              $  45,206   $  53,078  $  52,541
                                              =========   ========   =========
</TABLE>


NOTE W - RESTRUCTURING CHARGES

      During December 1999, in order to reduce costs, the Company implemented a
      restructuring of its operations which resulted in the Company recording a
      one-time restructuring charge totaling $1,839. This one-time charge
      resulted from the disposition of the Company's Asia/Pacific office ($796)
      and the write down of inventory due to the Company's plans to pursue a
      foundry strategy for the manufacture of cleanroom components ($1,043).




                                      F-25
<PAGE>   51

                     Daw Technologies, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997

                        (in thousands, except share data)

NOTE X - QUARTERLY FINANCIAL RESULTS (UNAUDITED)

      Quarterly financial results for the years ended December 31, 1999, 1998
      and 1997 are as follows:

<TABLE>
<CAPTION>
                                                                                         Net
                                                                                      loss per
                                              Gross       Loss from         Net        common
               1999            Revenues   profit (loss)   operations        loss     share-basic
        -------------------  ------------ ------------- -------------   -----------  ----------
<S>                         <C>           <C>          <C>             <C>          <C>
        First quarter       $    12,480   $     1,577  $        (390)  $      (316) $     (0.03)
        Second quarter            9,980            47         (2,019)       (1,442)       (0.12)
        Third quarter            12,433           774         (1,018)       (1,129)       (0.09)
        Fourth quarter           10,313          (768)        (4,813)       (4,754)       (0.38)
                             ------------  -----------  -------------   -----------  ----------
                            $    45,206   $     1,630  $      (8,240)  $    (7,641) $     (0.61)
                             ============  ===========  =============   ===========  ==========

               1998
        -------------------
        First quarter       $    11,441   $       486  $      (1,298)  $      (831) $     (0.07)
        Second quarter           12,888        (1,768)        (3,719)       (2,403)       (0.19)
        Third quarter            14,332           952           (878)         (748)       (0.06)
        Fourth quarter           14,417         2,185            381            60           -
                             ------------  -----------  -------------   -----------  ----------
                            $    53,078   $     1,855  $      (5,514)  $    (3,922) $     (0.32)
                             ============  ===========  =============   ===========  ==========

               1997
        -------------------
        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)
                             ============  ===========  =============   ===========  ==========
</TABLE>


                                      F-26
<PAGE>   52

                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS
                                   ON SCHEDULE



Board of Directors
Daw Technologies, Inc. and Subsidiaries



In connection with our audit of the financial statements of Daw Technologies,
Inc. and Subsidiaries referred to in our report dated April 7, 2000, 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, 1999. 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
April 7, 2000




                                      S-1
<PAGE>   53
                     DAW TECHNOLOGIES, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                     COLUMN A              COLUMN B                    COLUMN C                    COLUMN D           COLUMN E
                     --------              --------                    --------                    --------           --------
                                                                       ADDITIONS
                                                             -----------------------------
                                                                (1)                (2)
                                          BALANCE AT         CHARGED TO        CHARGED TO                            BALANCE AT
                                         BEGINNING OF        COSTS AND       OTHER 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, 1999                  $615           $360            $      -              $   675           $300
   Year ended December 31, 1998                   403            100                 150 (A)              (38)           615
   Year ended December 31, 1997                   376            180                   -                 (153)           403

Allowance for contract estimates
   Year ended December 31, 1999                  $666          $   -            $      -              $   345           $321
   Year ended December 31, 1998                   366              -                 300 (A)                -            666
   Year ended December 31, 1997                   575            654                   -                 (863)           366

Allowance for inventory obsolescence
   Year ended December 31, 1999                  $300           $  -              $1,043 (B)           $1,043           $300
   Year ended December 31, 1998                     -              -                 300 (A)                -            300
   Year ended December 31, 1997                     -              -                   -                    -              -

Allowance for contract repayment
   Year ended December 31, 1999                 $  53           $  -            $      -             $      -          $  53
   Year ended December 31, 1998                   803              -                (750) (A)               -             53
   Year ended December 31, 1997                   803              -                   -                    -            803
</TABLE>


(A) Reclassification

(B) Restructuring charge


                                       S-2