UNITED STATES
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 [FEE REQUIRED]
For the fiscal year ended July 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____ Commission File Number 0-8193
DAEDALUS ENTERPRISES, INC.
(Exact name of registrant as specified in charter)
DELAWARE 38-1873250
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Parkland Plaza (P.O. Box 1869)
Ann Arbor, Michigan 48106 (313) 769-5649
(Address of principal executive offices) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of 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. [ ]
Aggregate market value of voting stock held by non-affiliates of Registrant
at September 30, 1995 (computed by reference to the average bid and asked
prices of the Registrant's common stock): $1,574,423. (Assuming, but not
admitting for any purpose, that all officers and directors of the
Registrant, and their associates, may be deemed affiliates.)
Number of shares outstanding of common stock, $.01 par value, as of
September 30, 1995: 515,654 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference in Part
III of this Annual Report on Form 10-K: Definitive Proxy Statement for the
1995 Annual Meeting of Stockholders - Items 10, 11, and 12.
<PAGE>
PART I
Item 1. Business
General
Daedalus Enterprises, Inc., incorporated in August 1968, manufactures
products for, and performs development projects in, the field broadly
described as "remote sensing." Remote sensing is the detection or
measurement of various physical parameters of an object or system without
making direct contact with the observed object. The Company's customers use
these remote sensing products to detect and measure either the emitted or
reflected radiation of objects or systems.
The Company is also in the initial stages of developing a remote sensing
service operation that would utilize the Company's technology to acquire and
process remote sensing data for users of such data. See "Growth Plan".
Products
The principal products manufactured by the Company are airborne imaging
systems. The Company's customers install these systems in aircraft and use
them to acquire optical radiation data from objects on the earth's surface
and in the atmosphere. These data are then processed into a useful form by
data handling and data processing equipment which, in some cases, is also
manufactured by the Company. A principal application of the Company's
remote sensing products has been the measurement of environmental parameters
in support of pollution control programs and environmental impact studies.
The Company manufactures these products by integrating precision optical,
mechanical and electronic components into unified systems. These components
are either purchased off the shelf, or custom designed by the Company and
manufactured by the Company, or designed and specified by the Company for
outside manufacture. Highly technical personnel, supported by supervisors
and engineers, assemble, test and calibrate these systems in preparation for
delivery to customers.
The Company engages in customer-funded projects for the development of
advanced equipment in the remote sensing field. In addition to being a
source of revenue, the Company undertakes these projects to increase its
technical expertise in areas demonstrating good potential for use in future
products. Some of these projects may lead to the incorporation of newly
developed technology into the existing product line or an expansion of the
product line.
During fiscal 1995, the Company shared costs on several U.S. government
sponsored Small Business Innovation Research (SBIR) programs and completed
one for NASA which resulted in a new airborne multispectral polarization
imager for research on the effects of polarization on multispectral images
of vegetation and terrain features. In addition, the Company completed the
development of an improved airborne digital camera system incorporating an
integrated Global Positioning Satellite (GPS) receiver to produce digital
images with precise geographical location. The first production version of
this camera was sold to a development partner and the Company is using the
second production version to introduce the technology to major
infrastructure managers in industries such as gas transmission companies,
power companies, railroads and highway departments. See "Growth Plan".
Revenue from standard remote sensing systems and customer-funded product
development systems during the three most recent fiscal years ended July 31
are approximately as follows:
Year Standard Customer-Funded Product
Systems Development Systems Total
(000) (000) (000)
-------- ----------------------- -----
1995 $2,340 $1,278 $3,618
1994 $ 505 $1,938 $2,443
1993 $2,614 $3,654 $6,268
Marketing
Marketing activities are conducted principally through the Company's offices
in Ann Arbor, Michigan, primarily through direct customer contact. The
Company markets its products through direct sales and leases with a purchase
option. In addition to direct marketing of its standard systems, the
Company is engaged in seeking customer-funded product development projects
for advanced equipment. See "Growth Plan" for a description of expected
changes in the Company's marketing strategy as it implements its growth
plan.
Products are marketed to government customers in the United States and
Canada by the Company's sales force which consists of three persons, one of
whom is an officer who carries on other duties in addition to sales efforts,
and a commissioned representative who handles commercial customers.
The Company has no active international subsidiaries or branch offices. In
several countries, the Company has exclusive Sales Agency Agreements with
existing high technology marketing operations. These agents' efforts are
supported by the Company's own sales personnel, who also travel to other
countries where there is no formal representation.
Customers
The Company's customers have included aerospace, aerial survey, oil and
mineral exploration companies, universities and domestic and foreign federal
and state government agencies. The Company's ability to continue to
contract with such parties is dependent on political, economic, social and
other factors beyond its control. Revenue from international markets are
sometimes subject to receiving approved U.S. government export licenses.
A substantial portion of revenue in both domestic and international markets
is to customers who depend, at least in part, upon federal, state or local
government appropriations. Many of these customers are involved in programs
aimed at improving man's impact on the environment. See "Growth Plan" for
a description of the Company's efforts to diversify its customer base.
The following table sets forth information with respect to domestic and
international revenue during the three most recent fiscal years ended July
31:
EXPORT AND DOMESTIC REVENUE
(in thousands of dollars)
Export Domestic
Year Europe Other<F1> U.S. Gov't. Other Total
---- ------ ----- ----------- ----- ------
1995 $2,255 $51 $1,228 $84 $3,618
1994 916 5 1,522 0 2,443
1993 5,296 2 965 5 6,268
<F1> Revenue from geographic areas that amount to less than 10%
of total revenue are shown as "Other."
Export revenue normally consists largely of standard products, while
domestic revenue is largely customer-funded product development. The
standard product and customer-funded product development portions of the
business are conducted by the same pool of personnel using the same
operating space and equipment and constitute a single industry segment. For
further information regarding the Company's revenue by geographic area and
operations, see the table included under the caption "Selected Financial
Data", and Note J to Consolidated Financial Statements which table and note
are incorporated herein.
To insure against foreign currency transaction losses, export sales are
generally contracted in U.S. dollars and many large contracts are secured
by irrevocable letters of credit. The Company also generally receives
substantial deposits on large orders from international customers.
A majority of the Company's revenue each year is derived from a small
number of high dollar value equipment sales and contracts to a relatively
small number of customers. Because each customer may represent a
substantial portion of total revenue for that fiscal year, a small increase
or decrease in the number of customers with whom the Company has contracts
could generate a large percentage increase or decrease in total revenue.
Revenue during a particular fiscal year may result, in substantial part,
from contracts with a single customer. Revenue from Italian customers
accounted for approximately 28%, 32%, and 71% of revenue for fiscal 1995,
1994, and 1993, respectively.
In fiscal 1995, 1994 and 1993, the Company had three, two and three major
customers, respectively, each accounting for at least 10% of the Company's
revenue from operations. Such major customers accounted for approximately
91%, 88% and 85% of the Company's revenue from operations in fiscal 1995,
1994 and 1993 respectively, See Note J to Consolidated Financial Statements.
No single customer accounted for more than 50% of the Company's revenue in
any two of these years. Management does not consider the Company's business
to be dependent upon a single customer or group of customers.
Product Development
The Company is in an industry characterized by technological change, which
requires continuous expenditure of funds for research, development and
product improvement. The Company currently intends to use, whenever
possible, external contract funds and licensing agreements to expand its
product line and minimize internal research and development cost.
The Company has incurred research and development expense of approximately
$586,000, $398,000 and $205,000 for fiscal 1995, 1994 and 1993,
respectively. In fiscal 1995, 1994 and 1993 the Company expended
approximately $ 839,000, $1,800,000 and $2,754,000, respectively, in
performing customer-funded product development under contract for advanced
equipment in the field of remote sensing. In addition to the amounts
included in cost of revenue-product development, the Company expended
approximately $74,000 $144,000 and $179,000, respectively, of its own funds
as a cost-sharing contribution to these efforts, which is included in the
aforementioned research and development figures. These amounts include an
apportionment of overhead, other indirect costs, and charges for the
applicable portion of salaries of supervisory employees.
The Company has filed one provisional patent application this year for
technology related to a SBIR program entitled Laser Search and Rescue. If
the Company receives an SBIR Phase II award, the Company could develop a new
product line from this technology in several years.
The Company has five employees whose primary responsibility is product
development and seven employees who, in addition to their primary
production, manufacturing and administrative duties, also contribute to the
product development effort.
Patents
Although the Company has several patents and considers patent protection of
any technological advances to be desirable and intends to apply for patents
when appropriate, it believes that the Company's future success depends
principally upon its engineering, marketing and manufacturing skills rather
than upon patent protection.
Raw Materials
The Company's operations require a variety of unique precision optical-
mechanical and electronic components and other supplies. Although most
components and supplies are generally available from many commercial
sources, certain components, which are designed and specified to meet the
Company's particular requirements, have a limited number of manufacturing
sources. Due to the specialized nature of these components and the limited
quantities in which they are purchased, procurement lead times may be as
long as six months. However, the Company believes that the loss of a single
supplier would not be expected to have a material adverse effect on the
Company.
Competition
There are several competitors that compete with individual products produced
by the Company. During the past three years, one of these competitors has
begun offering to build products that compete with more of the Company's
standard remote sensing systems. To date, the Company has not been
materially affected by this competition. The Company expects an increase
in the number of competitors as governments worldwide continue to reduce
military spending since many companies selling similar instruments for
military purposes are now beginning to pursue non-military customers. In
addition, the Company's products compete with related technologies, such
as satellite remote sensing systems. In general, the superior spectral and
spatial resolution and scheduling flexibility of the Company's products
enable the Company to compete effectively with suppliers of satellite-based
data when the capabilities of the Company's products justify the generally
more costly airborne data. The Company has been able to compete
successfully against its competitors through the demonstrated performance
of its products and its product support mechanisms, and through the
excellent reputation it has earned and maintained for the durability of its
products. The Company's success is also due to its continuous efforts to
offer product improvements and new products that keep its technology at the
leading edge and offer customers the latest innovations.
Due to reduced spending on military programs, there are now even more
commercial and institutional competitors for the development projects
actively sought by the Company. However, the Company continues to be very
successful in winning SBIR programs and expects several Phase II awards
during fiscal 1996. The Company's successes have made it an attractive
potential partner to several competitors who have had limited exposure in
the remote sensing instrument area. Management believes that the Company
competes successfully in the field of product development due to the
Company's special capabilities in remote sensing technology and its history
of successful completion of such development products. See "Growth Plan"
for a description of expected changes in competition as the Company
implements its growth plan.
Backlog
Total August 31, 1995 backlog of unfilled customer orders was approximately
$455,000 compared to approximately $1,877,000 one year earlier. The August
31, 1994 backlog included approximately $928,000 relating to a second
quarter 1994 standard product in which the customer had failed to meet its
financial obligations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations -
Defaulted Contract" which information is incorporated herein. The Company
expects to fill all of this backlog within the current fiscal year.
Government Contracts
Contracts with U.S. Government agencies generally provide for reimbursement
of costs plus fees. Revenue, fees and profits on such contracts are
generally recognized on the costs incurred to date. Reimbursable contract
costs (including overhead and general and administrative expenses) are
generally subject to audit and adjustment by negotiation between the Company
and U.S. government representatives. Revenue under these contracts is
recorded at amounts that are expected to be realized upon the final
settlement with any adjustments to revenue reflected in the year of
settlement.
Growth Plan
The Company is in the process of implementing a growth plan that is focused
on three initiatives to provide growth in revenues and profits from new
market areas. The goal of the growth plan is to diversify the Company's
revenue-producing activities and reduce fluctuations in the Company's
revenue and earnings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Business Development -
Growth Plan".
The first initiative involves the development of the airborne digital camera
and related software in order to provide feature location mapping services
to major infrastructure managers in several industries. Such industries
include gas transmission companies, power companies, railroads and highway
departments.
The Company has built two production versions of the improved airborne
digital camera and delivered the first to its development partner who is
using it to perform services for gas pipeline companies. The Company is
using the second camera to introduce the technology to power companies,
railroads and highway departments as well as exploring applications in
agriculture and habitat monitoring. The Company has received several small
pilot project contracts to date and expects to win production service
contracts in several application areas by late fiscal 1996. The Company
intends to establish a service business operation based upon the
capabilities of the airborne digital camera and related software for feature
location mapping.
A second initiative involves the formation of strategic partnerships with
other companies to bid on and perform international remote sensing programs
for environmental assessment and resource or habitat mapping. The Company
has entered into teaming agreements with four other companies to date with
the intent of selling combined capabilities to large consulting engineering
companies that are typically the prime contractors for these large
international development programs.
The third initiative addresses the domestic market for environmental
assessments such as wetland delineation. This initiative is being developed
by pursuing agreements with aerial survey and image processing partners to
show that the use of the Company's airborne multispectral images combined
with new digital image processing and analysis capabilities can provide new
products to meet the needs of this market. To date, the Company has won a
contract to provide multispectral data for the assessment of agricultural
crops and is working with a state Natural Resources agency to demonstrate
applications for wetland delineation and habitat analysis.
These growth plan initiatives will require changes in and additions to the
Company's sales and marketing strategies and budgets. It is anticipated
that additional staff will be required, that the Company will be involved
in team marketing with its strategic partners, and will probably engage in
more trade shows and space advertising than it has in the past.
The customers for these new products and services will be different than
those pursued in the Company's core product business and will, therefore,
require a general expansion of marketing and sales activities and related
costs.
Competition will also be different than that faced by the Company in its
core business and competitors will be more numerous since there are many
more companies offering products and services in each of these areas of new
business. Competition will include conventional aerial survey firms using
film cameras and commercial remote sensing satellite data. The commercial
remote sensing satellite competitors are in the formative stage and will not
have products to offer until two to three years in the future. The Company
believes, however, that its capabilities in providing the source of unique
data using its airborne digital camera and multispectral scanners for each
of these market areas, coupled with its strategy to team with selected
partners in processing and analyzing such data, will provide the opportunity
to secure significant new business and will enable the Company to compete
successfully in each of these market areas.
Personnel
As of September 30, 1995, the Company had 25 full-time employees, three of
whom were executive officers.
Executive Officers of the Company
The executive officers of the Company (who serve as such at the pleasure of
the Board of Directors), their ages and the position or office held by each
are as follows:
Name Age Positions with the Company
---- --- --------------------------
Thomas R. Ory 56 President & Chief Executive Officer and Director
Charles G. Stanich 51 Vice President-Research & Development &
Chief Operating Officer and Director
Vincent J. Killewald 42 Vice President-Finance, Treasurer &
Chief Financial Officer
Mr. Ory, who was elected President and Chief Executive Officer in August
1987, joined the Company in 1972 as Director of its Applications Division,
served as Vice President-Marketing from 1979 to 1984, and Executive Vice
President from 1985 to 1987.
Mr. Stanich, who was elected Chief Operating Officer in 1987, joined the
Company in 1974 and served as Manager, Research & Development from 1979 to
1984, and Vice President-Research & Development since 1984.
Mr. Killewald, who was elected Vice President-Finance & Chief Financial
Officer in October 1991, joined the Company in 1988 as its Controller and
was elected Treasurer in October 1988.
Item 2. Properties
The Company's offices are located in Ann Arbor, Michigan. The office and
research facility is situated on approximately 11 acres of property. The
building encompasses 24,000 square feet, of which approximately 17,500
square feet are devoted to engineering, manufacturing, testing and research
and development; and 3,800 square feet are devoted to marketing and
administrative activities. The Company expects to utilize the remaining
2,700 square feet in upcoming years as the Company executes its growth plan.
See "Growth Plan".
It is Management's opinion that the current facilities are suitable and
adequate for operations of the Company and is expected to remain so for
several years. This facility, which is owned by the Company, is subject to
a mortgage. See Note D to Consolidated Financial Statements.
Item 3. Legal Proceedings
There are no pending legal proceedings to which the Company is a party or
to which any of its property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were presented to a vote of security holders during the fourth
quarter of fiscal 1995.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder matters
MARKET PRICE AND DIVIDEND INFORMATION
The Company's common stock is traded in the over-the-counter market. The
following table sets forth the quarterly range of high and low bid prices
for the common stock and dividends declared on the common stock since July
31, 1993. Prices shown are as reported by National Quotation Bureau,
Incorporated. Such quotations reflect inter-dealer prices without retail
mark-up, mark-down or commission and may not represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED
Oct 31 Jan 31 Apr 30 Jul 31 Oct 31 Jan 31 Apr 30 Jul 31
1993 1994 1994 1994 1994 1995 1995 1995
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High.......... $5-1/2 $5 $4-1/4 $3-3/4 $3-5/8 $2 $2 $2-1/2
Low........... 4-1/2 3-3/4 3-3/4 3-1/2 2 2 2 2
Cash dividend
per share..... $0.07 $0.00 $0.08 $0.00 $0.08 $0.00 $0.00 $0.09
</TABLE>
As of September 30, 1995, the Company's common stock was held by
approximately 200 holders of record.
The payment of future dividends will depend on the operating performance of
the Company, its prospects and its operating cash requirements. The
Company's line of credit agreement contains a covenant relating to tangible
net worth which restricts the Company's ability to pay dividends.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Fiscal Year Ended July 31,
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(in thousands except for per share data)
FIVE YEAR SUMMARY OF OPERATIONS AND FINANCIAL POSITION
Operating Revenue
Standard products...................... $2,340 $ 505 $2,614 $2,699 $1,331
Customer-funded product development.... 1,278 1,938 3,654 3,268 1,402
----- ----- ----- ----- -----
3,618 2,443 6,268 5,967 2,733
Other Income............................. 6 10 37 34 35
----- ----- ----- ----- -----
3,624 2,453 6,305 6,001 2,768
Costs and Expenses
Cost of revenue-standard products<F1>.. 1,180 223 1,064 1,171 567
Cost of revenue-product development<F1> 839 1,800 2,754 2,384 1,146
Research and development............... 586 398 205 192 360
Selling and administrative............. 1,473 977 1,624 1,623 995
Interest............................... 83 36 25 31 47
----- ----- ----- ----- -----
4,161 3,434 5,672 5,401 3,115
----- ----- ----- ----- -----
EARNINGS (LOSS) BEFORE INCOME TAXES (537) (981) 633 600 (347)
Provision (Credit) for Income Taxes...... (175) (328) 179 172 (113)
----- ----- ----- ----- -----
INCOME (LOSS) BEFORE CUMULATIVE
CHANGE IN ACCOUNTING PRINCIPLE (362) (653) 454 428 (234)
Cumulative Change in Acounting Principle,
net of approximately $9,000 of income
taxes.................................. 0 22 0 0 0
---- ---- --- --- ----
NET EARNINGS (LOSS) $(362) $(631) $454 $428 $(234)
==== ==== === === ===
Earnings (Loss) Per Share Before
Cumulative Change in Accounting
Principle<F2>.......................... $(0.70) $(1.28) $0.78 $0.70 $(0.41)
==== ==== ==== ==== ====
Net Earnings (Loss) Per Share<F3>........ $(0.70) $(1.24) $0.78 $0.70 $(0.41)
==== ==== ==== ==== ====
Cash Dividends Per Share................. $ 0.17 $ 0.15 $0.13 $0.11 $ 0.09
==== ==== ==== ==== ====
Total Assets............................. $3,930 $4,041 $4,762 $5,762 $3,947
Working Capital.......................... $801 $1,562 $2,144 $1,844 $1,825
Long-term Debt........................... $ 0 $ 278 $ 314 $ 352 $ 393
Stockholders' Equity..................... $2,390 $2,830 $3,516 $3,094 $2,940
Sales by Geographic Area
Europe................................. $2,255 $ 916 $5,296 $4,411 $ 212
Asia................................... 43 5 0 2 452
United States.......................... 1,312 1,522 970 1,546 2,047
Australia.............................. 8 0 2 0 20
Other.................................. 0 0 0 8 2
----- ----- ----- ----- -----
$3,618 $2,443 $6,268 $5,967 $2,733
===== ===== ===== ===== =====
<F1> Certain reclassifications have been made to the 1992 & 1991 cost of revenue data to conform to
classifications used in 1995, 1994 & 1993.
<F2> See Note A of Notes to Consolidated Financial Statements for a description of the cumulative
change in accounting principle.
<F3> See Note I of Notes to Consolidated Financial Statements for a description of the calculation
of earnings per share.
</TABLE>
Item 7. 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 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 comply 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".
Defaulted Contract
In the second quarter of fiscal 1994, the Company received a purchase order
from an Italian customer for two standard systems and spare parts totaling
approximately $1,031,000 (the "Defaulted Contract"). The customer made only
the first of three 10% downpayments and failed to open its letter of credit
for the remainder of the contract amount in a timely fashion. As the
customer defaulted on the terms of the agreement, the Company retained the
downpayment and recognized it as revenue in fiscal 1994, leaving the
remainder of the purchase order amount in backlog until new terms, including
a new price, were agreed to in the third quarter of fiscal 1995. The
customer reaffirmed its order in the fourth quarter of fiscal 1995 and
delivered its letter of credit in August 1995, for a total amount of
approximately $1,077,000, less the earlier payment of approximately
$103,000, at which time the Company shipped the order to its customer. The
Company treated this as a $974,000 order as the earlier downpayment was
recognized as revenue in fiscal 1994. As the Company had a written
reaffirmation of the order, and a copy of the customer's instructions to
their bank to issue the letter of credit to the Company, and because the
majority of the order was built prior to the end of fiscal 1995, the Company
recognized revenue of approximately $917,000 relating to this order in
fiscal 1995. As of July 31, 1995, approximately $57,000 relating to this
contract remained in backlog and was recognized as revenue in the first
quarter of fiscal 1996.
Operating Revenue
STANDARD PRODUCT TOTAL
PRODUCT DEVELOPMENT OPERATING
REVENUE REVENUE REVENUE
-----------------------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT
----- -- ----- -- -----
(dollars in thousands)
1995...............$2,340 65 $1,278 35 $3,618
1994............... 505 21 1,938 79 2,443
1993............... 2,614 42 3,654 58 6,268
Standard product revenue during fiscal 1995 was significantly higher than
during fiscal 1994 but not as high as during fiscal 1993. The increase in
fiscal 1995 standard product revenue over the fiscal 1994 level is
attributable to two contracts received in the last two months of the fiscal
year, including the reaffirmation of the Defaulted Contract from fiscal
1994. See "Defaulted Contract" and "Business Development - New Orders and
Backlog".
Product development revenue was significantly lower in fiscal 1995 as
compared to both fiscal 1994 and 1993. The decline in customer-funded
product development revenue is largely due to the completion of the MIVIS
contract in fiscal 1994 and the absence of a product development program of
sufficient value to compensate for the completion of this program. This
contract accounted for approximately 26% and 55% of total operating revenue
in fiscal 1994 and 1993, respectively. Contributing to the decline in
customer-funded product development revenue in fiscal 1995 was the low level
of product development backlog at the beginning of the fiscal year and the
low level of such contract receipts during the fiscal year.
Both standard product and customer-funded product development revenue were
substantially less in fiscal 1994 compared to fiscal 1993 due to reduced
backlog at the beginning of fiscal 1994 and the low level of new contracts
received in fiscal 1994. Contributing to the loss for fiscal 1994 was a
customer's failure to pay amounts due under the Defaulted Contract. See
"Defaulted Contract" and "Business Development - New Orders and Backlog".
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 "Major Customers" and "Business Development -
Growth Plan".
Effective August 1, 1993, the Company changed from completed component to
cost incurred as a percentage of the total estimated cost as the method for
determining percentage completion for revenue recognition on standard
product contracts. The Company believes that, due to the increased
complexity of its standard product contracts, percentage-of-completion,
based on cost incurred as a percentage of total estimated cost, provides a
better matching of revenue and earnings with the related economic activity
of the Company. The cumulative effect of this accounting change reduced the
loss for fiscal 1994 by $22,187 or $.04 per share .
Domestic vs. International Revenue
INTERNATIONAL DOMESTIC TOTAL
OPERATING OPERATING OPERATING
REVENUE REVENUES REVENUE
-----------------------------------------
% OF % OF
AMOUNT TOTAL AMOUNT TOTAL AMOUNT
----- -- ----- -- -----
1995............. $2,306 64 $1,312 36 $3,618
1994............. 921 38 1,522 62 2,443
1993............. 5,298 85 970 15 6,268
The increase in international operating revenue during fiscal 1995 compared
to fiscal 1994 is primarily attributable to two contracts received by the
Company in the last two months of fiscal year 1995, including the
reaffirmation of the Defaulted Contract. See "Defaulted Contract" and
"Business Development - New Orders and Backlog". A principal reason for the
decline in international revenue in fiscal 1994 as compared to fiscal 1993
is the decline in the revenue produced pursuant to the MIVIS contract and
the absence of new international contracts of sufficient value to offset the
decline in MIVIS revenue. Contributing to the decline in international
revenue in fiscal 1994 as compared to fiscal 1993 was the low international
backlog at the beginning of fiscal 1994 and the customer's default under the
Defaulted Contract.
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 U.S.
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.
Major Customers
FISCAL YEAR ENDED JULY 31,
-----------------------------
CUSTOMER DESCRIPTION 1995 1994 1993
- -------------------- ----- ----- -----
(in thousands)
European standard product customer ...$1,152 0 0
European standard product customer ... 917 0 0
European product development customer. 90 $ 624 $3,446
European standard product customer.... 0 35 912
U.S. Government....................... 1,228 1,522 965
The customers to whom the Company sells change from year-to-year. No single
customer has generated a majority of the Company's revenue during any
consecutive years. Italian customers have been an important source of
revenue for the Company in recent years, generating 28%, 32% and 71% of
operating revenue for fiscal years ended July 31, 1995, 1994, and 1993,
respectively. Sales to various customers in Italy are not expected to
generate a significant percentage of revenue in fiscal 1996 as the market
for the Company's current products nears saturation in Italy. See "Business
Development - New Orders and Backlog".
Business Development
Growth Plan
One challenge facing the Company is to develop additional markets that will
allow future growth in revenues 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 performed a pilot program using the Company's ADC.
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 has entered into three teaming agreements 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 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.
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. Although implementation of the growth plan began in
fiscal 1995, revenues are not expected to be affected materially until late
fiscal 1996.
New Orders and Backlog
In fiscal 1995, the Company received orders of approximately $3,274,000,
including $974,000 attributable to the reaffirmation of the Defaulted
Contract. During the last two months of fiscal 1995, the Company received
two contracts, including the reaffirmation of the Defaulted Contract,
totaling approximately $2,563,000. See "Defaulted Contract". These
contracts accounted for approximately $2,069,000 in standard product revenue
in fiscal 1995. The Company received orders of approximately $2,391,000
(including approximately $1,031,000 attributable to the Defaulted Contract)
and $2,495,000 in fiscal 1994 and 1993, respectively. Thus, the Company has
received new orders at a level below that required for break-even in the
last three fiscal years. As the Company expects to consume substantially
all of its backlog in the first quarter of fiscal 1995, the Company's
ability to maintain its current operating capabilities depends upon
receiving significant orders in the next few months. Management is hopeful
that such orders will be received although no assurances can be given.
Backlog at the end of fiscal 1995 was approximately $574,000, including
approximately $493,000 in standard product backlog associated with the two
orders received in the last two months of the fiscal year. The backlog at
July 31, 1994 was approximately $1,842,000, including approximately $928,000
from the Defaulted Contract discussed above.
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 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 strategy. In order to
reduce the fiscal 1995 loss and to lower the Company's break-even point, the
Company reduced its staff by approximately 24% during the fiscal year ended
July 31, 1995. 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 25 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
AS A PERCENT OF
-------------------------------------------
STANDARD PRODUCT OPERATING
PRODUCT DEVELOPMENT REVENUE
------- ----------- ---------
1995 ............. 50% 66% 56%
1994 ............. 44 93 83
1993 ............. 41 75 61
In fiscal 1995, cost of revenue, as a percentage of operating revenue,
decreased as compared to the previous fiscal year due primarily to the
increase in the level of revenue earned and to an increase in the level of
operations in fiscal 1995 while costs did not increase proportionately. In
fiscal 1994, cost of revenue increased as a percentage of revenues, as
compared to fiscal 1993, as the Company earned a significantly larger
percentage of its total revenues from low margin customer-funded product
development contracts in fiscal 1994 and operated significantly below its
capacity. As the Company was operating below its plant capacity in fiscal
1994, fixed costs became a larger percentage of its cost of revenues,
thereby increasing cost of revenues as a percentage of revenues.
The cost of standard product revenue as a percentage of such revenue
increased in fiscal 1995 over the level of the previous years primarily as
a result of concessions given to a customer to secure a standard product
contract. The Company is also incurring higher than expected costs on this
contract. The Company, however, expects to earn a substantial margin on this
contract which was received in June 1995.
The cost of product development revenue, as a percentage of such revenue in
each of the fiscal years 1994 and 1993 was relatively high due to a contract
for the development of MIVIS and its associated image processing system,
MIDAS. Although this contract and related smaller orders accounted for only
31% of customer-funded product development revenue in fiscal 1994, IT
ACCOUNTED FOR APPROXIMATELY 48% OF ITS RELATED COST OF REVENUES. this
CONTRACT accounted for the majority of such revenue and its related costs
in fiscal 1993. The Company experienced a loss on this contract in fiscal
1995 due to higher than expected warranty costs. The Company also
experienced a loss on this contract and its smaller related purchase order
in fiscal 1994 due to its increased costs which caused the Company to adjust
the percentage of revenue earned thereon.
The cost of revenue percentage for fiscal 1996 will be dependent upon the
timing and mix of future contracts, some of which are currently under
negotiation as described above.
Research and Development
COST % OF
(000) REVENUE
----- -------
1995 ................... $586 16%
1994 ................... 398 16
1993 ................... 205 3
The increase in research and development expense in fiscal 1995 as compared
to the previous fiscal year is primarily attributable to the development of
the Airborne Digital Camera. Contributing to the fiscal 1995 research and
development expense were costs associated with the improvement of the
Company's current products and other areas of research. The increase in
research and development expense in fiscal 1994, as compared to fiscal 1993
is attributable to internal research performed by the Company for the
development of new products and the improvement of current products. The
Company also shared costs in a number of customer-funded product development
projects during fiscal years 1995, 1994 and 1993, but did so to a lesser
extent in fiscal 1995 than in either of the two preceding years. See Note
G of Notes to Consolidated Financial Statements. The most significant
product resulting from these research and development expenditures in these
three fiscal years was the ADC.
Management's goal is to have research and development average approximately
5% of revenue in future years, so as to continually improve its existing
product line and develop new products that consistent with Management's
growth plan, although Management realizes that it may be required to invest
more than 5% of revenues into research and development, from time to time,
in order to develop the products and services that the Company will require
in order to meet its customers' needs and to establish steady growth in its
level of operations and profits.
Selling and Administrative Expense
COST % OF
(000) REVENUE
------ -------
1995 ...................... $1,473 41%
1994 ...................... 976 40
1993 ...................... 1,624 26
Selling and administrative expense increased in fiscal 1995 as compared to
fiscal 1994 due to increased commission expense caused by the increase in
international revenue in fiscal 1995 and increases in other marketing and
selling costs. Selling and administrative expense decreased in fiscal 1994
in absolute terms as compared to fiscal 1993 while increasing as a
percentage of revenue as compared to the previous year. The decline in
absolute terms is due to a decline in commission expense caused by a decline
in foreign revenue. The increase in selling and administrative expense as
a percentage of revenue was due to the decline in revenue. Management
intends to increase marketing and selling expenses, as called for in its
business plan, in order to increase demand for its current and future
products and services.
Interest
Interest expense increased in fiscal 1995 over the fiscal 1994 level
primarily due to the Company's increased use of its line of credit.
Interest expense increased in fiscal 1994 as compared to fiscal 1993 due to
the Company's use of its line of credit and due to increasing interest
rates. Interest expense for fiscal 1996 will be dependent upon future
interest rates and the extent to which the Company utilizes its line of
credit during the year. Although Management anticipates using the line of
credit in fiscal 1996 for the issuance of standby letters of credit, working
capital and financing the Company's growth plan, Management expects interest
expense to be less in fiscal 1996 than it was in fiscal 1995 due to an
anticipated reduction in the use of the Company's 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. At July 31, 1995, the Company
had a $3,000,000 secured line of credit with availability subject to a
formula that allowed borrowings and letters of credit totaling approximately
$1,852,000 at July 31, 1995. The line of credit, which was to expire on
November 30, 1995, had an interest rate of one-half percent over the bank's
prime rate. During fiscal 1995, the Company required a waiver of the
availability formula and waivers of certain covenants, which it received
from its bank. As of July 31, 1995, the bank also waived violations of the
tangible net worth, liquid asset to current liabilities and debt coverage
covenants for the Company's line of credit resulting from the loss for the
year.
On October 12, 1995, the Company and its bank reached a basic oral agreement
on a new line of credit, with availability subject to a revised formula, and
a new mortgage, both of which are anticipated to become effective at the end
of October 1995. As the covenants relating to these two agreements have not
yet been finalized, the Company has classified its total mortgage obligation
as a current liability. The interest rate on both the new line of credit
and the mortgage will increase to one and one-half percent over the bank's
prime rate. The new line of credit agreement has a ceiling of $1,700,000
that will be reduced to $1,500,000 on December 1, 1995. The effect of the
new availability formula is to reduce availability under the line of credit
by approximately $115,000 subject to the new availability ceiling. The new
mortgage requires the Company to make monthly payments of $3,583 for both
principal and interest and has a balloon payment on November 1, 2000. See
Note D of Notes to Consolidated Financial Statements.
When necessary, the Company has used short-term borrowings to finance
contracts or receivables. At July 31, 1995, the Company had $642,000
outstanding under the line of credit, which was repaid in September 1995.
The Company also uses its line of credit to support standby letters of
credit that it issues as guarantees to its customers for their down payments
to the Company. As of July 31, 1995, the Company had two standby letters
of credit outstanding for a total of approximately $1,029,000.
Working capital decreased by approximately $760,000 during fiscal 1995
primarily as a result of the loss for the year. The Company incurred
negative cash flow from operations during fiscal 1995 of $404,000 as a
result of the loss for the year, increases in unbilled accounts receivable,
and decreases in customer deposits offset in part by decreases in accounts
receivable and inventory. The decrease in inventory is primarily
attributable to the two standard product orders received by the Company in
the last two months of fiscal 1995. See "Business Development - New Orders
and Backlog". The majority of the fiscal 1995 fixed asset investment is
attributable to the manufacture of equipment that will be used in the
execution of the Company's growth plan.
The Company expects to invest approximately $300,000 for capital
expenditures, primarily for equipment and software relating to the Company's
growth plans, during fiscal 1996; but as of September 30, 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 and the Company's line of credit.
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
complete delivery and acceptance of a certain standard product order
allowing the Company to cancel a $950,000 standby letter of credit and
collect over $600,000 early in the second quarter of fiscal 1996. In the
event the Company is not able to generate cash at a level sufficient to meet
its anticipated needs and to reduce amounts outstanding under its bank line
of credit, the Company may seek additional long-term financing from other
sources or may explore other capital raising alternatives. If the receipt
of such contracts and delivery and acceptance of such standard product order
do not occur or are significantly delayed, or if the Company is unable to
raise additional capital when 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>
Item 8. Financial Statements and Supplementary Financial Data
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders of
Daedalus Enterprises, Inc.
Ann Arbor, Michigan
We have audited the accompanying consolidated balance sheets of Daedalus
Enterprises, Inc. and subsidiaries as of July 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended July 31, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Daedalus Enterprises, Inc.
and subsidiaries at July 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended July 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in Note A to the financial statements, effective August 1,
1993, the Company changed its method for determining percentage-of-
completion for revenue recognition.
/s/Deloitte & Touche LLP
- --------
Deloitte & Touche LLP
Ann Arbor, Michigan
September 15, 1995
(October 12, 1995 as to the fifth paragraph of Note D)
<PAGE>
Consolidated Statements of Operations
Fiscal Years Ended July 31,
----------------------------------
1995 1994 1993
OPERATING REVENUE
Standard Products ..................$2,339,540 $505,103 $2,614,275
Product Development................. 1,278,257 1,938,366 3,653,786
--------- --------- ---------
3,617,797 2,443,469 6,268,061
Other Income........................ 6,574 9,608 37,143
--------- --------- ---------
3,624,371 2,453,077 6,305,204
Costs and Expenses
Cost of revenue-standard products. 1,179,648 222,672 1,063,934
Cost of revenue-product
development..................... 839,159 1,800,260 2,754,281
Research and development-Note G... 586,466 398,390 205,043
Selling and administrative........ 1,473,252 976,490 1,623,957
Interest.......................... 82,619 36,255 24,551
--------- --------- ---------
4,161,144 3,434,067 5,671,766
INCOME (LOSS) BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (536,773) (980,990) 633,438
Provision (Credit) for Income
Taxes-Note E...................... (175,000) (328,000) 179,000
------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE
CHANGE IN ACCOUNTING PRINCIPLE (361,773) (652,990) 454,438
Cumulative Change in Accounting
Principle Net of Approximately
$9,000 of Income Taxes-Note A..... 0 22,187 0
------- ------- -------
NET INCOME (LOSS)... $(361,773) $(630,803) $454,438
====== ======= =======
NET EARNINGS (LOSS) PER SHARE
Before Change in Accounting
Principle....................... $(0.70) $(1.28) $0.78
Cumulative Change in Accounting
Principle-Note A.................. 0.00 0.04 0.00
---- ---- ----
NET EARNINGS (LOSS) PER SHARE-Note I $(0.70) $(1.24) $0.78
==== ==== ====
Pro Forma Amounts Assuming the Changes
in Accounting Principle are
Applied Retroactively
NET INCOME (LOSS) $(361,773) $(652,990) $397,037
======= ======= =======
NET INCOME (LOSS) PER SHARE $(0.70) $(1.28) $0.68
==== ==== ====
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Stockholders' Equity
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ --------- ---------
STOCKHOLDERS' EQUITY
Balances at July 31, 1992 .......... $4,955 $1,050,245 $2,038,760
Net earnings...................... 454,438
Stock issued pursuant to employee
stock plans--9,611 shares....... 96 33,257
Cash dividends--$.13 per share.... (65,321)
----- --------- ---------
Balances at July 31, 1993........... 5,051 1,083,502 2,427,877
Net loss ......................... (630,803)
Stock issued pursuant to employee
stock plans--6,435 shares....... 64 20,643
Cash dividends--$.15 per share.... (76,189)
_____ _________ _________
Balances at July 31, 1994........... 5,115 1,104,145 1,720,885
Net loss ......................... (361,773)
Stock issued pursuant to employee
stock plans--3,380 shares....... 34 8,986
Cash dividends--$.17 per share.... (87,320)
Balances at July 31, 1995........... $5,149 $1,113,131 $1,271,792
===== ========= =========
See Notes to Consolidated Financial Statements
Consolidated Balance Sheets
July 31,
--------------------
1995 1994
---- ----
ASSETS
Current Assets
Cash and cash equivalents.................. $76,797 $163,158
Accounts receivable, less allowance
of $2,500--Note B........................ 112,401 661,427
Unbilled accounts receivable--Note B....... 1,289,583 113,128
Inventories--Note A........................ 635,541 1,111,637
Income taxes receivable.................... 0 223,946
Deferred tax asset--Note E................. 57,000 92,000
Deposits................................... 131,000 0
Other current assets....................... 39,496 30,464
--------- ---------
TOTAL CURRENT ASSETS..................... 2,341,818 2,395,760
Property and Equipment--Note A
Land....................................... 177,131 177,131
Building................................... 1,433,898 1,432,661
Machinery and equipment.................... 807,222 1,190,708
Special equipment.......................... 455,649 218,805
--------- ---------
2,873,900 3,019,305
Less accumulated depreciation................ (1,464,358) (1,573,470)
--------- ---------
1,409,542 1,445,835
Deferred Tax Asset--Note E................... 71,000 0
Other Assets--Note C......................... 108,057 199,639
--------- ---------
$3,930,417 $4,041,234
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable to bank--Note D............... $642,000 $125,000
Accounts payable........................... 163,531 75,943
Accrued contract costs..................... 22,950 87,850
Accrued compensation and related costs..... 150,401 151,252
Accrued commissions........................ 176,755 69,058
Customer deposits.......................... 9,652 156,099
Reserve for product warranties............. 54,354 90,425
Other accrued liabilities.................. 38,094 41,183
Current portion of long-term debt--Note D.. 282,608 36,857
--------- ---------
TOTAL CURRENT LIABILITIES............... 1,540,345 833,667
Long-term Debt--Note D....................... 0 278,422
Deferred Income Taxes--Note E................ 0 99,000
Stockholders' Equity--Note F
Common stock, $.01 par value
Authorized - 2,000,000 shares
Issued and outstanding - 514,913 shares
(1994 - 511,533 shares).................. 5,149 5,115
Additional paid-in capital................... 1,113,131 1,104,145
Retained earnings............................ 1,271,792 1,720,885
--------- ---------
2,390,072 2,830,145
--------- ---------
$3,930,417 $4,041,234
========= =========
See Notes to Consolidated Financial Statements
<PAGE>
Consolidated Statements of Cash Flows
Years Ended July 31,
-------------------------
1995 1994 1993
Operating Activities:
Net income (loss) before cumulative effect
of change in accounting principle.... $(361,773) $(652,990) $454,438
Adjustments to reconcile net income to net
cash provided by operating activities,
net of effect of change in accounting
principle--
Depreciation........................... 168,584 170,894 168,788
Amortization of software............... 84,942 107,015 133,365
Provision (credit) for deferred
income taxes......................... (135,000) (63,000) 32,000
Net book value of special equipment sold. 0 124,466 59,037
Loss on disposal of property and
equipment............................ 2,553 129 1,766
Decrease (increase) in accounts
receivable........................... (627,429) 407,966 705,423
Decrease (increase) in inventories..... 476,096 (425,600) 170,580
Decrease (increase) in income taxes
receivable........................... 223,946 (139,947) (22,000)
Decrease (increase) in deposits and
other assets......................... (133,392) 9,003 65,649
Increase (decrease) in accounts payable
and accrued liabilities.............. 44,031 (212,655) 128,403
Increase (decrease) in customer
deposits............................. (146,447) 154,179(1,593,032)
------- ------- ---------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. (403,889) (520,540) 304,417
Investing Activities:
Purchase of property and equipment....... (134,844) (222,327) (297,020)
Investment in capitalized software....... 0 (44,692) (234,007)
------- ------- -------
CASH USED IN INVESTING ACTIVITIES.......... (134,844) (267,019) (531,027)
Financing Activities:
Proceeds from line of credit............ 2,572,000 970,000 0
Principal payments on line of credit....(2,055,000) (845,000) 0
Payments on long-term debt............... (32,671) (36,820) (35,564)
Proceeds of stock issued pursuant to
warrants, stock options and Stock
Purchase Plan.......................... 9,020 20,707 33,353
Dividends paid......................... 40,977 76,189 65,321
Decrease in restricted cash............ 0 0 749,677
--------- ------- -------
CASH PROVIDED BY FINANCING ACTIVITIES...... 452,372 32,698 682,145
------- ------- -------
Increase (decrease) in cash................ (86,361) (754,861) 455,535
Cash and cash equivalents at beginning
of year................................. 163,158 918,019 462,484
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR... $76,797 $163,158 $918,019
====== ======= =======
See Notes to Consolidated Financial Statements.
<PAGE>
Notes to Consolidated Financial Statements
Note A - Significant Accounting Policies
A summary of the significant accounting policies followed by Daedalus
Enterprises, Inc. (the "Company") in preparation of the consolidated
financial statements is set forth below:
Principles of consolidation. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries.
Upon consolidation, all intercompany accounts, transactions, and profits
are eliminated.
Revenue recognition. Revenue on major contracts is recognized using the
percentage-of-completion method based upon the cost incurred as a
percentage of the total estimated cost, whereby revenue and related costs
are recognized throughout the performance period of the contract. If
estimated total costs on any contract indicate a loss, the entire amount
of the estimated loss is recognized immediately.
Effective August 1, 1993, the Company changed from completed component
to cost incurred as a percentage of the total estimated cost as the
method for determining percentage completion for revenue recognition on
standard product contracts. The Company believes that, due to the
increased complexity of its standard product contracts, percentage-of-
completion, based on cost incurred as a percentage of total estimated
cost, provides a better matching of revenue and earnings with the related
economic activity of the Company. The cumulative effect of this
accounting change reduced the loss by $22,187, or $.04 per share, for
fiscal 1994.
Prior to August 1, 1993, standard product sales made pursuant to either
contracts calling for multiple item deliveries or pursuant to
international letters of credit were recognized as sales in the period in
which each item of equipment passed certain inspections as specified in
the terms of the contract or letter of credit.
Contract research revenue from U.S. Government agencies (see Note J)
generally provides for reimbursement of costs plus fees. Revenue, fees
and profits on such contracts are recognized as costs are incurred.
Reimbursable contract costs (including overhead and general and
administrative expenses) are generally subject to audit and adjustment by
negotiation between the Company and U.S. Government representatives.
Revenue under these contracts is recorded at amounts that are expected to
be realized upon the final settlement with any adjustments to revenue
reflected in the year of settlement. Some development contracts involve
cost-sharing by the Company. The Company recognizes its share of these
costs, which are classified as research and development, as revenue is
recorded.
Cash and cash equivalents. The Company considers all highly liquid
securities purchased with an original maturity date of three months or
less to be cash equivalents.
Inventories. Inventories, principally work-in-process and purchased
parts, are stated at the lower of first-in, first-out cost or market.
Inventory at July 31, 1995 and 1994 included work-in-process of
approximately $91,000 and $518,000, respectively, with the remainder
consisting of raw materials and subassemblies.
Property and equipment. Property and equipment is stated at cost and
depreciated over the useful life by the straight-line method. Machinery
and equipment includes construction-in-progress, relating to a
multispectral scanner system, in the amount of approximately $143,000 at
July 31, 1994. There was no construction-in-progress at July 31, 1995.
Special equipment consists of equipment manufactured by the Company and
includes direct manufacturing costs and overhead. Such equipment which
is used in manufacturing or research activities of the Company is
normally made available for sale by the Company. Therefore, revenue from
the sale of such equipment, if any, is included in revenue and the
depreciated cost is included in cost of revenue. During the fiscal year
ended July 31, 1994, the Company transferred to work-in-process one such
system with a cost of approximately $124,000. During the fiscal year
ended July 31, 1993, the Company sold one such system with a net book
value of approximately $59,000.
Capitalized software. The capitalized software costs consist of costs
incurred for internally developed software to be sold as part of standard
products or used in customer-funded product development contracts.
Capitalization begins upon the establishment of technological
feasibility. The ongoing assessment of recoverability of capitalized
software development costs requires considerable judgment by Management
with respect to certain external factors, anticipated future gross
revenue, estimated economic life, and changes in hardware and software
technology.
Capitalized software is amortized on a product-by-product basis over the
related sales on a per-unit basis with minimum amortization based on the
straight-line method over an estimated five year useful life.
Note B - Accounts Receivable
Accounts receivable includes approximately $96,000 and $86,000 at July
31, 1995 and 1994, respectively, from agencies of the Federal Government
that will be paid upon the completion and audit of the cost plus fixed-
fee contracts between the Company and the government agencies.
Unbilled accounts receivable represent revenue recognized using the
percentage-of-completion method, which are not yet billable under the
terms of the contract. These amounts become billable based on contract
terms either upon shipment of the items, presentation 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
costs.
To prevent foreign currency transaction losses, international sales are
contracted in U.S. dollars and large standard product contracts are
secured by irrevocable letters of credit. The Company also receives
substantial deposits on large sales to international customers.
Note C - CAPITALIZED SOFTWARE
Other assets include approximately $105,000 and $190,000 of unamortized
software AT July 31, 1995 and 1994, respectively. In fiscal 1994 and
1993, the Company capitalized software costs of $45,000 and $234,000,
respectively, associated with new products. No software was capitalized
in fiscal year 1995.
Note D - Note Payable and Long-term Debt
On July 31, 1995, the Company had a $3,000,000 line of credit, secured by
the assets of the Company, with a bank, with availability subject to a
formula, expiring November 30, 1995, bearing interest at 1/2 percent
above the bank's prime rate (effective rate of 9.25% and 7.75% at July
31, 1995 and 1994, respectively). At July 31, 1995, the Company had
approximately $1,852,000 available pursuant to the line of credit with an
outstanding balance under this line of credit of $642,000 with an
additional $1,029,420 of the line reserved to support existing standby
letters of credit. The outstanding balance was $125,000 at July 31,
1994.
The Company had a maximum balance outstanding of $1,087,000 and $475,000
during fiscal 1995 and 1994, respectively. The average outstanding
balance and interest rate in fiscal 1995 and 1994 was $589,322 and 9.34%
and $89,685 and 6.65%, respectively.
The line of credit agreement includes certain financial covenants some of
which require the Company to maintain a certain tangible net worth level
and certain liquid asset to current liability and debt coverage ratios.
At July 31, 1995 the Company was not in compliance with these covenants.
The Company has obtained a waiver from its bank for its violations at
July 31, 1995. The next measurement date regarding financial covenants
is October 31, 1995.
The Company has a mortgage with a balance of $282,608 and $315,279 as of
July 31, 1995 and 1994, respectively, bearing interest at one-half
percent over prime (effective rate of 9.25% and 7.75% at July 31, 1995
and 1994, respectively). Monthly payments on the mortgage are $5,000
for both interest and principal with the mortgage being due on March 1,
1996.
On October 12, 1995, the Company and its bank reached a basic oral
agreement on a new line of credit, with availability subject to a revised
formula, and a new mortgage, both of which are anticipated to become
effective at the end of October 1995. As the covenants relating to these
two agreements have not yet been finalized, the Company has classified
its total mortgage obligation as a current liability. The interest rate
on both the new line of credit and the mortgage will increase to one and
one-half percent over the bank's prime rate. The new line of credit
agreement has a ceiling of $1,700,000 that will be reduced to $1,500,000
on December 1, 1995. The effect of the new availability formula is to
reduce availability under the line of credit by approximately $115,000
subject to the availability ceiling. The new mortgage requires the
Company to make monthly payments of $3,583 for both principal and
interest and has a balloon payment on November 1, 2000. Aggregate annual
maturities of long-term debt based on the refinanced mortgage interest
rate of 10.25% are as follows:
FISCAL YEAR MATURITY
----------- --------
1996................. $20,246
1997................. 12,495
1998................. 18,533
1999................. 20,525
2000................. 210,809
--------
$282,608
========
Interest paid on all debt was approximately $83,000, $36,000 and $25,000
in fiscal 1995, 1994 and 1993, respectively.
Note E - Income Taxes
Provision (credit) for income taxes is made up of the following
components:
1995 1994 1993
----- ----- ------
Current.................. $ (40,000) $ 0 $147,000
Deferred:
Tax (benefit) expense.. (135,000) (63,000) 32,000
Benefit of net operat-
ing loss carryback.... 0 (265,000) 0
------- ------- -------
PROVISION (CREDIT)
FOR INCOME TAXES...... $(175,000) $(328,000) $179,000
======== ======= =======
A reconciliation of the provision (credit) for income taxes and the
amount computed by applying the statutory federal income tax rates to
earnings is as follows:
1995 1994 1993
------ ------ ------
Federal income tax on earn-
ings at statutory rates
(35% in 1995 and 1994 and
34% in 1993)............. $(188,000) $(343,000) $215,000
Effect of federal tax rate
difference as the result
of surtax exemptions..... 6,000 9,000 0
Benefit of Foreign Sales
Corporation.............. (10,000) (5,000) (41,000)
Other.................... 17,000 11,000 5,000
------ ------ ------
PROVISION (CREDIT) FOR
INCOME TAXES............. $(175,000) $(328,000) $179,000
======= ======= =======
The Company paid $11,000 and $270,000 in federal corporate income taxes
in fiscal years 1994 and 1993, respectively. No federal corporate tax
payments were made in fiscal year 1995.
The temporary differences that give rise to deferred tax assets and
liabilities at July 31, 1995 and 1994 are as follows:
DEFERRED TAX ASSET (LIABILITY)
-------------------------------------
1995 1994
-------------- ----------------
SHORT- LONG- SHORT- LONG
TERM TERM TERM TERM
----- ----- ------ -----
Net operating loss carry-
forward................. $199,000 $23,000
Accrued personal leave.. $23,000 24,000
Inventory reserve.......... 18,000 19,000
Warranty reserve........... 16,000 26,000
Capitalized software....... (30,000) $(55,000)
Depreciation............... (58,000) (44,000)
Other...................... (40,000)
------ ------ ------ ------
$57,000 $71,000 $92,000 $(99,000)
====== ====== ====== ======
No valuation allowance was considered necessary as of July 31, 1995 and
1994. At July 31, 1995, the Company had approximately $592,000 of net
operating loss carryforward for tax purposes as follows:
EXPIRATION NET OPERATING
DATE LOSS
-------------------------------
2009 $42,000
2010 550,000
-------------
$592,000
=============
NOTE F - Warrants, Options and Stock Purchase Plans
The Company reserved 100,000 shares of common stock for sale to eligible
employees through payroll deductions over six-month periods pursuant to
the 1983 Employee Stock Purchase Plan (the "Purchase Plan"). The
purchase price is the lower of 90% of the fair market value of the stock
on the first or last day of the purchase period. Under the Purchase
Plan, 3,079, 913 and 3,111 shares were issued during fiscal 1995, 1994
and 1993 at an average price of $3.56, $4.66 and $4.85 per share,
respectively. At July 31, 1995 and 1994, there were 67,488 and 70,824
shares, respectively, available for future purchase.
The Company has an incentive stock option plan established in 1983 and a
long-term incentive plan and a non-employee director stock option plan
established in 1995 (collectively the "Plans"). The long-term incentive
plan provides for the granting of options, restricted stock and/or
performance awards to key employees and the non-employee director plan
provides for the granting of options to outside members of the board of
directors to purchase common stock of the Company at the fair value at
the date of the grant. There are 64,000 and 21,000 shares of common
stock reserved under the 1995 incentive stock option plan and the 1995
non-employee director stock option plan, respectively. There are
outstanding options and stock appreciation rights under the 1983
incentive stock option plan; however, no additional options can be
granted under this plan. Options granted pursuant to the Plans are
generally exercisable ratably over a three to five year period and expire
after ten years.
Transactions under the Plan during fiscal years 1995, 1994 and 1993 were
as follows:
NUMBER OPTION
OF SHARES PRICE
--------- -------------
Outstanding July 31, 1992....... 92,500 $2.75 - $7.00
Options exercised............... (6,500) $2.75 - $3.00
Options cancelled............... (4,500) $3.00 - $7.00
------
Outstanding July 31, 1993....... 81,500 $2.75 - $7.00
Options exercised............... (4,000) $3.00
Options cancelled in connec-
tions with SARs............... (5,250) $3.00
Options canceled................ (1,000) $7.00
------
Outstanding July 31, 1994....... 71,250 $2.75 - $7.00
Options granted to non-employee
directors..................... 12,000 $3.94
Options exercised............... (950) $3.00
Options cancelled............... (5,100) $3.00 - $6.75
------
Outstanding July 31, 1995....... 77,200 $2.75 - $7.00
======
All of the outstanding options at July 31, 1995 and 1994 are exercisable.
Of the 77,200 shares covered by outstanding options at July 31, 1995,
40,200 were accompanied by stock appreciation rights. In addition to
options granted under the Plans, non-qualified options to purchase
105,000 shares have been issued to three officers of the Company at $5.00
per share which expire on December 31, 1996. Total shares of common
stock reserved pursuant to the Purchase Plan, the Plans and the non-
qualified options were 322,688.
Note G - Customer-funded Product Development
The Company is engaged in customer-funded product development projects in
which the Company shares a portion of the cost of developing the
technology and retains all rights to the technology. The Company earned
product development revenue of approximately $1,278,000, $1,938,000 and
$3,654,000 while incurring related cost of revenue of approximately
$839,000, $1,800,000 and $2,754,000 in fiscal years 1995, 1994 and 1993,
respectively. In addition to these costs of revenue, the Company
performed internal research and development of approximately $74,000,
$144,000 and $179,000 related to the customer-funded product development
project in such years.
Note H - Pension Plan
The Company has a qualified defined contribution plan ("Pension Plan")
and a 401(k) employee savings plan ("Savings Plan") covering all
employees meeting age and length of service requirements. The Pension
Plan provides only for Company contributions of 10% of the active
participants' eligible wages. Pension expense, which is funded
quarterly, was $135,000, $139,000 and $151,000 in 1995, 1994 and 1993,
respectively. The Savings Plan requires no Company contributions;
however, the Company may make contributions at the discretion of the
Board of Directors. No contributions were made to the Savings Plan
during fiscal years 1995, 1994 or 1993. The Company has no other
postretirement benefits.
Note I - Earnings Per Share
The Company uses the modified treasury stock method to calculate primary
earnings per share. No adjustment was made to either the net loss or the
number of shares outstanding for common stock equivalents in calculating
earnings per share for fiscal 1995 and 1994 as such adjustments would
have been antidilutive. Net income for fiscal year 1993 was adjusted,
using the modified treasury stock method, for interest expense
eliminated, and for additional interest income, on the assumed proceeds
from the exercise of common stock equivalents in excess of 20% of the
Company's outstanding common stock. Such adjusted net income is divided
by the average adjusted common stock and common stock equivalents
outstanding to determine the earnings per share for fiscal year 1993.
Common stock equivalents include shares issuable upon exercise of the
Company's qualified and non-qualified stock options and warrants.
Weighted average number of shares outstanding and earnings per share for
the three years ended July 31 are computed as follows:
1995 1994 1993
------ ------ ------
Weighted average number of
shares outstanding............ 513,287 506,750 501,208
Additional shares using the
modified treasury stock
method........................ 0 0 100,730
------- ------- -------
AVERAGE NUMBER OF SHARES
OUTSTANDING AND EQUIVALENTS.. 513,287 506,750 601,938
======= ======= =======
Net income (loss)..............$(361,773) $(630,803) $454,438
Increase in interest income
using modified treasury
stock method.................. 0 0 0
Reduction of interest expense
using the modified treasury
stock method.................. 0 0 12,185
------- ------- -------
ADJUSTED NET INCOME (LOSS) $(361,773) $(630,803) $466,623
======= ======= =======
EARNINGS (LOSS) PER SHARE $(0.70) $(1.24) $0.78
==== ==== ====
There was no material difference between primary and fully diluted
earnings per share for the periods presented.
Note J - Segment Information
The Company manufactures products for, and performs development projects
in, the field broadly described as "remote sensing". Remote sensing is
defined as the detection or measurement of various physical parameters of
an object or system without direct contact with the object or system
being observed. 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 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 systems in the remote sensing field. Some of
these projects lead to the incorporation of newly developed technology
into the standard product line. These two portions of the business are
conducted by the same pool of personnel using the same operating space
and equipment and constitute a single industry segment. The following
table sets forth information with respect to domestic and international
sales of the Company's products and services:
1995 1994 1993
------ ------ ------
International--
Government agencies
Europe............. $2,255,232 $ 916,314 $4,689,800
Other.............. 43,299 4,898 0
--------- ------- ---------
2,298,531 921,212 4,689,800
Industry............... 7,377 454 608,400
--------- ------- ---------
2,305,908 921,666 5,298,200
Domestic--
U.S. Government agencies 1,228,389 1,521,666 964,861
Other.................. 83,500 137 5,000
--------- --------- ---------
1,311,889 1,521,803 969,861
--------- --------- ---------
$3,617,797 $2,443,469 $6,268,061
========= ========= =========
The Company's revenue each year is derived from a small
number of high dollar value equipment sales and contracts
with a relatively small number of customers. These customers
change from year-to-year and no single customer has generated
a majority of the Company's revenue during any consecutive
years. Sales to major customers in each of the three years
ended July 31, 1995 are as follows:
FISCAL YEAR ENDED JULY 31,
CUSTOMER DESCRIPTION 1995 1994 1993
------ ------ ------
(in thousands)
European standard product customer $1,152 0 0
European standard product customer 917 0 0
European product development customer 90 $ 624 $3,446
European standard product customer 0 35 912
U.S. Government....................... 1,228 1,522 965
Item 9. Changes in and disagreements on accounting and
financial disclosure
None
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company
The information included in the Company's definitive Proxy
Statement for its 1995 Annual Meeting of Stockholders (the
"Proxy Statement") under the captions "Securities Reporting"
and "Election of Directors" and under the subheading "Certain
Information Regarding Nominees" is incorporated herein by
reference.
Item 11. Executive Compensation
The information included in the Company's Proxy Statement
under the caption "Election of Directors - Compensation of
Executive Officers" is incorporated herein by reference.
Item 12. Security ownership of certain beneficial owners and
management
The information included in the Company's Proxy Statement
under the captions "Principal Stockholders" and "Election of
Directors - Stock Ownership of Management" is incorporated
herein by reference.
Item 13. Certain Relationships and related transactions
NONE
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
reports on form 8-K.
(a) Financial Statements, Financial Statement Schedules and
Exhibits
1) The following consolidated financial statements are
included in response to Item 8 of this report.
Independent Auditors' Report
Consolidated Statements of Operations and Stockholder's
Equity for the years ended July 31, 1995, 1994 and 1993
Consolidated Balance Sheets--July 31, 1995 and 1994
Consolidated Statements of Cash Flows for the years
ended July 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2) Schedules are omitted because of the absence of the
conditions under which they are required or because the
information called for is included in the consolidated
financial statements or notes thereto.
3) The exhibits filed herewith are set forth in the
Index to Exhibits which is incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last
quarter of the Company's fiscal year ended July 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DAEDALUS ENTERPRISES, INC.
By: /S/ Thomas R. Ory
Thomas R. Ory,
President
October 23, 1995
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 Company and in the
capacities and on the dates indicated.
/S/ Thomas R. Ory /S/ Charles G. Stanich
Thomas R. Ory Charles G. Stanich
President Vice President-Research &
(Chief Executive Officer) Development (Chief Operating
Director Officer)
October 23, 1995 Director
October 23, 1995
/S/ Vincent J. Killewald /S/ John D. Sanders
Vincent J. Killewald John D. Sanders
Vice President-Finance Chairman of the Board
Treasurer Director
(Chief Financial & October 23, 1995
Accounting Officer)
October 23, 1995
/S/ William S. Panschar /S/ Philip H. Power
William S. Panschar Philip H. Power
Director Director
October 23, 1995 October 23, 1995
- ------------------------
Garry D. Brewer
Director
October , 1995
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
3.01 Certificate of Incorporation of the Company, with
all amendments thereto, as presently in effect
(filed as exhibit 3.01 to the 1994 Form 10-K and
incorporated herein by reference)
3.02 Bylaws of the Company, with all amendments thereto,
as presently in effect (filed as exhibit 3.02 to
the 1994 Form 10-K and incorporated herein by
reference)
4.42 Revolving Credit, Overline and Term Loan Agreement
dated March 1, 1991, between the Company and
Manufacturers National Bank, Ann Arbor, providing a
Term Loan in the amount of $425,000 and a Revolving
Credit Note in the amount of $2,500,000 with an
allowance to temporarily increase the revolving
loan by $1,000,000 (filed as exhibit 4.42 to the
Company's Quarterly Report on Form 10-Q for the
second quarter of fiscal 1991 and incorporated
herein by reference)
4.43 Real Estate Mortgage in the amount of $425,000
dated March 1, 1991, between the Company and
Manufacturers National Bank, Ann Arbor (formerly
filed as exhibit 4.43, Term Note, to the Company's
Quarterly Report on Form 10-Q for the second
quarter of fiscal 1991 and incorporated herein by
reference)
4.44 Revolving Credit Note in the amount of $2,500,000
dated March 1, 1991, between the Company and
Manufacturers National Bank, Ann Arbor (filed as
exhibit 4.44 to the Company's Quarterly Report on
Form 10-Q for the second quarter of fiscal 1991 and
incorporated herein by reference)
4.45 Overline Note in the amount of $1,000,000 dated
March 1, 1991, between the Company and
Manufacturers National Bank, Ann Arbor (filed as
exhibit 4.45 to the Company's Quarterly Report on
Form 10-Q for the second quarter of fiscal 1991 and
incorporated herein by reference)
4.46 First Amendment to Real Estate Mortgage dated
December 23, 1991 between the Company and
Manufacturers Bank, N.A. (filed as exhibit 4.46 to
the Company's Quarterly Report on Form 10-Q for the
second quarter of fiscal 1992 and incorporated
herein by reference)
4.47 First Amendment to Revolving Credit, Overline
Credit and Term Loan Agreement and Revolving Credit
Note between the Company and Manufacturers Bank,
N.A. dated December 23, 1991 (filed as exhibit 4.47
to the Company's Quarterly Report on Form 10-Q for
the second quarter of fiscal 1992 and incorporated
herein by reference)
4.48 Overline Note in the amount of $3,000,000 dated
December 23, 1991 between the Company and
Manufacturers Bank, N.A. (filed as exhibit 4.48 to
the Company's Quarterly Report on Form 10-Q for the
second quarter of fiscal 1992 and incorporated
herein by reference)
4.49 Revolving Credit Note in the amount of $2,500,000
dated December 23, 1991 between the Company and
Manufacturers Bank, N.A. (filed as exhibit 4.49 to
the Company's Quarterly Report on Form 10-Q for the
second quarter of fiscal 1992 and incorporated
herein by reference)
4.50 Second Amendment to Revolving Credit, Overline
Credit and Term Loan Agreement and Revolving
Credit Note between the Company and Comerica Bank,
formerly known as Manufacturers Bank, N.A., dated
November 30, 1992 (filed as exhibit 4.50 to the
Company's Quarterly Report on Form 10-Q for the
first quarter of fiscal 1993 and incorporated
herein by reference)
4.51 Third Amendment to Revolving Credit, Overline
Credit and Term Loan Agreement, between the Company
and Comerica Bank, dated November 30, 1993 (filed
as exhibit 4.51 to the Company's Quarterly Report
on Form 10-Q for the first quarter of fiscal 1994
and incorporated herein by reference)
4.52 Revolving Credit Note in the amount of $3,000,000
dated November 30, 1993, between the Company and
Comerica Bank (filed as exhibit 4.52 to the
Company's Quarterly Report on Form 10-Q for the
first quarter of fiscal 1994 and incorporated
herein by reference)
4.53 Revolving Credit Note in the amount of $3,000,000
dated November 30, 1994, between the Company and
Comerica Bank (filed as exhibit 4.53 to the
Company's Quarterly Report on Form 10-Q for the
first quarter of fiscal 1995 and incorporated
herein by reference)
10.60* 1983 Incentive Stock Option Plan (filed as exhibit
10.60 to the 1994 Form 10-K and incorporated herein
by reference)
10.605* Form of Warrant issued to Directors (filed as
exhibit 10.605 to the 1994 Form 10-K and
incorporated herein by reference)
10.606* Warrant issued to Mr. William S. Panschar (filed as
exhibit 10.606 to the 1992 Form 10-K and
incorporated herein by reference)
10.607* Non-Qualified Stock Option Agreement with Mr.
Thomas R. Ory, dated November 8, 1989 (filed as
exhibit 10.607 to the 1993 Form 10-K and
incorporated herein by reference)
10.608* Non-Qualified Stock Option Agreement with Mr.
Charles G. Stanich, dated November 8, 1989 (filed
as exhibit 10.608 to the 1993 Form 10-K and
incorporated herein by reference)
10.609* Non-Qualified Stock Option Agreement with Mr.
Vincent J. Killewald, dated October 25, 1991 (filed
as exhibit 10.609 to the 1993 Form 10-K and
incorporated herein by reference)
10.610* Long-term Incentive Plan (filed as exhibit 10.610
to the 1994 Form 10-K and incorporated herein by
reference)
10.611* Stock Option Plan for Nonemployee Directors (filed
as exhibit 10.611 to the 1994 Form 10-K and
incorporated herein by reference)
10.612* Form of Senior Officer Severance Agreement with
Messrs. Ory, Stanich and Killewald, dated June 21,
1995 (filed herewith)
10.901 Teaming agreement between the Company and Coastal
Environmental Services, Inc., dated March 17, 1994.
(filed as exhibit 10.901 to the 1994 Form 10-K and
incorporated herein by reference)
10.90 Agreement between the Company and James W. Sewall
Company, dated March 25, 1994, for the development
of the Airborne Digital Camera and related software
for pipeline right-of-way monitoring and other
applications (filed as exhibit 10.902 to the 1994
Form 10-K and incorporated herein by reference)
10.903 Teaming agreement between the Company and Pacific
Meridian Resources, dated August 17, 1994 (filed as
exhibit 10.903 to the 1994 Form 10-K and
incorporated herein by reference)
11.01 Computation of Earnings Per Share (filed herewith)
21.01 Subsidiaries of the Company (filed herewith)
23.01 Consent of Deloitte & Touche LLP (filed herewith)
27.01 Financial Data Schedule (filed herewith--EDGAR
filing only)
*Company's management contracts and compensatory plans and
arrangements which are required to be filed as exhibits to
this Form 10-K.
The Company will furnish to its stockholders a copy of
any of the exhibits listed above upon written request and
upon payment of a reasonable fee (limited to the Company's
reasonable expenses in furnishing such exhibits). Request
for exhibits may be directed to Vincent J. Killewald, Vice
President-Finance, Daedalus Enterprises, Inc., P.O. Box 1869
Ann Arbor, MI 48106.
EXHIBIT 11.01
COMPUTATION OF EARNINGS PER SHARE
1995 1994 1993
------ ------ ------
AS REPORTED $(0.70) $(1.24) $0.78
====== ====== =====
PRIMARY
Average shares outstanding 513,287 506,750 501,208
Dilutive stock options--based
upon treasury stock method
using average market price 0 0 100,730
------- ------- -------
TOTAL $513,287 $506,750 $601,938
======= ======= =======
Net earnings as reported $(361,773) $(630,803) $454,438
Effect of application of
modified treasury stock
method 0 0 12,185
------- ------- -------
ADJUSTED NET EARNINGS $(361,773) $(630,803) $466,623
======= ======= =======
PER SHARE AMOUNT $(0.705) $(1.245) $0.775
======= ======= =======
FULLY DILUTED
Average shares outstanding 513,287 506,750 501,208
Dilutive stock options--based
upon treasury stock method
using ending market price 0 0 100,730
------- ------- -------
TOTAL 513,287 506,750 601,938
======= ======= =======
Net earnings as reported $(361,773) $(630,803) $454,438
Effect of application of
modified treasury stock
method 0 0 12,185
------- ------- -------
ADJUSTED NET EARNINGS $(361,773) $(630,803) $466,623
======= ======= =======
PER SHARE AMOUNT $(0.705) $(1.245) $0.775
======= ======= =======
EXHIBIT 21.01
Subsidiaries of the Company
Name of Subsidiary Place of Incorporation
Technical Promotions, Inc. Michigan
Daedalus International, Inc. Michigan
Daedalus Enterprises Export Corp.<F1> Barbados
<F1> Small Foreign Sales Corporation
Exhibit 23.01
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements Nos. 33-27873, 33-62531 and 33-62533 of Daedalus
Enterprises, Inc. on Form S-8 of our report dated September
15, 1995 (October 12, 1995 as to the fifth paragraph of Note
D) appearing in the Annual Report on Form 10-K of Daedalus
Enterprises, Inc. and Subsidiaries for the year ended July
31, 1995.
/S/ Deloitte & Touche LLP
Deloitte & Touche LLP
Ann Arbor, Michigan
October 24, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> JUL-31-1995
<CASH> 76,797
<SECURITIES> 0
<RECEIVABLES> 1,404,484
<ALLOWANCES> 2,500
<INVENTORY> 635,541
<CURRENT-ASSETS> 2,341,818
<PP&E> 2,873,900
<DEPRECIATION> 1,464,358
<TOTAL-ASSETS> 3,930,417
<CURRENT-LIABILITIES> 1,540,345
<BONDS> 0
<COMMON> 5,149
0
0
<OTHER-SE> 2,384,923
<TOTAL-LIABILITY-AND-EQUITY> 3,930,417
<SALES> 3,617,797
<TOTAL-REVENUES> 3,624,371
<CGS> 2,018,807
<TOTAL-COSTS> 2,018,807
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