UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended October 31, 1995 Commission File Number 0-8193
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------ to ------
DAEDALUS ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-1873250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 1869
Ann Arbor, Michigan 48106 (313) 769-5649
(Address of principal executive offices) (Registrant's telephone no.)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports); and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of common stock, $.01 par value, as of
December 8, 1995: 515,654 shares
<PAGE>
PART I - FINANCIAL INFORMATION
DAEDALUS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
Three Months Ended
October 31,
------------------
1995 1994
------ ------
Operating Revenue
Standard products.............................$ 488,576 $30,901
Product development........................... 64,692 376,488
-------- -------
553,268 407,389
Other Income..................................... 325 2,148
-------- -------
553,593 409,537
Cost and Expenses
Cost of revenue - standard products........... 346,815 8,818
Cost of revenue - product development......... 66,514 208,878
Research and development...................... 117,529 267,719
Selling and administrative.................... 303,994 360,447
Interest...................................... 16,383 11,314
-------- -------
851,235 857,176
------- -------
LOSS BEFORE INCOME TAXES (297,642) (447,639)
Credit for Income Taxes - Note D................. (17,000) (151,000)
------- -------
NET LOSS $(280,642) $(296,639)
======= =======
NET LOSS PER SHARE - Note F $ (0.54) $ (0.58)
==== ====
DIVIDENDS DECLARED PER SHARE $ 0.00 $ 0.08
==== ====
The accompanying notes are an integral part of these condensed financial
statements
<PAGE>
DAEDALUS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
October 31, July 31,
1995 1995
--------- ---------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents..................... $ 116,508 $ 76,797
Accounts receivable, less allowance of $2,500. 198,090 112,401
Unbilled accounts receivable - Note C......... 613,948 1,289,583
Inventories - Note C......................... 656,200 635,541
Deferred tax asset............................ 57,000 57,000
Deposits...................................... 0 131,000
Other current assets.......................... 39,356 39,496
--------- -----------
TOTAL CURRENT ASSETS 1,681,102 2,341,818
Property and Equipment:
Land.......................................... 177,131 177,131
Building...................................... 1,433,898 1,433,898
Machinery and equipment....................... 819,105 807,222
Special equipment............................. 459,151 455,649
---------- -----------
2,889,285 2,873,900
Less accumulated depreciation................. (1,511,277) (1,464,358)
---------- -----------
1,378,008 1,409,542
Deferred Tax Asset.............................. 88,000 71,000
Other Assets.................................... 88,574 108,057
---------- -----------
$3,235,684 $ 3,930,417
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable to bank - Note E................. $ 405,000 $642,000
Accounts payable.............................. 65,566 163,531
Accrued contract costs........................ 22,950 22,950
Compensation and related accounts............. 133,033 150,401
Accrued commissions........................... 115,874 176,755
Customer deposits............................. 0 9,652
Reserve for product warranties................ 49,523 54,354
Other accrued liabilities..................... 58,084 38,094
Current portion of long-term debt - Note E.... 32,588 282,608
-------- --------
TOTAL CURRENT LIABILITIES 882,618 1,540,345
Long-term Debt - Note E......................... 241,635 0
Stockholders' Equity:
Common stock, $.01 par value
Authorized--2,000,000 shares
Issued and outstanding--515,654 shares
(July 31, 1995--514,913 shares)...... 5,157 5,149
Additional paid-in capital.................... 1,115,124 1,113,131
Retained earnings............................. 991,150 1,271,792
--------- ---------
2,111,431 2,390,072
--------- ---------
$3,235,684 $3,930,417
========= =========
The accompanying notes are an integral part of these condensed financial
statements
<PAGE>
DAEDALUS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
Increase (Decrease) in Cash
Three Months Ended
October 31,
1995 1994
------------- ------------
Operating Activities
Net loss................................ $ (280,642) $ (296,639)
Adjustments to reconcile net income to
net cash used in opearting activities
Depreciation........................ 46,919 38,364
Amortization of software............ 17,997 24,198
Increase in deferred tax asset...... (17,000) (151,000)
Decrease in accounts receivable..... 589,946 194,605
Increase in inventory............... (20,659) (38,546)
Decrease (increase) in other assets. 132,626 (1,206)
Decrease in accounts payable and
accrued expenses.................. (161,055) (56,253)
Decrease in customer deposits....... (9,652) (108,842)
--------- ---------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 298,480 (395,319)
--------- ---------
Investing Activities
Purchase of property and equipment....... (15,385) (52,482)
--------- ---------
CASH (USED IN) INVESTING ACTIVITIES (15,385) (52,482)
--------- ---------
Financing Activities
Proceeds from revolving line of credit.... 610,000 631,000
Payments on revolving line of credit...... (847,000) (255,000)
Payments on long-term debt................ (8,385) (8,474)
Proceeds of stock issued pursuant to
stock option and stock purchase plan.... 2,001 1,714
--------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (243,384) 369,240
--------- ---------
Increase (Decrease) in Cash................. 39,711 (78,561)
Cash and Cash Equivalents at Beginning
of Year................................... 76,797 163,158
--------- --------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $116,508 $ 84,597
========= ========
The accompanying notes are an integral part of these condensed financial
statements
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
October 31, 1995
Note A - Basis of Presentation
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) that are, in the opinion of management, necessary
for a fair presentation of the results of operation, financial position
and cash flows for the periods presented. The accompanying unaudited
financial statements have been prepared in accordance with the
instructions to Form 10-Q and, therefore, do not include all information
necessary to be in conformity with generally accepted accounting
principles.
Reference is made to the Notes to Consolidated Financial Statements in
the Annual Report to Stockholders for the year ended July 31, 1995.
The results of operations for the three months ended October 31, 1995 are
not necessarily indicative of the results to be expected for the full
year.
Note B - Unbilled Accounts Receivable
Unbilled accounts receivable represent the revenue recognized pursuant to
standard system contracts and customer-funded product development
contracts using the percentage-of-completion method but which are not yet
billable under the terms of the contract. These amounts are billable
based on contract terms either upon shipment of the items, presentations
of invoices, or completion of the contract. The cost of such revenue is
determined generally by separate job cost accounts and involves no
deferral of cost. If the estimated total costs on any contract indicate
a loss, the entire amount of the estimated loss is recognized
immediately.
Note C - Inventory
Inventory includes work-in-process of approximately $111,000 and $91,000
as of October 31, 1995 and July 31, 1995, respectively. The remaining
inventory consists of parts and subassemblies, both purchased and
manufactured, that could be used in the manufacturing process or sold as
spare parts.
Note D - Income Taxes
The Company's provision for income taxes for the period ended October 31,
1994 was determined using the Company's estimated annual effective rate.
The difference between the Company's effective rate and the statutory
rate of 35% is primarily due to surtax exemptions.
<PAGE>
For the period ended October 31, 1995, the Company has limited the
recognition of credit for income taxes due to the cumulative losses
realized in recent years. The Company generated a valuation allowance of
$84,000 in the quarter ended October 31, 1995. The valuation allowance
relates to net operating loss generated in the current fiscal year.
Note E- Revolving Credit
On October 31, 1995, the Company had a $1,700,000 line of credit with a
bank, with availability subject to a formula, bearing interest at one and
one-half percent above the bank's prime rate. The formula is the
appraised value of the Company's building, $1,712,000, less the amount of
the mortgage plus 75% of qualified accounts receivable and 50% of
qualified unbilled accounts receivable. As of October 31, 1995, total
availability was approximately $1,476,000 pursuant to this availability
formula. The Company had an outstanding balance under this line of
credit of approximately $405,000 and $642,000 at October 31 and July 31,
1995 with an additional $1,029,420 of the line reserved to support
existing standby letters of credit at October 31 and July 31, 1995.
The line of credit agreement includes certain covenants requiring the
Company to maintain a minimum tangible effective net worth and minimum
liquid asset to current liability and debt coverage ratios. The Company
was in compliance with these covenants at October 31, 1995. Continued
compliance is dependent upon the Company receiving a substantial amount
of new business in the second quarter of fiscal 1996.
Note F - Earnings Per Share
The computation of net earnings per share is based on the weighted
average number of shares of common stock outstanding during the three
month periods ended October 31, 1995 and 1994. The weighted average
number of shares used in the computation was 515,404 and 511,907 for the
three months ended October 31, 1995 and 1994, respectively, all of which
were issued and outstanding. No adjustments were made to either net loss
or the number of shares outstanding for common stock equivalents in
calculating earnings per share as such adjustments would have been
antidilutive.
There was no material difference between primary and fully diluted
earnings per share for the periods ended October 31, 1995 and 1994.
Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company manufactures products for, and performs development projects
in, the field broadly described as "remote sensing". The principal
products manufactured by the Company are airborne imaging systems which
are installed in aircraft for acquisition of data on environmental
parameters. A principal application of the Company's remote
<PAGE>
sensing products has been the measurement of environmental parameters in
support of pollution control programs and environmental impact studies.
The Company is also engaged in customer-funded projects for the
development of advanced equipment in the remote sensing field. Some of
these projects may lead to the incorporation of newly developed
technology into existing or future product lines. These two portions of
the business are conducted by the same pool of personnel using the same
equipment and operating space and constitute a single industry segment.
The margins associated with these two portions of the business are
different, with standard products generally having higher margins than
customer-funded development projects. The Company receives the majority
of its revenue from a small number of relatively large contracts.
Standard product contracts are generally of higher dollar value than
customer-funded product development contracts, with each contract
representing a substantial portion of total revenue each year.
Therefore, the timing of the receipt of a standard product sales contract
as well as the related manufacturing endeavor can have a material impact
on a quarter-to-quarter or year-to-year comparison of the Company's
results of operations. Most standard product sales contracts and some
customer-funded product development contracts are also accompanied by a
significant deposit. Therefore, the timing of the contract receipt can
have a material impact on the Company's cash flow.
The Company has embarked on its growth plan and is in discussion with
several potential standard product customers regarding possible
contracts. The Company is hopeful that it will receive these contracts
in fiscal 1996, although no assurances can be given. See "Business
Development". The Company's future liquidity, financial position and
results of operations and its ability to successfully execute its growth
plan are dependent upon its ability to generate increases in new business
and cash flow to a level sufficient to allow the Company to maintain its
compliance with the terms and covenants of its new line of credit
agreement. The Company's long-term financial prospects are dependent
upon the Company's ability to successfully implement its growth plan and
attain consistent profitability. The results of fiscal 1996 will be
largely dependent upon the receipt and the timing of the receipt of
potential contracts currently under discussion. See "Business
Development" and "Liquidity and Sources of Capital".
Operating Revenue
Operating revenue was significantly higher in the first quarter of fiscal
1996 than in the first quarter of fiscal 1995, but was not adequate to
produce a profit for the quarter. The vast majority of the increase in
standard product revenue is attributable to the two standard product
contracts received in the fourth quarter of fiscal 1995, one of which was
completed in the first quarter of fiscal 1996; the other was completed in
November, 1995. Product development revenue declined in the first
quarter of fiscal 1996 as compared to the same period one year earlier
due to the low level of product development backlog at the beginning of
fiscal 1996 and the low level of product-development contracts received
in the quarter.
<PAGE>
The level of the Company's revenue and profits has historically
fluctuated from quarter-to-quarter and from year-to-year as the majority
of its revenue is derived from a small number of high dollar value
equipment sales to a relatively small number of customers. Such
fluctuations are normal given the Company's reliance on a small number of
high value contracts for the majority of its revenue. See "Business
Development - Growth Plan".
Domestic vs. International Revenue
International revenue generated approximately 83% of operating revenue in
the first quarter of fiscal 1996 as compared to 8% of operating revenue
in the first quarter of fiscal 1995. The increase in international
revenue, both in absolute terms and as a percentage of operating revenue,
is attributable to two standard product contracts received by the Company
from European customers in the fourth quarter of fiscal 1995.
Management expects the international market to continue to be a major
source of revenue in fiscal 1996 and future years. To insure against
foreign currency transaction losses, international revenues are
contracted in US dollars. The Company receives substantial deposits on
many large contracts with international customers. Many such contracts
are secured by irrevocable letters of credit.
Other Income
Other income, for the periods presented, is comprised principally of
interest income. The level of such income is determined by cash on hand
and interest rates. The timing of contract receipt and level of deposits
received have a substantial impact on such income.
Business Development
Growth Plan
One challenge facing the Company is to develop additional markets that
will allow future growth in revenue and profits. In early fiscal 1995,
Management developed a three-pronged growth plan to add revenue and
profits to the Company's current core business.
The first growth area involves the use and sale of airborne digital
cameras ("ADC") developed by the Company for the mapping of
infrastructure within narrow corridors. Examples of the types of
infrastructure that would be mapped with such a system include gas
pipelines, electrical distribution systems, railroads and highways. The
Company is currently developing an enhanced version of the ADC and is
investigating various image processing systems that may be bundled with
the ADC for delivery to its customers and for use by the Company in
performing services for customers. The Company has recently received a
contract for which it will utilize the ADC and has partially completed
the contract. The Company has also performed two demonstration projects
with its ADC and is hoping to use the data gathered as a result of these
projects to obtain a pilot program
<PAGE>
for its services from each of two potential customers. The Company
believes that there is a sizable market for data that can be produced
with its current ADC and believes that the completion of the enhanced ADC
will give the Company added capabilities, increasing the size of the
potential market.
The second prong of the Company's growth plan involves the formation of
partnerships to obtain and perform international remote sensing programs.
To this end, the Company entered into three teaming agreements in fiscal
1995 with the intent to sell the combined capabilities to large
consulting engineering companies that are typically the prime contractors
for such international programs. The Company, through a sales
representative, is currently pursuing international remote sensing
programs. To date, the Company has not received any contracts in this
area of business.
The third growth area involves performing domestic environmental remote
sensing programs. In order to exploit this market, the Company must
perform specific applications and show the results to be reliable and
cost-effective. To that end, the Company has pursued and obtained a
small remote sensing program and is pursuing other demonstration
projects. The Company plans to enter into additional business agreements
aimed at developing a corporate domestic environmental assessment
capability.
Although implementation of the growth plan began in fiscal 1995, revenue
is not expected to be affected materially until late in fiscal 1996 at
the earliest. If successful, these strategies are expected to reduce
fluctuations in the Company's revenue and earnings and enhance the
Company's profitability and shareholder value. However, the Company's
implementation of these growth initiatives has been slowed by the small
size of the Company's staff and by its current financial position. Also
contributing to the delay in implementing the growth plan is the
Company's lack of solid market information caused by the Company's
limited resources. The Company is seeking partners and additional
financing to help bring these services into the market more quickly. See
Liquidity and Sources of Capital.
New Orders and Backlog
In the first quarter of fiscal 1996, the Company received orders of
approximately $192,000 as compared to orders of approximately $155,000 in
the first quarter of the preceding year. Approximately $130,000 of the
fiscal 1996 orders, including approximately $46,000 of service projects
relating to the growth plan, were for standard products. The Company
received approximately $25,000 in standard product orders in the first
quarter of fiscal 1995, none of which are related to the growth plan.
The Company's backlog at October 31, 1995 was approximately $213,000
compared to approximately $663,000 one year earlier. The October 31,
1995 backlog includes approximately $147,000 of standard product backlog,
including $15,000 of service projects relating to the growth plan. The
Company continues to receive new orders at a level below that required
for break-even. As the Company expects to consume all of its
<PAGE>
October 31, 1995 backlog within the next few months, the Company's
ability to retain its line of credit and maintain its current operating
capabilities depends upon receiving significant orders in the next few
months. See "Liquidity and Sources of Capital." Management is hopeful
that such orders will be received, although no assurances can be given.
The Company is currently engaged in discussions for several substantial
standard product orders, some of which the Company hopes to receive in
the current fiscal year. However, such negotiations have not been
finalized and there can be no assurance that such orders will be
received. The Company was notified that it has won two Phase II Small
Business Innovative Research (product development) contracts for
approximately $600,000 each. Receipt of these two NASA contracts,
however, has been postponed by delays in approving a US Federal
Government budget for the current fiscal year.
The results of operations for future periods are dependent upon the
receipt of future orders and their timing. The Company's long term
success is also dependent upon the success of Management's growth plan.
Should the Company continue to receive orders during fiscal 1996 below
the level necessary to achieve profits, the Company would have to reduce
its level of operations accordingly and/or obtain other sources of
financing to allow the Company to continue operations. Many of the
Company's current 24 employees have skills and knowledge that are crucial
to the Company and difficult to replace. As a result, the Company
believes it would be very difficult to achieve substantial savings
through further reductions in staffing without impairing the Company's
ability to perform under current and anticipated contracts.
Cost of Revenue
In the first quarter of fiscal 1996, cost of revenue increased as a
percentage of revenue due primarily to a lower than normal margin on one
of the standard product contracts received in the last quarter of fiscal
1995. The Company operated significantly below capacity in the first
quarter of fiscal 1996 causing overhead rates to increase substantially
which contributed to the high cost of revenue percentage for that period.
The cost of product development revenue in the first quarter of fiscal
1996 exceeded such revenue due to these much higher than normal overhead
rates.
The cost of revenue percentage for the remainder of fiscal 1996 will be
dependent upon the timing and mix of future contracts, some of which are
currently under negotiation. See "Business Development - New Orders and
Backlog."
Research and Development
Research and development expense declined in the first quarter of fiscal
1996 as compared to the same period one year earlier due primarily to the
completion of the development of the first generation ADC in fiscal 1995.
The company is currently performing research on
<PAGE>
enhancements to the system, but this research requires less material and
labor than did the development of the original system.
Selling and Administrative Expense
Selling and administrative expenses were lower in the first quarter of
fiscal 1996 as compared to the first quarter of fiscal 1995 as a result
of non-recurring marketing expenses which were incurred in the first
quarter of fiscal 1995.
Interest
Interest expense increased in the first quarter of fiscal 1996 over the
same period one year earlier primarily due to the Company's increased use
of its line of credit.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's primary sources of liquidity were funds from operations and
borrowings under a secured line of credit. On October 30, 1995, the
Company and its bank entered into an agreement on a new line of credit
and a new mortgage. The interest rate on both the new line of credit and
the mortgage are one and one-half percent over the bank's prime rate,
10.25% at October 31, 1995. The new mortgage requires the Company to
make monthly payments of $3,583 for both principal and interest and
requires a balloon payment on November 1, 2000. The new line of credit
agreement, under which availability is subject to a formula, had a
ceiling of $1,700,000 which decreased to $1,500,000, with availability
subject to a formula, on December 1, 1995.
As of October 31, 1995, borrowings under the line of credit were limited
to approximately $1,476,000 pursuant to the availability formula. At
that date, the Company had an outstanding balance of $405,000 under the
line of credit and approximately $1,029,000 of the line reserved to cover
two standby letters of credit. On November 21, 1995, one of the standby
letters of credit, for $950,000, was canceled increasing availability by
a like amount. The Company is currently in compliance with the covenants
of its financing agreements but the Company may fall into default in the
second quarter of fiscal 1996 if it fails to obtain a significant amount
of new business very soon.
The Company's bank has expressed concern over the Company's recent
losses. The Company must receive a substantial amount of new business in
the second quarter of fiscal 1996 in order for it to maintain compliance
with the financial covenants in its financing agreements. The Company
also requires additional new business in the next few months to allow it
to retain its current line of credit. The Company's ability to implement
its growth plan as a means of generating new business has been impaired
by the Company's low level of working capital. See "Business
Development." Management is currently exploring various alternatives to
acquire additional cash resources.
<PAGE>
Working capital remained relatively unchanged between July 31, 1995 and
October 31, 1995, due largely to the reclassification of the non-current
portion of the mortgage from current liabilities to long-term debt.
Without this reclassification, working capital would have declined
approximately $240,000 in the first quarter of fiscal 1996. Current
assets declined by approximately $661,000 due primarily to the loss for
the quarter and payments on the line of credit from funds generated by
the collection of a large portion of the July 31, 1995 unbilled accounts
receivable. Contributing to the decline in current assets in the first
quarter of fiscal 1995 was the reduction in deposits caused by the
shipment of certain prepaid deliverables to a customer pursuant to one of
the contracts received in the fourth quarter of fiscal 1995.
Current liabilities decreased in the quarter ended October 31, 1995 largely
due to the reduction in the balance in the Company's line of credit and the
reclassification of the non-current portion of the mortgage from current
liabilities to long-term debt.
The Company expects to invest approximately $300,000 for capital
expenditures, primarily for equipment and software relating to the
Company's growth plan, during fiscal 1996; but as of December 11, 1995,
the majority of these expenditures had not yet been incurred. The
Company also expects internal research and development costs to exceed
the fiscal 1995 level in the upcoming year as additional products are
developed and introduced. During fiscal 1996, the Company also expects
to make significant investments in accordance with its growth plan in
selling and administrative expense. These expenditures are vital to the
future growth of the Company, and are expected to be funded by
operations, the Company's line of credit and possibly by other sources of
capital as described above.
Although Management believes that the Company has access to sufficient
sources of cash to meet its needs for the foreseeable future, this belief
is based upon Management's expectation that certain substantial contracts
will be received by the Company in fiscal 1996 and that the Company will
collect in excess of $600,000 in December 1995 on an order completed in
November 1995. If the receipt of such contracts and payments do not
occur or are significantly delayed, and if the Company is unable to raise
additional capital as needed, the Company's liquidity, financial
position, results of operations and ability to successfully execute its
growth plan will be materially adversely affected. Management believes
that should the Company receive the expected contracts in fiscal 1996 and
should an expansion of the current line of credit become required, the
Company will be able to obtain such a credit line expansion.
<PAGE>
PART II - OTHER INFORMATION
All items omitted are not applicable or the answers thereto are negative.
Item 6(a): Exhibits
Exhibit No. Description
4.53 Fifth Amendment to Revolving Credit, Overline Credit and
Term Loan Agreement, between the Company and Comerica
Bank, dated October 30, 1995
4.54 Revolving Credit Note between the Company and Comerica
Bank, dated October 30, 1995
4.55 Mortgage Extension Agreement between the Company and
Comerica Bank, Dated October 30, 1995
27 Financial Data Schedule
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAEDALUS ENTERPRISES, INC.
Date: December 11, 1995 by: /s/ Thomas R. Ory
--------------------------------
Thomas R. Ory, President
(Duly Authorized Officer,)
Date: December 11, 1995 by: /s/ Vincent J. Killewald
--------------------------------
Vincent J. Killewald, VP-Finance
(Principal Financial Officer)
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
4.53 Fifth Amendment to Revolving Credit, Overline
Credit and Term Loan Agreement, between the Company
and Comerica Bank, dated October 30, 1995
4.54 Revolving Credit Note between the Company and
Comerica Bank, dated October 30, 1995
4.55 Mortgage Extension Agreement between the Company
and Comerica Bank, Dated October 30, 1995
27 Financial Data Schedule
Exhibit 4.53
FIFTH AMENDMENT TO REVOLVING CREDIT,
OVERLINE CREDIT AND TERM LOAN AGREEMENT AND WAIVER
THIS FIFTH AMENDMENT ("Amendment") dated October 30, 1995, by and
between Daedalus Enterprises, Inc., a Delaware corporation ("Company")
and Comerica Bank, a Michigan banking corporation, successor in interest
by reason of merger to Manufacturers Bank, N.A., formerly known as
Manufacturers National Bank of Detroit ("Bank").
RECITALS:
A. Company and Bank entered into a Revolving Credit, Overline
Credit and Term Loan Agreement dated March 1, 1991, as amended
("Agreement").
B. Company and Bank desire to amend the Agreement, as set forth
herein.
NOW, THEREFORE, the parties agree as follows:
1. The first sentence of Section 2.1 of the Agreement is amended
to read in its entirety as follows:
"2.1 Bank agrees to lend to Company at any
time and from time to time from the effective
date hereof, sums not to exceed the Commitment
Amount in aggregate principal amount at any time
outstanding."
2. The following paragraph is added to the end of Section 2.1 of
the Agreement:
" 'Commitment Amount' initially shall mean
One Million Seven Hundred Thousand Dollars
($1,700,000). On November 30, 1995, the
Commitment Amount shall automatically be
permanently reduced to One Million Five Hundred
Thousand Dollars ($1,500,000). On such date,
Company shall pay to Bank the amount, if any, by
which the aggregate principal amount of advances
outstanding under the Revolving Credit Note and
outstanding Letters of Credit exceeds the
Commitment Amount as so reduced."
3. The first three sentences of Section 2.2 of the Agreement are
amended to read in their entirety as follows:
"2.2 The principal indebtedness
represented by the Revolving Credit Note and all
interest thereon shall be payable on or before
November 1, 1996. Company agrees to pay interest
on the unpaid principal balance of the Revolving
Credit Note from time to time outstanding at a
per annum rate equal to one and one half percent
(1-1/2%) above Bank's Prime Rate. Upon the
occurrence of any default or event of default
hereunder, interest shall accrue on the unpaid
principal balance at the per annum rate of four
and one-half percent (4-1/2%) above Bank's Prime
Rate."
4. The first sentence of Section 2.4 of the Agreement is amended
to read in its entirety as follows:
"Standby letters of credit ("Letters of
Credit") may be issued by Bank on behalf of
Company from time to time not to exceed One
Million Five Hundred Thousand Dollars
($1,500,000) in aggregate face amount at any time
outstanding."
5. Section 2.6 of the Agreement is amended to read in its
entirety as follows:
"In no event shall the aggregate face
amount of outstanding Letters of Credit and the
aggregate principal amount of outstanding
advances under this Article 2 exceed the
Commitment Amount."
6. Subclause (c) of Section 2.7 of the Agreement is amended to
read in its entirety as follows:
"(c) One Million Nine Thousand Two Hundred Thirty Eight
Dollars ($1,009,238),"
7. The first paragraph of Section 6.3 of the Agreement is
amended to read in its entirety as follows:
"6.3 Maintain at all times a Tangible
Effective Net Worth of not less than One Million
Nine Hundred Thousand Dollars ($1,900,000)."
8. Exhibit "B" to the Agreement is replaced in its entirety by
Exhibit "B" attached hereto.
9. Exhibit "C" to the Agreement is replaced in its entirety by
Exhibit "C" attached hereto.
10. Bank waives compliance by Company with the provisions of
Section 6.3 of the Agreement as of July 31, 1995. This waiver will not
act as a waiver or consent to any other transaction, act or omission,
whether related or unrelated to the foregoing. This waiver will not
extend to or affect any obligation, covenant, event of default or default
not expressly waived hereby or consented hereto or otherwise impair any
of Bank's rights consequent therefrom.
11. This Amendment shall be effective as of the date hereof upon
execution and delivery to the Bank of a Revolving Credit Note in the form
attached hereto as Exhibit "B."
12. Company hereby represents and warrants that, after giving
effect to the amendments contained herein, (a) execution, delivery and
performance of this Amendment and any other documents and instruments
required under this Amendment or the Agreement are within Company's
corporate powers, have been duly authorized, are not in contravention of
law or the terms of Company's Articles of Incorporation or Bylaws, and do
not require the consent or approval of any governmental body, agency, or
authority; and this Amendment and any other documents and instruments
required under this Amendment or the Agreement, will be valid and binding
in accordance with their terms; (b) the continuing representations and
warranties of Company set forth in Sections 5.1 through 5.5 and 5.7
through 5.14 of the Agreement are true and correct on and as of the date
hereof with the same force and effect as made on and as of the date
hereof; (c) the continuing representations and warranties of Company set
forth in Section 5.6 of the Agreement are true and correct as of the date
hereof with respect to the most recent financial statements furnished to
the Bank by Company in accordance with Section 6.1 of the Agreement; and
(d) no event of default, or condition or event which, with the giving of
notice or the running of time, or both, would constitute an event of
default under the Agreement, has occurred and is continuing as of the
date hereof.
13. Except as expressly modified or waived hereby, all of the
terms and conditions of the Agreement shall remain in full force and
effect.
WITNESS the due execution hereof as of the day and year first
written above.
COMERICA BANK, successor in DAEDALUS ENTERPRISES, INC.
interest by reason of merger
to Manufacturers Bank, N.A.
By: By:
-------------------------- -------------------------
Its: Its:
------------------------- -------------------------
Exhibit 4.54
EXHIBIT "B"
REVOLVING CREDIT NOTE
$1,700,000 Ann Arbor, Michigan
October 30, 1995
On or before November 1, 1996, FOR VALUE RECEIVED, the undersigned,
DAEDALUS ENTERPRISES, INC., a Delaware corporation (herein called
"Company") promises to pay to the order of COMERICA BANK, a Michigan
banking corporation, successor in interest by reason of merger to
Manufacturers Bank, N.A., (herein called "Bank") at its Main Office at
500 Woodward Avenue, Detroit, Michigan 48226, the indebtedness or so much
of the Commitment Amount as may from time to time have been advanced and
then be outstanding hereunder and under a certain Revolving Credit,
Overline Credit and Term Loan Agreement by and between Company and Bank
dated as of March 1, 1991, as amended and as may be further amended
(herein called "Loan Agreement"). "Commitment Amount" initially shall
mean One Million Seven Hundred Thousand Dollars ($1,700,000). On November
30, 1995, the Commitment Amount shall be permanently reduced to One
Million Five Hundred Thousand Dollars ($1,500,000).
The indebtedness outstanding under this Note from time to time
shall bear interest at a per annum rate equal to one and one half percent
(1-1/2%) above Bank's Prime Rate. Upon the occurrence of any default or
event of default hereunder or under the Loan Agreement, interest shall
accrue on the unpaid balance hereunder at a per annum rate equal to four
and one half percent (4-1/2%) above the Prime Rate. Interest shall be
payable monthly on the unpaid principal balance from time to time
outstanding commencing on November 1, 1995 and on the 1st day of each
month thereafter until November 1, 1996, when the entire unpaid balance
of principal and interest shall be due and payable. Interest shall be
computed on a daily basis using a year of 360 days for the actual number
of days elapsed, and, in such computation, effect shall be given to any
change in the interest rate resulting from a change in the Prime Rate on
the date of such change in the Prime Rate. "Prime Rate" shall mean the
rate of interest established by Bank as its prime rate as the same may be
changed from time to time, which may not necessarily be Bank's lowest
rate for loans. This Note may be prepaid at any time without premium or
penalty.
This Note evidences borrowing under, is subject to, is secured
pursuant to, shall be prepaid in accordance with, and may be matured
under the terms of the Loan Agreement, to which reference is hereby made.
As additional security, Bank is granted a lien on all property and assets
(including deposits and other credits) of Company at any time in
possession or control of (or owing by) Bank for any purpose.
All agreements between Company and Bank pertaining to the
indebtedness described herein are expressly limited so that in no event
whatsoever shall the amount of interest paid or agreed to be paid to Bank
exceed the highest rate of interest permissible under applicable law. If,
from any circumstances whatsoever, fulfillment of any provision of the
Loan Agreement, this Note or any other instrument securing this Note or
all or any part of the indebtedness secured thereby, at the time
performance of such provision shall be due, shall involve exceeding the
interest limitation validly prescribed by law which a court of competent
jurisdiction may deem applicable hereto, then, the obligation to be
fulfilled shall be reduced to an amount computed at the highest rate of
interest permissible under such applicable law, and if, for any reason
whatsoever, Bank shall ever receive as interest an amount which would be
deemed unlawful under such applicable law, such interest shall be
automatically applied to the payment of the principal amount described
herein or otherwise owed by Company to Bank, (whether or not then due and
payable) and not to the payment of interest.
Notwithstanding anything herein to the contrary, nothing shall
limit any rights granted Bank by other instruments or by law.
This Note replaces, by renewal, that certain Revolving Credit Note
dated November 30, 1993 made in the principal amount of $3,000,000 by
Company in favor of Bank.
DAEDALUS ENTERPRISES, INC.
By:
---------------------------
Its:
---------------------------
Exhibit 4.55
EXTENSION AGREEMENT
WITNESS THIS EXTENSION AGREEMENT entered into this ______ day
of_________________, 1995, between Comerica Bank, a Michigan Banking
Corporation, Successor in interest by reason of merger with Manufacturers
National Bank of Detroit, N.A., whose address is 500 Woodward Avenue,
Detroit, Michigan 48226 (hereinafter called "Mortgagee"), and Daedalus
Enterprises, Inc., a Delaware corporation, whose address is POBox 1869,
300 Parkland Plaza, Ann Arbor, MI 48106 (hereinafter called "Mortgagor").
WHEREAS, Mortgagee is the owner and holder of the Mortgage Note of
Mortgagor dated March 1, 1991, secured by a Mortgage on real estate
therein described, recorded on March 15, 1991, in Liber 2478, Page 895,
Washtenaw County Records, upon which note and mortgage the principal sum
of Two Hundred Seventy-seven Thousand Twelve and 63/100 ($277,012.63)
Dollars is due as of the date hereof with interest thereon paid to
October 1, 1995, AND
WHEREAS, it is the desire of the parties hereto to extend the time of
payment of said Mortgage Note and Mortgage,
NOW, THEREFORE, in consideration of the mutual promises herein contained,
it is hereby mutually agreed that the time of payment of the said
Mortgage Note and Mortgage is extended to November 1, 2000, and Mortgagor
hereby agrees to pay said Mortgage Note and Mortgage as follows:
Effective November 1, 1995, the interest rate will be one and one-half
(1.5%) per cent per annum (calculated for the actual number of days
outstanding on the basis of a Three Hundred Sixty (360) day year) above
the prime interest rate of the Bank (as hereinafter defined), but in no
event to exceed the maximum rate of interest permitted by law, and after
maturity or default (if such default should occur prior to maturity) the
outstanding principal balance owing on the Note shall bear interest at a
rate which is Three (3%) percent above the interest rate which would
otherwise be in effect (the "Default Rate").
The Bank's Prime Rate is that annual rate of interest so designated by
the Bank and which is changed by the Bank from time to time. The rate of
interest hereunder shall change as and when the Bank's Prime Rate
changes.
Effective December 1, 1995, the principal and interest payment shall be
Three Thousand Six Hundred Eighty-four and 59/100 ($3,684.59) Dollars.
In the event that the Bank`s prime rate changes to the extent that the
monthly principal and interest installments then in effect will not
amortize the then remaining loan balance within the amortized loan term
of ten (10) years, the Bank at its sole option may from time to time
recalculate, and the undersigned agrees to pay, the required monthly
principal and interest installment that will amortize the remaining loan
balance within the amortized loan term as herein stated.
The undersigned may prepay the principal balance due hereunder, in whole
or in part, such prepayment to be applied on installment of last
maturity, without payment of a prepayment premium.
Mortgagor agrees to comply with the provisions hereof and those contained
in said Mortgage Note and Mortgage and except as herein modified hereby
ratifies and confirms said Mortgage Note and Mortgage. No forbearance
nor further extension of time granted any subsequent owner of the
mortgaged premises shall release Mortgagor from personal liability
hereon. Nothing herein contained shall invalidate any security now held
for said debt. This agreement shall bind the parties hereto, their
successors, heirs, legal representatives and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this extension
agreement to be duly executed the day and year first above written.
Witnesses for Mortgagee: Comerica Bank, Successor in interest
by reason of merger with Manufacturers
National Bank of Detroit, N.A., a
national banking corporation
_________________________ By: __________________________________
_________________________ Its:__________________________________
Witnesses for Mortgagor: Daedalus Enterprises, Inc., a Delaware
corporation
________________________ By: _______________________
Thomas R. Ory
________________________ Its: President
THIS INSTRUMENT WAS DRAFTED BY:
Judith Dettloff
Comerica Bank
P. O. Box 75000
Detroit, Michigan 48275-3226
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> OCT-31-1995
<CASH> 116,508
<SECURITIES> 0
<RECEIVABLES> 814,538
<ALLOWANCES> 2,500
<INVENTORY> 656,200
<CURRENT-ASSETS> 1,681,102
<PP&E> 2,889,285
<DEPRECIATION> 1,511,277
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0
0
<OTHER-SE> 2,106,274
<TOTAL-LIABILITY-AND-EQUITY> 3,235,684
<SALES> 553,268
<TOTAL-REVENUES> 553,593
<CGS> 413,329
<TOTAL-COSTS> 413,329
<OTHER-EXPENSES> 421,523
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<INTEREST-EXPENSE> 16,383
<INCOME-PRETAX> (297,642)
<INCOME-TAX> (17,000)
<INCOME-CONTINUING> (280,642)
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