UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [no fee required]
For the fiscal year ended July 31, 1996
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, 1996 (computed by reference to the average bid and asked
prices of the Registrant's common stock): $1,003,839. (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, 1996: 532,824 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
1996 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 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. This data is 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 1996, the Company shared costs on two U.S. government
sponsored Small Business Innovation Research (SBIR) programs. One of these
programs, Large Format Multispectral Camera, is scheduled for completion
late in fiscal 1997. The other, Laser Search and Rescue, will be completed
in fiscal 1998. The Company is conducting marketing efforts and is
actively seeking partners for participation in Phase III commercialization
efforts for these two programs.
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:
Standard Customer-Funded Product
Year Systems Development Systems Total
(000) (000) (000)
----------------------------------------------------------
1996 $1,657 $ 430 $2,087
1995 2,340 1,278 3,618
1994 505 1,938 2,443
<PAGE>
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:
INTERNATIONAL AND DOMESTIC REVENUE
(in thousands of dollars)
-------------------------------------------------------------------
Year International Domestic
-------------------------------------------------------------------
Asia Europe Other(1) U.S. Gov't. Other Total
---- ------ ------- ---------- ----- -----
1996 $562 $ 814 $0 $ 618 $ 93 $2,087
1995 $ 43 $2,255 $8 $1,228 $ 84 $3,618
1994 $ 5 $ 916 $0 $1,522 $ 0 $2,443
(1) Revenue from geographic areas that amount to less than 10%
of total revenue are shown as "Other."
International 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, international 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.
<PAGE>
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 the U.S. Government
agencies accounted for approximately 30%, 34% and 63% of revenue for fiscal
1996, 1995 and 1994, respectively. Revenue from Italian customers accounted
for approximately 7%, 28%, and 32% of revenue for fiscal 1996, 1995, and
1994, respectively. The decrease in fiscal 1996 Italian sales occurred
since the market for the Company's current products is near saturation in
Italy.
In fiscal 1996, 1995 and 1994, the Company had four, three and two major
customers, respectively, each accounting for at least 10% of the Company's
revenue from operations. Such major customers accounted for approximately
81%, 91% and 88% of the Company's revenue from operations in fiscal 1996,
1995 and 1994, respectively. See Note J to Consolidated Financial
Statements. No single customer accounted for more than 50% of the Company's
revenue in any 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
$469,000, $586,000 and $398,000 for fiscal 1996, 1995 and 1994,
respectively. In fiscal 1996, 1995 and 1994 the Company expended
approximately $395,000, $839,000 and $1,800,000, respectively, in performing
customer-funded product development under contracts 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 $26,000,
$74,000 and $144,000 in fiscal 1996, 1995 and 1994, 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 four provisional patent applications this year. Three
of these are for technology developed during the performance of SBIR
programs and one is for technology related to the Company's airborne digital
camera.
The Company has five employees whose primary responsibility is product
development and five 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
<PAGE>
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 few 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 also competes on the basis of 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 was awarded two Phase II awards for
approximately $600,000 each during fiscal 1996. 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, 1996 backlog of unfilled customer orders was approximately
$895,000 compared to approximately $455,000 one year earlier. The Company
expects to fill substantially all of its August 1996 backlog during fiscal
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Business Development - New Orders and Backlog".
Government Contracts
Contracts with U.S. Government agencies generally provide for reimbursement
of costs plus a fee. 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 two 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. Management has focused its efforts on two areas of the plan with
the most near-term potential. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Business Development -
Growth Plan".
<PAGE>
The first initiative involves the development of the airborne digital camera
(ADC) 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 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
completed three contracts in fiscal 1996 for which it has utilized the ADC.
The Company believes that the completion of the enhanced ADC will give the
Company added capabilities, increasing the size of the potential market. In
the fourth quarter of fiscal 1996, the Company entered into a Marketing
Alliance with a major company which provides infrastructure maintenance
services to the electric and gas utilities, and railroads in the U. S. and
Canada. This company will market the facility management information
products developed through the use of the airborne digital camera and
related data processing techniques.
The second initiative involves developing domestic environmental
applications for the Company's airborne multispectral scanners. In order to
exploit this market, the Company must perform specific applications and show
the results to be reliable and cost-effective. To date, the Company has
completed several contracts in this area and continues to pursue other
demonstration projects.
Competition in these new areas of business will 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.
These growth plan initiatives will require changes in the Company's sales
and marketing strategies and budgets. The Marketing Alliance for the
infrastructure information service calls for the Company's partner to
perform most marketing and sales functions. However, the Company will
provide brochures, data samples, and other support to its partner. In
addition, it is anticipated that this market will require more participation
in trade shows and more space advertising than the Company has engaged in
during previous years.
The customers for these new products and services will also be different
than those involved in the Company's core product business. It is expected
that these customers are unfamiliar with the Company. However, they are
familiar with the services provided by the Marketing Alliance partner and
this is one of the primary strategies to accelerate areas to these markets.
Although implementation of the growth plan began in fiscal 1995, material
revenue impact is not expected until late fiscal 1997 at the earliest.
These strategies are intended to reduce fluctuations in the Company's
revenue and earnings and enhance the Company's profitability and stockholder
value. However, the Company's implementation of these growth initiatives
has been slowed by the small size of the Company's staff, by its current
financial position and by the lack of solid market information caused by the
Company's limited resources. The Company is seeking partners and additional
financing to help bring these services into the market more quickly. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Sources of Capital".
<PAGE>
Personnel
As of September 30, 1996, the Company had 16 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 57 President & Chief Executive Officer and Director
Charles G. Stanich 52 Vice President-Research & Development & Chief
Operating Officer and Director
Jane E. Barrett 45 Treasurer
- ---------------------------------------------------------------------------
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.
Ms. Barrett, who was elected Treasurer in August 1996, joined the Company
in May 1996 as its Controller. Prior to joining the Company, Ms. Barrett
was employed by Federal-Mogul Corporation, a Fortune 500 manufacturer and
distributor of automotive parts, from 1984 to 1996 in various managerial
accounting positions. Her most recent position was International Accounting
Manager with responsibility for the financial functions of a $600 million
international division.
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. This facility, which is owned by the Company, is
subject to a mortgage. See Note D to Consolidated Financial Statements.
The Company is attempting to sell its building and lease back a portion of
the facility from the new owner. If the Company must relocate, Management
is confident that a suitable facility can be found and that the Company's
business will not be materially disrupted. See "Liquidity and Sources of
Capital."
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 1996.
<PAGE>
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, 1994. 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. Jan. Apr. July Oct. Jan. Apr. July
31 31 30 31 31 31 30 31
1994 1995 1995 1995 1995 1996 1996 1996
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High 3-5/8 2 2 2-1/2 2-3/4 2-3/4 2-1/4 2-1/4
Low 2 2 2 2 2 1-1/2 1-9/16 1-1/2
Cash divid-
end per
share $.08 $.00 $.00 $.09 $.00 $.00 $.00 $.00
</TABLE>
As of September 30, 1996, 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.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
(thousands except for per share data)
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------
<S> <C> <C> <C> <C> <C>
FIVE YEAR SUMMARY OF OPERATIONS AND FINANCIAL
POSITION
Operating Revenue
Standard products $1,657 $2,340 $ 505 $2,614 $2,699
Customer-funded product development 430 1,278 1,938 3,654 3,268
----- ----- ----- ----- -----
2,087 3,618 2,443 6,268 5,967
Other Income 3 6 10 37 34
----- ----- ----- ----- -----
2,090 3,624 2,453 6,305 6,001
Costs and Expenses
Cost of revenue - standard products(1) 1,037 1,180 223 1,064 1,171
Cost of revenue - product development(1) 395 839 1,800 2,754 2,384
Research and development 469 586 398 205 192
Selling and administrative 947 1,473 977 1,624 1,623
Interest 77 83 36 25 31
----- ----- ----- ----- -----
2,925 4,161 3,434 5,672 5,401
<PAGE>
EARNINGS (LOSS) BEFORE INCOME TAXES (835) (537) (981) 633 600
Provision (Credit) for Income Taxes 132 (175) (328) 179 172
----- ----- ----- ----- -----
INCOME (LOSS) BEFORE CUMULATIVE
CHANGE IN ACCOUNTING PRINCIPLE (967) (362) (653) 454 428
Cumulative Change in Accounting Principle net of
approximately $9,000 of income taxes 0 0 22 0 0
----- ----- ----- ----- -----
NET EARNINGS (LOSS) $(967) $(362) $(631) $ 454 $428
===== ===== ===== ===== =====
Earnings (Loss) Per Share Before Cumulative
Change in Accounting Principle(2) $(1.85) $(0.70) $(1.28) $0.78 $0.70
===== ===== ===== ===== =====
Net Earnings (Loss) Per Share(3) $(1.85) $(0.70) $(1.24) $0.78 $0.70
===== ===== ===== ===== =====
Cash Dividends Per Share $0.00 $0.17 $0.15 $0.13 $0.11
===== ===== ===== ===== =====
Total Assets $2,769 $3,930 $4,041 $4,762 $5,762
Working Capital $213 $801 $1,562 $2,144 $1,844
Long-term Debt $0 $0 $278 $314 $352
Stockholders' Equity $1,473 $2,390 $2,830 $3,516 $3,094
Sales by Geographic Area
Europe $814 $2,255 $916 $5,296 $4,411
Asia 562 43 5 0 2
United States 711 1,312 1,522 970 1,546
Australia 0 8 0 2 0
Other 0 0 0 0 8
----- ----- ----- ----- -----
$2,087 $3,618 $2,443 $6,268 $5,967
===== ===== ===== ===== =====
(1) Certain reclassifications have been made to the 1992 cost of revenue data to conform to
classifications used in 1996, 1995, 1994 & 1993.
(2) See Note A of Notes to Consolidated Financial Statements for a description of the cumulative
change in accounting principle.
(3) 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
<PAGE>
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 incurred significant losses in the last three fiscal years.
These losses have caused the Company to experience severe liquidity problems
and its bank line of credit has been utilized to maintain operations during
this period. The Company received a substantial amount of new business in
the last six months of fiscal 1996, however, its operations were profitable
for that period of time (excluding the effect of a $149,000 increase in the
valuation allowance for deferred taxes described under "Provision for Income
Taxes"). The Company's short-term viability and operating results are
dependent on its ability to acquire additional equity capital or generate
increases in new business and cash flow to a level sufficient to support the
Company's operations and maintain its ability to borrow money under its line
of credit agreement. See "Business Development - New Orders and Backlog"
and "Liquidity and Sources of Capital". The Company's long-term viability
is dependent upon its ability to successfully implement its Growth Plan and
attain consistent profitability. See "Business Development - Growth Plan.
Operating Revenue
STANDARD PRODUCT TOTAL
PRODUCT DEVELOPMENT OPERATING
REVENUE REVENUE REVENUE
---------------------------------
% OF % OF
(000) TOTAL (000) TOTAL (000)
- ----------------------------------------------------
1996 $1,657 79 $ 430 21 $2,087
1995 2,340 65 1,278 35 3,618
1994 505 21 1,938 79 2,443
Standard product revenue during fiscal 1996 was lower than fiscal 1995 due
to reduced backlog at the beginning of fiscal 1996 and the low number of new
contracts received in fiscal 1996. The increase in fiscal 1995 standard
product revenue over the fiscal 1994 level is attributable to two large
contracts received in the last two months of fiscal 1995.
Product development revenue was significantly lower in fiscal 1996 as
compared to both fiscal 1995 and 1994. Contributing to the decline in
customer-funded product development revenue in fiscal 1996 was the low level
of product development backlog at the beginning of the fiscal year and
delays in the receipt of new product development contracts until late in the
fiscal year. The decline in customer-funded product development revenue was
largely due to the delay by the U.S. Congress in approving a budget for its
current fiscal year resulting in a delay in awarding Small Business
Innovation Research contracts and in the Company's recognition of revenue
from such contracts. The decline in customer-funded product development
revenue in fiscal 1995 from fiscal 1994 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.
The level of the Company's revenues 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 contracts. Although
fluctuations are normal given the Company's reliance on a small number of
high value contracts for the majority of its revenue, the low level of
standard product orders received in the last three years is causing severe
liquidity problems. See "Business Development - New Orders and Backlog" and
"Liquidity and Capital Resources".
<PAGE>
Domestic vs. International Revenue
INTERNATIONAL DOMESTIC TOTAL
OPERATING OPERATING OPERATING
REVENUE REVENUE REVENUE
--------------------------------------
% OF % OF
(000) TOTAL (000) TOTAL (000)
- --------------------------------------------------------
1996 $1,376 66 $711 34 $2,087
1995 $2,306 64 1,312 36 3,618
1994 921 38 1,522 62 2,443
The decrease in international operating revenue during fiscal 1996 compared
to fiscal 1995 is primarily due to the Company's receipt of contracts with a
lesser value during fiscal 1996 than the large contract orders received in
fiscal 1995 and, to a lesser extent, to the low international backlog as of
the beginning of fiscal 1996. The increase in international operating
revenue during fiscal 1995 compared to fiscal 1994 is primarily attributable
to two relatively large contracts received by the Company in the last two
months of fiscal year 1995. The decrease in domestic operating revenue
during fiscal 1996 compared to fiscal 1995 is due to the delay by the U.S.
Congress in approving a budget for its current fiscal year resulting in a
delay in awarding Small Business Innovation Research contracts and in the
Company's recognition of revenue from such contracts.
Management expects a significant portion of the Company's revenue to be
generated from the international market in fiscal 1997 and future years. To
mitigate foreign currency transaction losses, international contracts are
denominated in U.S. dollars and large standard product contracts are
generally secured by irrevocable letters of credit. The Company also
receives substantial deposits on many large contracts with international
customers.
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. The Company does not
expect significant interest income for fiscal 1997.
Major Customers
FISCAL YEAR ENDED JULY 31,
--------------------------
1996 1995 1994
CUSTOMER DESCRIPTION (000) (000) (000)
- ----------------------------------------------------------
Asian standard product customer $562
European standard product
customer 436 $1,152
European standard product
customer 186 917 $35
European product development
customer 90 624
U.S. Government 618 1,228 1,522
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. Revenue from the U.S. Government agencies accounted for
approximately 30%, 34% and 63% of revenue for fiscal 1996, 1995 and 1994,
respectively. Italian customers have been an important source of revenue
for the Company, generating 7%, 28% and 32% of operating revenue for fiscal
years ended July 31, 1996, 1995 and 1994, respectively. The decrease in
1996 Italian sales occurred since the market for the Company's current
products is near saturation in Italy. See "Business Development - New
Orders and Backlog".
<PAGE>
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. Since that time, management has
concentrated its efforts on the two areas of the plan with the most near-
term potential.
The first growth area involves the use and sale of airborne digital cameras
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
completed three contracts in fiscal 1996 for which it has utilized the ADC.
The Company believes that there is a sizable market for data that can be
produced with its current ADC and believes that the completion of the
enhanced ADC will give the Company added capabilities, increasing the size
of the potential market. In the fourth quarter of fiscal 1996, the Company
entered into a Marketing Alliance with a major company which provides
infrastructure maintenance services to electric and gas utilities and
railroads in the United States and Canada. The Company is also continuing to
pursue various alternatives to obtain the additional funding necessary to
bring these services to market. However, there can be no assurance that
such funding will be obtained. See "Liquidity and Sources of Capital".
The other growth area involves performing domestic environmental surveys to
provide a better applications market for its airborne multispectral
scanners. In order to exploit this market, the Company must perform
specific applications and show the results to be reliable and cost-
effective. To date, the Company has completed several contracts in this
area and continues to pursue other demonstration projects.
Although implementation of the growth plan began in fiscal 1995, material
revenue impact is not expected until late fiscal 1997 at the earliest.
These strategies are intended to reduce fluctuations in the Company's
revenue and earnings and enhance the Company's profitability and stockholder
value. However, the Company's implementation of these growth initiatives
has been slowed by the small size of the Company's staff, by its current
financial position and by the lack of solid market information caused by the
Company's limited resources. The Company is seeking partners and additional
financing to help bring these services into the market more quickly. See
"Liquidity and Sources of Capital".
New Orders and Backlog
In fiscal 1996, the Company received orders in the amount of approximately
$2,517,000 as compared to approximately $3,274,000 in fiscal 1995.
Approximately $1,259,000 of the bookings received by the Company in fiscal
1996 were for customer-funded product development, with the remainder for
standard products. In the first quarter of fiscal 1997, the Company
received a large international standard product order for $1,189,000 which
had been delayed since February 1996. The Company's backlog at the end of
fiscal 1996 (not including the fiscal 1997 contract) was approximately
$1,014,000, compared to approximately $574,000 at the end of fiscal 1995.
Approximately $107,000 of the fiscal 1996 backlog is for standard products,
with the balance being related to the two Phase II Small Business Innovation
Research (product development) contracts for approximately $600,000 each,
awarded during the first quarter of fiscal 1996 and executed in the third
quarter.
The Company is engaged in negotiations for several standard product orders.
The negotiations for these orders have not been finalized and there can be
no assurance that these orders will be received. The Company has begun
<PAGE>
production for some of these standard product orders and has costly
subcomponents for one of the potential orders in stock.
The Company has received new orders at a level below that required for the
Company to be profitable in the last three fiscal years. Therefore, the
Company's ability to retain its line of credit and continue operations
depends upon the receipt of additional significant orders during fiscal 1997
in addition to the $1,189,000 order already received in the first quarter
of fiscal 1997. Management is hopeful that such orders will be received
although no assurances can be given. See "Liquidity and Sources of Capital".
The results of operations for future periods are dependent upon the receipt
and timing of future orders and the success of Management's growth strategy.
The Company's continued viability depends upon receiving orders at a level
similar to that experienced in the second half of fiscal 1996, which was
substantially higher than the first half of fiscal 1996. In an effort to
conserve the Company's cash resources, the Company reduced its workforce by
25% in the third quarter. The remaining employees are considered capable of
fulfilling the Company's obligations under its current contracts and under
the majority of the contracts currently being negotiated. If additional
orders are received which require an increase in staffing, the Company
believes that subcontracting or staff increases can be made without
jeopardizing contract completion.
Cost of Revenue
The following table sets forth for the three most recent fiscal years, cost
of standard product revenue as a percentage of standard product revenue,
cost of product development revenue as a percentage of product development
and cost of operating revenue as a percentage of operating revenue.
AS % OF
---------------------------------------------
STANDARD PRODUCT OPERATING
PRODUCT DEVELOPMENT REVENUE
- -------------------------------------------------------------
1996 63 92 69
1995 50 66 56
1994 44 93 83
In fiscal 1996, cost of standard product revenue and cost of product
development revenue increased as a percentage of related revenue compared to
the previous fiscal year due primarily to the Company operating
significantly below its capacity during the fiscal year, causing overhead
rates to increase substantially. Contributing to the high cost of revenue
in fiscal 1996 were increases in the Company's provision for obsolete and
excess inventory caused by the reappraisal of excess inventory due to the
recent low level of contracts received for standard products.
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.
Product development costs were unusually high in fiscal 1994 due to costs
associated with the MIVIS and MIDAS contracts. Although these contracts and
related smaller orders accounted for only 31% of product development revenue
in fiscal 1994, they accounted for approximately 48% of the Company's cost
of product development revenue. The increase in the cost of standard
product revenue in fiscal 1995 compared to fiscal 1994 was due to
concessions given to a customer to secure a standard product contract.
The cost of revenue percentage for fiscal 1997 will be dependent upon the
timing and mix of future contracts. See "Business Development - New Orders
and Backlog".
<PAGE>
Research and Development
COST % OF
(000) REVENUE
--------------------------------------
1996 $469 22
1995 586 16
1994 398 16
The majority of the Company's investment in research and development in
fiscal 1996 was related to enhancements to the ADC developed in fiscal 1995.
The increase in research and development expense in fiscal 1995 compared to
the previous fiscal year is primarily attributable to the development of the
ADC. 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 Company also shared costs in a number of
customer funded product development projects during fiscal 1996,1995 and
1994 but did so to a lesser extent in fiscal 1996 than in the preceding
years. See Note G of Notes to Consolidated Financial Statements.
Management's goal is to maintain research and development expense in the
near future at approximately the current levels, and then in the long-term
have research and development expense average approximately 5% of revenue so
as to continually improve its existing product line and develop new products
that are consistent with management's growth plan. Management realizes that
from time to time it may be required to invest more than 5% of revenues into
research and development to develop the products and services that the
Company will require 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
---------------------------------------
1996 $947 45
1995 1,473 41
1994 976 40
Selling and administrative expense in absolute terms decreased in fiscal
1996 compared to fiscal 1995, primarily due to the Company's 1996 third
quarter staffing reductions and also due to non-recurring marketing research
expenses which were incurred in fiscal 1995. The selling and administrative
expense increased as a percentage of revenue due to the lower sales volume
in fiscal 1996. Selling and administrative expense increased in fiscal 1995
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.
Interest
Interest expense decreased in fiscal 1996 compared to fiscal 1995 due
principally to the Company's reduced borrowings. Interest expense increased
in fiscal 1995 over the fiscal 1994 level primarily due to the Company's
higher interest rates and also due to its increased use of its line of
credit. Interest expense for fiscal 1997 will be dependent upon future
interest rates and the extent to which the Company utilizes its line of
credit during the year.
Provision for Income Taxes
The provision for income taxes in fiscal 1996 results from the increase in
the valuation allowance for deferred taxes. Such increase is attributable
to the effect of the taxable losses during the three most recent fiscal
years on the Company's liquidity and the resulting uncertainty of realizing
the net operating loss carryforward.
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL
The Company's primary sources of liquidity were funds from operations and
borrowings under a secured line of credit. The Company's line of credit
provides for borrowings of up to $1,250,000 with availability subject to a
formula. The first $950,000 bears interest at one and one-half percent
above the bank's prime rate and the remaining $300,000 bears interest at
three percent above the bank's prime rate. The line of credit becomes due
and payable on November 1, 1996. As of July 31, 1996, borrowings under the
line of credit formula were limited to approximately $950,000 pursuant to
the availability formula. At that date, the Company had an outstanding
balance of $689,000 under the line of credit and an additional $258,000 of
the line reserved for a standby letter of credit. At August 31, 1996, the
Company was able to cancel the letters of credit and reduce its outstanding
balance to $269,000 due to the delivery and collection on two standard
product systems.
The line of credit agreement in effect at July 31, 1996 contained tangible
net worth and liquid asset to current liabilities covenants that were
measured quarterly and a debt coverage covenant that was measured at the end
of each second quarter and fiscal year. Although the Company was not in
compliance with these covenants at the end of fiscal 1996, the bank lender
waived the Company's lack of compliance for the July 31, 1996 measurement
date.
On October 25, 1996, the Company and its bank signed an agreement on a new
line of credit with availability subject to a revised formula. The new line
of credit is effective on October 25, 1996, will continue to be secured by
substantially all of the Company's assets and will not include financial
covenants. As the new debt facility will be a secured master demand note,
the Company has classified its total mortgage obligation as a current
liability. The interest rate on both the new line and the mortgage will be
one and one-half percent over the bank's prime rate. The new line of credit
agreement provides for borrowings of up to $1,550,000. The new availability
formula allows borrowings of up to $950,000 based on the value of the real
estate, with the remaining available borrowings based on 50% of the value of
certain receivables specified in the line of credit agreement. The new
availability formula would have permitted borrowings of up to $950,000 at
July 31, 1996 if in effect on that date. The mortgage continues to require
the Company to make monthly payments of $3,583 for both principal and
interest and to make a balloon payment on November 1, 2000. See Note D of
Notes to Consolidated Financial Statements.
In the event the bank believes that the prospect of payment of the Company's
indebtedness under the line of credit is impaired, the bank is permitted
under certain of the agreements governing the line of credit to declare such
indebtedness due and payable. The bank has indicated that it may limit the
amount which the Company is permitted to borrow under the line of credit in
the absence of continued improvement in the Company's business prospects or
progress toward the acquisition of a significant amount of equity capital.
If the Company is unable to borrow amounts necessary to fund its operations
or is required by the bank to repay the line of credit, its financial
position would be materially and adversely affected and the Company may have
no choice but to cease operations. Moreover, the Company must significantly
increase its backlog during fiscal 1997 in order to generate sufficient cash
flow to sustain its operations.
In order to provide additional working capital and retire current debt, the
Company is attempting to sell its building and lease back a portion of the
facility from the new owner. There can be no assurance that the building
can be sold at a price acceptable to the Company or that an acceptable
lease-back agreement can be negotiated. If the Company must relocate,
management is confident that a suitable facility can be found and that the
Company's business will not be materially disrupted. The sale of the
building is expected to result in the repayment of all currently outstanding
indebtedness to the Company's bank lender and the termination of the
existing line of credit. Management believes that a new line of credit
supported by receivables and other assets of the Company can be negotiated
with the current bank lender or a substitute bank which will be adequate to
support the Company's working capital needs provided that the Company's
<PAGE>
backlog increases significantly over the current level. The Company also
can negotiate a line of credit secured by the irrevocable letters of credit
received on large orders from international customers. However, any new
line of credit is likely to permit substantially less borrowing than the
current line of credit. There can be no assurance that the Company will be
able to acquire a replacement line of credit at all or that the level of
borrowing permitted under any replacement line of credit will be adequate
for the Company's working capital needs. The Company is also actively
pursuing additional equity financing through discussions with potential
investors possessing related technological and/or marketing capabilities
that can help the Company develop new markets for its facility management
information technology. However, there can be no assurance that such
financing can be obtained.
Working capital declined to $213,000 at July 31, 1996 from $801,000 at July
31, 1995, due largely to the loss for fiscal 1996. Current assets declined
by approximately $832,000 due primarily to the loss for the period and
payments on the line of credit from funds generated by the collection of a
large portion of the July 31, 1995 unbilled accounts receivable.
Contributing to the decline in current assets was the $41,000 increase in
the Company's reserve for obsolete and excess inventory. See "Cost of
Revenue".
Current liabilities decreased in fiscal 1996 largely due to the payment of
commission amounts accrued in fiscal 1995 and a decrease in accrued
compensation amounts due to fewer employees. Cash flow from operating
activities was $48,213 during fiscal 1996, primarily due to the $597,000
reduction in accounts receivable.
The Company expects to invest approximately $200,000 during fiscal 1997 for
capital expenditures, primarily for equipment and software relating to the
Company's growth plan. Due to its current financial position, the Company
intends to reduce internal research and development and to keep marketing
and other administrative costs to a minimum until its financial condition
improves significantly.
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, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended July 31, 1996. 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended July 31, 1996 in conformity with generally accepted accounting
principles.
<PAGE>
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note K, the
Company is experiencing difficulty in generating sufficient cash flow to
meet its obligations and sustain its operations, which raises substantial
doubt about its ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note K. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
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 18, 1996
(October 25, 1996 as to the third and fifth paragraphs of Note D and the
entire Note K)
<TABLE>
<CAPTION>
Consolidated Statements of Operations
Years Ended July 31,
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE
Standard Products $1,657,228 $2,339,540 $ 505,103
Product Development 429,558 1,278,257 1,938,366
--------- --------- ---------
2,086,786 3,617,797 2,443,469
Other Income 3,437 6,574 9,608
--------- --------- ---------
2,090,223 3,624,371 2,453,077
Costs and Expenses
Cost of revenue - standard products 1,036,539 1,179,648 222,672
Cost of revenue - product development 395,107 839,159 1,800,260
Research and development - Note G 469,369 586,466 398,390
Selling and administrative 947,155 1,473,252 976,490
Interest 76,638 82,619 36,255
--------- --------- ---------
2,924,808 4,161,144 3,434,067
--------- --------- ---------
LOSS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (834,585) (536,773) (980,990)
Provision (credit) for Income Taxes -
Note E 132,000 (175,000) (328,000)
--------- --------- ---------
LOSS BEFORE CUMULATIVE CHANGE
IN ACCOUNTING PRINCIPLE (966,585) (361,773) (652,990)
Cumulative Change in Accounting Principle
Net of Approximately $9,000 of Income
Taxes - Note A 0 0 22,187
--------- --------- ---------
NET LOSS $(966,585) $(361,773) $(630,803)
========= ========= =========
<PAGE>
NET LOSS PER SHARE BEFORE CHANGE IN
ACCOUNTING PRINCIPLE $(1.85) $(0.70) $(1.28)
Cumulative Change in Accounting Principle -
Note A 0.00 0.00 0.04
--------- --------- ---------
NET LOSS PER SHARE - Note I $(1.85) $(0.70) $(1.24)
========= ========= =========
Pro Forma Amounts Assuming the Changes
in Accounting Principle are Applied
Retroactively
NET LOSS $(966,585) $(361,773) $(652,990)
========= ========= =========
NET LOSS PER SHARE $(1.85) $(0.70) $(1.28)
Consolidated Statements of Stockholders'
Equity
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
- -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
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
Net loss (966,585)
Stock issued pursuant to employee stock
plans - 18,011 shares 180 49,208
--------- --------- ---------
Balances at July 31, 1996 $5,329 $1,162,339 $305,207
========= ========= =========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
July 31,
1996 1995
----------------------------
<S> <C> <C>
ASSETS-Note D
Current Assets
Cash and cash equivalents $ 56,768 $ 76,797
Accounts receivable, less allowance of
$2,500 - Note B 259,079 112,401
Unbilled accounts receivable - Note B 546,024 1,289,583
Inventories - Note A 640,213 635,541
Deferred tax asset - Note E 0 57,000
Deposits 0 131,000
Other current assets 7,829 39,496
--------- ---------
TOTAL CURRENT ASSETS 1,509,913 2,341,818
Property and Equipment - Note A
Land 177,131 177,131
Building 1,433,898 1,433,898
Machinery and equipment 947,002 807,222
Special equipment 268,589 455,649
--------- ---------
2,826,620 2,873,900
Less accumulated depreciation (1,606,526) (1,464,358)
--------- ---------
1,220,094 1,409,542
Deferred Tax Asset - Note E 0 71,000
Other Assets - Note C 39,446 108,057
--------- ---------
$2,769,453 $3,930,417
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable to bank - Note D $689,000 $642,000
Accounts payable 184,524 163,531
Accrued contract costs 0 22,950
Accrued compensation and related costs 97,936 150,401
Accrued commissions 1,129 176,755
Customer deposits 0 9,652
Reserve for product warranties 30,500 54,354
Other accrued liabilities 32,228 38,094
Current portion of long-term debt - Note D 261,261 282,608
--------- ---------
TOTAL CURRENT LIABILITIES 1,296,578 1,540,345
Stockholders' Equity - Note F
Common stock, $.01 par value
Authorized - 2,000,000 shares
Issued and outstanding - 532,924 shares
(1995 - 514,913 shares) 5,329 5,149
Additional paid-in capital 1,162,339 1,113,131
Retained earnings 305,207 1,271,792
--------- ---------
1,472,875 2,390,072
--------- ---------
$2,769,453 $3,930,417
========= =========
See Notes to Consolidated Financial Statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
Years Ended July 31,
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net loss before cumulative effect of
change in accounting principle $(966,585) $(361,773) $(652,990)
Adjustments to reconcile net income
to net cash provided by operating
activities, net of effect of change
in accounting principle
Depreciation 180,280 168,584 170,894
Amortization of software 65,805 84,942 107,015
Provision (credit) for deferred
income taxes 128,000 (135,000) (63,000)
Net book value of special equipment
sold 152,451 0 124,466
Loss on disposal of property and
equipment 0 2,553 129
Decrease (increase) in accounts
receivable 596,881 (627,429) 407,966
Decrease (increase) in inventories (4,672) 476,096 (425,600)
Decrease (increase) in income taxes
receivable 0 223,946 (139,947)
Decrease (increase) in deposits and
other assets 165,473 (133,392) 9,003
Increase (decrease) in accounts
payable and accrued liabilities (259,768) 44,031 (212,655)
Increase (decrease) in customer
deposits (9,652) (146,447) 154,179
--------- --------- ---------
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 48,213 (403,889) (520,540)
Investing Activities
Purchase of property and equipment (143,283) (134,844) (222,327)
Investment in capitalized software 0 0 (44,692)
-------- --------- ---------
CASH USED IN INVESTING ACTIVITIES (143,283) (134,844) (267,019)
Financing Activities
Proceeds from line of credit 1,967,749 2,572,000 970,000
Principal payments on line of credit (1,920,749) (2,055,000) (845,000)
Payments on long-term debt (21,347) (32,671) (36,820)
Proceeds of stock issued pursuant to
warrants, stock options and
Stock Purchase Plan 49,388 9,020 20,707
Dividends paid 0 (40,977) (76,189)
CASH PROVIDED BY FINANCING
ACTIVITIES 75,041 452,372 32,698
--------- --------- ---------
Decrease in cash (20,029) (86,361) (754,861)
Cash and cash equivalents at beginning
of year 76,797 163,158 918,019
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $56,768 $76,797 $163,158
========= ========= =========
See Notes to Consolidated Financial Statements.
</TABLE>
<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, 1996 and 1995 included work-in-process of approximately $104,000
and $91,000, 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 $119,000 at July 31, 1996.
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
<PAGE>
included in cost of revenue. During the fiscal year ended July 31, 1996,
the Company sold one such system with a cost of approximately $152,000.
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.
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.
New financial accounting standard. The Company has not completed the
process of evaluating the impact that will result from adopting Statement of
Financial Accounting Standard No. 123 "Accounting for Stock-Based
Compensation", which is effective for fiscal years beginning after December
15, 1995. The Company is, therefore, unable to disclose the impact that
adopting Statement of Financial Accounting Standard No. 123 will have on its
financial position and results of operations when such statements are
adopted. The Company has evaluated the impact that Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of" has on the financial
position and results of operations and has found it not to be material.
Note B - ACCOUNTS RECEIVABLE
Accounts receivable includes approximately $6,000 and $96,000 at July 31,
1996 and 1995, 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 $39,000 and $105,000 of unamortized
software at July 31, 1996 and 1995, respectively. No software was
capitalized in fiscal years 1995 and 1996.
Note D - NOTE PAYABLE AND LONG-TERM DEBT
On July 31, 1996, the Company had a $1,250,000 secured bank line of credit,
with availability subject to a formula, expiring November 1, 1996 and
bearing interest at one and one-half percent above the bank's prime rate on
the first $950,000 (effective rate of 9.75% and 9.25% at July 31, 1996 and
1995, respectively) and three percent above prime on the remaining $300,000.
At July 31, 1996, the Company had approximately $3,000 available pursuant
to the line of credit with an outstanding balance under this line of credit
of $689,000 with an additional $258,000 of the line reserved to support
existing standby letters of credit. The outstanding balance was $642,000 at
July 31, 1995.
The Company had a maximum balance outstanding of $747,000 and $1,087,000
during fiscal 1996 and 1995, respectively. The average outstanding balance
<PAGE>
and interest rate in fiscal 1996 and 1995 was $480,186 and 9.75% and
$589,322 and 9.34%, respectively.
The line of credit agreement in effect at July 31, 1996 included 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, 1996 the Company was not in compliance
with these covenants. The Company has obtained a waiver from its bank for
its violations at July 31, 1996.
The Company has a mortgage with a balance of $261,261 and $282,608 as of
July 31, 1996 and 1995, respectively, bearing interest at one and one-half
percent over prime (effective rate of 9.75% and 9.25% at July 31, 1996 and
1995, respectively). Monthly payments on the mortgage are $3,685 for both
interest and principal with the mortgage being due on November 1, 2000.
On October 25, 1996, the Company and its bank signed an agreement on a new
line of credit with availability subject to a revised formula. The new line
of credit is effective on October 25, 1996, will continue to be secured by
substantially all of the Company's assets and will not include financial
covenants. As the new debt facility will be a secured master demand note,
the Company has classified its total mortgage obligation as a current
liability. The interest rate on both the new line and the mortgage will be
one and one-half percent over the bank's prime rate. The new line of credit
agreement provides for borrowings of up to $1,550,000. The new availability
formula allows borrowings of up to $950,000 based on the value of the real
estate, with the remaining available borrowings based on 50% of the value
of certain receivables specified in the line of credit agreement. The new
availability formula would have permitted borrowings of up to $950,000 at
July 31, 1996 if in effect on that date. The mortgage continues to require
the Company to make monthly payments of $3,583 for both principal and
interest and to make a balloon payment on November 1, 2000. Aggregate
annual maturities of long-term debt based on the refinanced mortgage
interest rate of 9.75% are as follows:
FISCAL YEAR MATURITY
-------------------------------------
1997 $19,610
1998 21,610
1999 23,814
2000 28,546
2001 167,681
-------
$261,261
=======
Interest paid on all debt was approximately $77,000, $83,000 and $36,000 in
fiscal 1996, 1995 and 1994, respectively.
Note E - INCOME TAXES
The provision for income taxes in fiscal 1996 results from the increase in
the valuation allowance for deferred taxes. Such increase is attributable
to the effect of the taxable losses during the three most recent fiscal
years and the resulting uncertainty of realizing the net operating loss
carryforward. Provision (credit) for income taxes is made up of the
following components:
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Current $ 4,000 $ (40,000) $ 0
Deferred:
Tax provision (benefit) 128,000 (135,000) (63,000)
Benefit of net operating
loss carryback 0 0 (265,000)
------- -------- --------
PROVISION (CREDIT) FOR
INCOME TAXES $132,000 $(175,000) $(328,000)
======= ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax on earnings
at statutory rates (35%
in 1996, 1995 and 1994) $(292,000) $(188,000) $(343,000)
Effect of federal tax rate
difference as the result of
surtax exemptions 0 6,000 9,000
Foreign Sales Corporation tax
(benefit) (2,000) (10,000) (5,000)
Other 426,000 17,000 11,000
-------- -------- --------
PROVISION (CREDIT) FOR
INCOME TAXES $132,000 $(175,000) $(328,000)
======== ======== ========
</TABLE>
The Company paid $11,000 in federal corporate income taxes in fiscal year
1994. No federal corporate tax payments were made in fiscal years 1996 and
1995.
The temporary differences that give rise to deferred tax assets and
liabilities at July 31, 1996 and 1995 are as follows:
<PAGE>
<TABLE>
<CAPTION>
DEFERRED TAX ASSET (LIABILITY)
1996 1995
-----------------------------------
SHORT- LONG- SHORT- LONG-
TERM TERM TERM TERM
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating loss carry-
forward $379,000 $199,000
Accrued personal leave $14,000 $23,000
Inventory reserve 32,000 18,000
Warranty reserve 8,900 16,000
Capitalized software (11,000) (30,000)
Depreciation (34,000) (58,000)
Valuation allowance (47,000) (345,000)
Other 3,100 (40,000)
------ ------- ------ -------
$0 $0 $57,000 $71,000
====== ======= ====== =======
</TABLE>
For the current fiscal year, the Company has limited the recognition of
income tax benefit for its current operating losses due to cumulative losses
realized in recent years. The Company recorded a valuation allowance of
$392,000 as of July 31,1996. No valuation allowance was considered necessary
as of July 31, 1995. At July 31, 1996, the Company had approximately
$1,310,000 of net operating loss carryforward for tax purposes as follows:
EXPIRATION DATE NET OPERATING
LOSS
-------------------------------------
2009 $ 42,000
2010 507,000
2011 761,000
---------
$1,310,000
=========
Note F - STOCK 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, 1,011, 3,079 and
913 shares were issued during fiscal 1996, 1995 and 1994 at an average price
of $2.36, $3.56 and $4.66 per share, respectively. At July 31, 1996 and
1995, there were 66,918 and 67,488 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 39,850
exercisable options outstanding and 14,850 stock appreciation rights
outstanding under the 1983 incentive stock option plan; however, no
additional options can be granted under this plan. Options granted pursuant
<PAGE>
to the Plans are generally exercisable ratably over a three to five year
period and expire after ten years.
Transactions under the Plans during fiscal years 1996, 1995 and 1994 were as
follows:
NUMBER OPTION
OF SHARES PRICE
--------- ------
Outstanding July 31, 1993 81,500 $2.75 - $7.00
Options exercised (4,000) $3.00
Options cancelled in connection
with SARs (5,250) $3.00
Options cancelled (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 canceled (5,100) $3.00 - $6.75
-----------------------
Outstanding July 31, 1995 77,200 $2.75 - $7.00
Options granted to employees 15,000 $2.75
Options exercised (17,000) $2.75
Options cancelled (9,100) $2.75 - $6.75
-----------------------
Outstanding July 31, 1996 66,100 $2.75 - $7.00
Of the outstanding options at July 31, 1996 and 1995, 52,350 and 68,200 are
exercisable, respectively. Of the 66,100 shares covered by outstanding
options at July 31, 1996, 14,850 were accompanied by stock appreciation
rights. In addition to options granted under the Plans, non-qualified
options to purchase 100,000 shares have been issued to two officers of the
Company at $5.00 per share which expire on December 31, 1996 and 2,000 have
been issued to an employee at $4.00 per share which expire on September 1,
1999.
Total shares of common stock reserved pursuant to the Purchase Plan, the
"Plans" and the non-qualified options were 293,768.
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 $430,000, $1,278,000 and $1,938,000
while incurring related cost of revenue of approximately $395,000, $839,000
and $1,800,000 in fiscal years 1996, 1995 and 1994, respectively. In
addition to these costs of revenue, the Company performed internal research
and development of approximately $26,000, $74,000 and $144,000 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 $96,000, $135,000 and
$139,000 in 1996, 1995 and 1994, 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 1996, 1995 or 1994. The Company has no
other postretirement benefits.
<PAGE>
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 1996, 1995, and 1994 as such adjustments would
have been antidilutive.
Weighted average number of shares outstanding and earnings per share for the
three years ended July 31 are computed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------
<S> <C> <C> <C>
Weighted average number
of shares outstanding 522,597 513,287 506,750
Additional shares using the
modified treasury stock
method 0 0 0
------- ------- -------
AVERAGE NUMBER OF
SHARES OUTSTANDING
AND EQUIVALENTS 522,597 513,287 506,750
========= ======== =========
Net loss $(966,585) $(361,773) $(630,803)
======== ======== =========
LOSS PER SHARE $(1.85) $(0.70) $(1.24)
======== ======== =========
</TABLE>
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:
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
International
Government agencies
Europe $540,173 $2,255,232 $916,314
Other 0 43,299 4,898
--------- --------- -------
540,173 2,298,531 921,212
Industry 836,147 7,377 454
--------- --------- -------
1,376,320 2,305,908 921,666
Domestic
U.S. Government agencies 617,842 1,228,389 1,521,666
Other 92,624 83,500 137
--------- --------- ---------
710,466 1,311,889 1,521,803
--------- --------- ---------
$2,086,786 $3,617,797 $2,443,469
========= ========= =========
</TABLE>
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,
1996 are as follows:
FISCAL YEAR ENDED JULY 31,
CUSTOMER DESCRIPTION 1996 1995 1994
(000) (000) (000)
- ----------------------------------------------------------
Asian standard product
customer $562
European standard product
customer 436 $1,152
European standard product
customer 186 917 $35
European product development
customer 90 624
U.S. Government 618 1,228 1,522
Note K - GOING CONCERN MATTERS
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the financial
statements during the years ended July 31, 1996, 1995 and 1994, the Company
incurred losses of $966,585, $361,773 and $$630,803, respectively, and has
classified all of its debt as current for the years ended July 31, 1996 and
1995. These factors among others may indicate that the Company will be
unable to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. As described
in Note D, the Company was not in compliance with the covenants of its line
of credit agreement at July 31, 1996, but a waiver was obtained from the
bank for its violations. The Company has reached agreement with its bank on
a new line of credit with availability subject to a revised formula,
effective October 25, 1996. As a result of the covenant violation and since
the new debt facility is in the form of a secured master demand note, the
Company has classified the balance of its long-term debt ($241,000 related
<PAGE>
to its mortgage) as a current liability. The Company's continuation as a
going concern is dependent upon its ability to generate sufficient cash flow
to meet its obligations on a timely basis, to comply with the terms of its
financing agreement, to obtain additional financing or refinancing as may be
required, and ultimately to attain profitability. The Company is also
actively pursuing additional equity financing through discussions with
potential customers possessing related technological and/or marketing
capabilities that can help it develop the new markets for its facility
management information technology.
Item 9. Changes in and disagreements on accounting and financial disclosure
NONE
PART III
Item 10. Directors and Executive Officers of the Company
The information included in the Company's definitive Proxy Statement for its
1996 Annual Meeting of Stockholders (the "Proxy Statement") under the
captions "Section 16(a) Beneficial Ownership Reporting Compliance" 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, 1996,
1995 and 1994
Consolidated Balance Sheets--July 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years
ended July 31, 1996, 1995 and 1994
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.
<PAGE>
(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, 1996.
<PAGE>
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 25, 1996
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
Director (Chief Operating Officer)
October 25, 1996 Director
October 25, 1996
/s/Jane E. Barrett /s/John D. Sanders
- ----------------------- -------------------------
Jane E. Barrett John D. Sanders
Treasurer Chairman of the Board
(Principal Financial & Director
Accounting Officer) October 25, 1996
October 25, 1996
/s/William S. Panschar /s/Philip H. Power
- ----------------------- -------------------------
William S. Panschar Philip H. Power
Director Director
October 25, 1996 October 25, 1996
INDEX TO EXHIBITS
The Commission File Number for all reports filed on Forms 10-K, 10-Q or 8-K
filed by the Company is 0-8193.
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)
<PAGE>
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 A Fourth Amendment to Revolving Credit, Overline Credit and Term
Loan Agreement, between the Company and Comerica Bank, dated
November 30, 1994 (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)
4.53 B Fifth Amendment to Revolving Credit, Overline Credit and Term Loan
Agreement, between the Company and Comerica Bank, dated October 30,
1995 (filed as exhibit 4.53 to the Company's Quarterly Report on
Form 10-Q for the first quarter of fiscal 1996 and incorporated
herein by reference)
<PAGE>
4.54 Revolving Credit Note between the Company and Comerica Bank, dated
October 30, 1995 (filed as exhibit 4.54 to the Company's Quarterly
Report on Form 10-Q for the first quarter of fiscal 1996 and
incorporated herein by reference)
4.55 Mortgage Extension Agreement between the Company and Comerica Bank,
dated October 30, 1995 (filed as exhibit 4.55 to the Company's
Quarterly Report on Form 10-Q for the first quarter of fiscal 1996
and incorporated herein by reference)
4.56 Sixth Amendment to Revolving Credit, Overline Credit and Term Loan
Agreement, between the Company and Comerica Bank, dated June 12,
1996 (filed as exhibit 4.56 to the Company's Quarterly Report on
Form 10-Q for the third quarter of fiscal 1996 and incorporated
herein by reference)
4.57 Master Revolving Note and Advance Formula Agreement between the
Company and Comerica Bank, both dated October 25, 1996 (filed
herewith)
10.60* 1983 Incentive Stock Option Plan (filed as exhibit 10.60 to the 1994
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)
10.610* 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
and Stanich, dated June 21, 1995 (filed as Exhibit 10.612 to the
1995 Form 10-K and incorporated herein by reference))
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)
10.902 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)
*Company's management contracts and compensatory plans and arrangements
which are required to be filed as exhibits in 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 Jane E. Barrett, Treasurer, Daedalus
Enterprises, Inc., P.O. Box 1869 Ann Arbor, MI 48106.
Exhibit 4.57
[COMERICA LOGO] Advance Formula Agreement
THIS AGREEMENT is made this 25th day of October, 1996, by Daedalus
Enterprises, Inc., a Michigan corporation ("Debtor") to COMERICA BANK
("Bank"), a Michigan banking corporation of 100 Renaissance Center, Detroit,
Michigan 48243.
For and in consideration of the loans and other credit which Debtor
may now or hereafter obtain or request from Bank which are secured pursuant
to a Security Agreement dated March 1, 1991 ("Security Agreement"), and for
other good and valuable consideration, Debtor agrees as follows:
1. FORMULA LOANS. The credit which Bank may now or hereafter
extend to Debtor subject to the limitations of this Agreement and to the
conditions and limitations of any other agreement between Debtor and Bank is
identified as follows:
All indebtedness under a $1,550,000.00 note dated October 25, 1996
made by Debtor to Bank.
and any extensions, renewals or substitutions, whether in a greater or
lesser amount, including any letters of credit issued thereunder ("Formula
Loans").
2. ADVANCE FORMULA. Debtor warrants and agrees that Debtor's
indebtedness to Bank for the Formula Loans shall never exceed the sum of:
(a) *Fifty* percent (50%) of its Eligible Accounts, as defined
below; and
(b) the lesser of N/A percent (N/A%) of its Eligible Inventory,
as defined below, or N/A Dollars ($N/A); and
(c) the following, if any*:
SEE ATTACHED SCHEDULE A
--------------------
*None, if left blank
3. FORMULA COMPLIANCE. If the limitations in paragraph 2,
above, are exceeded at any time, Debtor shall immediately pay Bank sums
sufficient to reduce the Formula Loans by the amount of such excess, or, if
Bank in its sole discretion shall so agree, Debtor shall provide Bank
additional collateral in the form of cash or other property with a value, as
determined by Bank, that when added to the elements set forth in paragraph 2
will constitute compliance with said limitations.
4. ELIGIBLE ACCOUNT. "Eligible Account" shall mean an Account
(as defined in the Security Agreement, but shall not include interest and
service charges) arising in the ordinary course of Debtor's business which
meets each of the following requirements:
(a) it is not owing more than N/A (N/A) days after the date of
the original invoice or other writing evidencing such
Account:
(b) it is not owing by an Account Debtor (as defined in the
Security Agreement) who has failed to pay N/A percent (N/A%)
or more of the aggregate amount of its Accounts owing to
Debtor within N/A (N/A) days after the date of the
respective invoices or other writings evidencing such
Accounts:
(c) it arises from the sale or lease of goods and such goods
have been shipped or delivered to the Account Debtor under
such Account; or it arises from services rendered and such
services have been performed:
(d) it is evidenced by an invoice, dated not later than the date
of shipment or performance rendered to such Account Debtor
or some other evidence of billing acceptable to Bank;
(e) it is not evidenced by any note, trade acceptance, draft or
other negotiable instrument or by any chattel paper, unless
such note or other document or instrument previously has
been endorsed and delivered by Debtor to Bank;
(f) it is a valid, legally enforceable obligation of the Account
Debtor thereunder, and is not subject to any offset,
counterclaim or other defense on the part of such Account
Debtor or to any claim on the part of such Account Debtor
denying liability thereunder in whole or in part;
(g) it is not subject to any sale of accounts, any rights of
offset, assignment, lien or security interest whatsoever
other than to Bank;
(h) it is not owing by a subsidiary or affiliate of Debtor, nor
by an Account Debtor which (i) does not maintain its chief
executive office in the United States of America, (ii) is
not organized under the laws of the United States of
America, or any state thereof, unless such Account Debtor is
a Canadian subsidiary of General Motors, Ford or Chrysler,
or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality or
other instrumentality thereof;
(i) it is not an account owing by the United States of America
or any state or political subdivision thereof, or by any
department, agency, public body corporate or other
instrumentality of any of the foregoing, unless all
necessary steps are taken to comply with the Federal
Assignment of Claims Act of 1940, as amended, or with any
comparable state law, if applicable, and all other necessary
steps are taken to perfect Bank's security interest in such
account;
(j) it is not owing by an Account Debtor for which Debtor has
received a notice of (i) the death of the Account Debtor or
any partner of the Account Debtor, (ii) the dissolution,
liquidation, termination of existence, insolvency or
business failure of the Account Debtor, (iii) the
appointment of a receiver for any part of the property of
the Account Debtor, of (iv) an assignment for the benefit of
creditors, the filing of a petition in bankruptcy, or the
commencement of any proceeding under any bankruptcy or
insolvency laws by or against the Account Debtor;
(k) it is not an account billed in advance, payable on delivery,
for consigned goods, for guaranteed sales, for unbilled
sales, for progress billings, payable at a future date in
accordance with its terms, subject to a retainage or
holdback by the Account Debtor or insured by a surety
company; and
(l) it is not owing by any Account Debtor whose obligations
Bank, acting in its sole discretion, shall have notified
Debtor are not deemed to constitute Eligible Accounts.
An Account which is at any time an Eligible Account, but which subsequently
fails to meet any of the foregoing requirements, shall forthwith cease to be
an Eligible Account.
5. ELIGIBLE INVENTORY. Unless stated otherwise in paragraph 11
below, "Eligible Inventory" shall be valued at the lesser of cost or present
market value in accordance with generally accepted accounting principles,
consistently applied, and shall mean all of Debtor's Inventory (as defined
in the Security Agreement) which is in good and merchantable condition, is
not obsolete or discontinued, and which would properly be classified as "raw
materials" or as "finished goods inventory" under generally accepted
accounting principles, consistently applied, excluding (a) Debtor's work in
process, consigned goods, inventory located outside the United States of
America, (b) inventory covered by or subject to a seller's right to
repurchase, or any consensual or nonconsensual lien or security interest
(including without limitation purchase money security interests) other than
in favor of Bank, whether senior or junior to Bank's security interest, and
(c) inventory that Bank, acting in its sole discretion, after having
notified Debtor, excludes Inventory which is at any time Eligible Inventory,
but which subsequently fails to meet any of the foregoing requirements,
shall forthwith cease to be Eligible Inventory.
6. CERTIFICATES, SCHEDULES AND REPORTS. Debtor will within 15
days after and as of the end of each month (and at such other times as Bank
may request), deliver to Bank agings of the Accounts and a schedule
identifying each Eligible Account (not previously so identified) and reports
as to the amount of Eligible Inventory. Debtor will from time to time
deliver to Bank such additional schedules, certificates and reports
respecting all or any of the Collateral (as defined in the Security
Agreement), the items or amounts received by Debtor in full or partial
payment of any of the Collateral, and any goods (the sale or lease of which
by Debtor shall have given rise to any of the Collateral) possession of
which has been obtained by Debtor, all and as to such extent as Bank may
request. Any such schedule, certificate or report shall be executed by a
duly authorized officer of Debtor and shall be in such form and detail s
Bank may specify. Any such schedule identifying any Eligible Account shall
be accompanied (if Bank so requests) by a true and correct copy of the
invoice evidencing such Eligible Account and by evidence of shipment or
performance.
7. INSPECTIONS; COMPLIANCE. Debtor shall permit Bank and its
designees from time to time to make such inspections and audits, and to
obtain such confirmations or other information, with respect to any of the
Collateral or any Account Debtor as Bank is entitled to make or obtain under
the Security Agreement, and shall reimburse Bank on demand for all costs and
expenses incurred by Bank in connection with such inspections and audits.
Debtor shall further comply with all of the other terms and conditions of
the Security Agreement.
8. DEFAULT. Any failure by Debtor to comply with this
Agreement shall constitute a default under the Formula Loans and under the
Security Agreement and the Indebtedness, as defined therein.
9. AMENDMENTS; WAIVERS. This Agreement may be amended,
modified or terminated only in writing duly executed by Debtor and Bank. No
delay by Bank in requiring Debtor's compliance herewith shall constitute a
waiver of such right. The rights granted to Bank hereunder are cumulative,
and in addition to any other rights Bank may have by agreement or under
applicable law. This Agreement shall supersede and replace in their entirety
any prior advance formula agreements in effect between Bank and Debtor.
10. DEMAND BASIS FORMULA LOANS. Notwithstanding anything to the
contrary set forth in this Agreement, in the event that the Formula Loans
are at any time on a demand basis, Debtor hereby acknowledges and agrees
that the formula set forth in paragraph 2 hereof is merely for advisory and
guidance purposes and Bank shall not be obligated to make any loans or
advances under the Formula Loans, and, notwithstanding the terms of
paragraph 3 above, Bank may at any time, at its option, demand payment of
any or all of the Formula Loans, whereupon the same shall become due and
payable.
11. SPECIAL PROVISIONS*:
- -----------------------
*None, if left blank
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year first above written.
Chief Executive Office Address: DEBTOR:
300 Parkland Plaza DAEDALUS ENTERPRISE, INC.
P.O. Box 1869
Ann Arbor, MI 48106 /s/ Thomas R. Ory
By:-----------------------
Accepted and Approved: Thomas R. Ory
Its: President
COMERICA BANK
/s/ Walter G. Byers By:----------------------
By:----------------------
Walter G. Byers Its:---------------------
Its: Vice President
DAEDALUS ENTERPRISES, INC. ADVANCED FORMULA AGREEMENT
SCHEDULE "A"
-$950,000 based on value of real estate
-Up to 50% of the unbilled or billed receivables owing from
the Thailand contract subject to the receivable being
supported by a $1 million irrevocable letter of credit in
form and substance satisfactory to the Bank
-Up to 50% of the unbilled or billed receivables owing from
NASA-Modis Simulator contract
COMERICA [LOGO] MASTER REVOLVING NOTE
Variable Rate-Demand (Business and Commercial
Loans Only)
Obligor # Note # Note Date: October 25, 1996
Tax Identification Number Amount: $1,550,000 Ann Arbor, Michigan
Maturity Date: On Demand
For Value Received, the undersigned promise(s) to pay ON DEMAND to
the order of Comerica Bank ("Bank"), at any office of the Bank in the State
of Michigan, **One Million Five Hundred Fifty Thousand and no/100** Dollars
(U.S.) (or that portion of it advanced by the Bank and not repaid as later
provided) with interest until demand or an Event of Default, as later
defined, at a per annum rate equal to the Bank's prime rate from time to
time in effect plus 1.50% per annum and after that at a rate equal to the
rate of interest otherwise prevailing under this Note plus 3% per annum (but
in no event in excess of the maximum rate permitted by law). The Bank's
"prime rate" is that annual rate of interest so designated by the Bank and
which is changed by the Bank from time to time. Interest rate changes will
be effective for interest computation purposes as and when the Bank's prime
rate changes. Interest shall be calculated on the basis of a 360-day year
for the actual number of days the principal is outstanding. Unless sooner
demanded, accrued interest on this Note shall be payable on the 1st day of
each month commencing December, 1996. If the frequency of interest payments
is not otherwise specified, accrued interest on this Note shall be payable
monthly on the first day of each month, unless sooner demanded. If any
payment of principal or interest under this Note shall be payable on a day
other than a day on which the Bank is open for business, this payment shall
be extended to the next succeeding business day and interest shall be
payable at the rate specified in this Note during this extension. A late
payment charge equal to 5% of each late payment may be charged on any
payment not received by the Bank within 10 calendar days after the payment
due date, but acceptance of payment of this charge shall not waive any
Default under this Note.
The principal amount payable under this Note shall be the sum of all
advances made by the Bank to or at the request of the undersigned, less
principal payments actually received in cash by the Bank. The books and
records of the Bank shall be the best evidence of the principal amount and
the unpaid interest amount owing at any time under this Note and shall be
conclusive absent manifest error. No interest shall accrue under this Note
until the date of the first advance made by the Bank; after that interest on
all advances shall accrue and be computed on the principal balance
outstanding from time to time under this Note until the same is paid in
full. At no time shall the Bank be under any obligation to make any
advances to the undersigned pursuant to this Note (notwithstanding anything
expressed or implied in this Note or elsewhere to the contrary, including
without limit if the Bank supplies the undersigned with a borrowing formula)
and the Bank, at any time and from time to time, without notice, and in its
sole discretion, may refuse to make advances to the undersigned without
incurring any liability due to this refusal and without affecting the
undersigned's liability under this Note for any and all amounts advanced.
This Note and any other indebtedness and liabilities of any kind of
the undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or
absolute, now existing or later arising, and however, evidenced
(collectively "Indebtedness") are secured by and the Bank is granted a
security interest in all items deposited in any account of any of the
undersigned with the Bank and by all proceeds of these items (cash or
otherwise), all account balances of any of the undersigned from time to time
with the Bank, by all property of any of the undersigned from time to time
in the possession of the Bank and by any other collateral, rights and
properties described in each and every mortgage, security agreement, pledge,
assignment and other security or collateral agreement which has been, or
will at any time(s) later be, executed by any (or all) of the undersigned to
or for the benefit of the Bank (collectively "Collateral"). Notwithstanding
the above, to the extent that any portion of the Indebtedness is a consumer
loan, that portion shall not be secured by any mortgage on or other security
interest in the undersigned's principal dwelling which is no a purchase
money security interest as to that portion, unless expressly provided to the
contrary in another place.
If the undersigned (or any of them) or any guarantor under a
guaranty of all or part of the Indebtedness ("guarantor") (a) fail(s) to pay
any of the Indebtedness when due, by maturity, acceleration or otherwise, or
fail(s) to pay any Indebtedness owing on a demand basis upon demand; or (b)
fail(s) to comply with any of the terms or provisions of any agreement
between the undersigned (or any of them) or any such guarantor and the Bank;
or (c) become(s) insolvent or the subject of a voluntary or involuntary
proceeding in bankruptcy, or a reorganization, arrangement or creditor
composition proceeding, (if a business entity) cease(s) doing business as a
going concern, (if a natural person) die(s) or become(s) incompetent, (if a
partnership) dissolve(s) or any general partner of it dies, becomes
incompetent or becomes the subject of a bankruptcy proceeding or (if a
corporation) is the subject of a dissolution, merger or consolidation; or
(d) if any warranty or representation made by any of the undersigned or any
guarantor in connection with this Note or any of the Indebtedness shall be
discovered to be untrue or incomplete; or (e) if there is any termination,
notice of termination, or breach of any guaranty, pledge, collateral
assignment or subordination agreement relating to all or any part of the
Indebtedness; or (f) if there is any failure by any of the undersigned or
any guarantor to pay when due any of its indebtedness (other than to the
Bank) or in the observance or performance of any term, covenant or condition
in any document evidencing, securing or relating to such indebtedness; or
(g) if the Bank deems itself insecure believing that the prospect of payment
of this Note or any of the Indebtedness is impaired or shall fear
deterioration, removal or waste of any of the Collateral; or (h) if there is
filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or
any of the Collateral, of these events (each a "Default"), may at its option
and without prior notice to the undersigned (or any of them), declare any or
all of the Indebtedness to be immediately due and payable (notwithstanding
any provisions contained in the evidence of it to the contrary), sell or
liquidate all or any portion of the Collateral, set off against the
Indebtedness any amounts owing by the Bank to the undersigned (or any of
them), charge interest at the default rate provided in the document
evidencing the relevant Indebtedness and exercise any one or more of the
rights and remedies granted to the Bank by any agreement with the
undersigned (or any of them) or given to it under applicable law.
The undersigned acknowledge(s) that this Note matures upon issuance,
and that the Bank, at any time, without notice, and without reason, may
demand that this Note be immediately paid in full. The demand nature of
this Note shall not be deemed modified by reference to a Default in this
Note or in any agreement to a default by the undersigned or to the
occurrence of an event of default (collectively an "Event of Default"). For
purposes of this Note, to the extent there is reference to an Event of
Default this reference is for the purpose of permitting the Bank to
accelerate Indebtedness not on a demand basis and to receive interest at the
default rate provided in the document evidencing the relevant Indebtedness.
It is expressly agreed that the Bank may exercise its demand rights under
this Note whether or not an Event of Default has occurred. The Bank, with
or without reason and without notice, may from time to time make demand for
partial payments under this Note and these demands shall not preclude the
Bank from demanding at any time that this Note be immediately paid in full.
All payments under this Note shall be in immediately available United States
funds, without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as
makers or by one or more as an accommodation party or otherwise), the
obligations and undertakings under this Note shall be that of all and any
two or more jointly and also of each severally. This Note shall bind the
undersigned, and the undersigned's respective heirs, personal
representatives, successors and assigns.
The undersigned waive(s) presentment, demand, protest, notice of
dishonor, notice of demand or intent to demand, notice of acceleration or
intent to accelerate, and all other notices and agree(s) that no extension
or indulgence to the undersigned (or any of them) or release, substitution
or nonenforcement of any security, or release or substitution of any of the
undersigned, any guarantor or any other party, whether with or without
notice, shall affect the obligations of any of the undersigned. The
undersigned waive(s) all defenses or right to discharge available under
Section 3-606 of the Uniform Commercial Code and waive(s) all other
suretyship defenses or right to discharge. The undersigned agree(s) that
the Bank has the right to sell, assign, or grant participations, or any
interest, in any or all of the Indebtedness, and that, in connection with
this right, but without limiting its ability to make other disclosures to
the full extent allowable, the Bank may disclose all documents and
information which the Bank now or later has relating to the undersigned or
the Indebtedness.
The undersigned agree(s) to reimburse the holder or owner of this
Note for any and all costs and expenses (including without limit, court
costs, legal expenses and reasonable attorney fees, whether inside or
outside counsel is used, whether or not suit is instituted and, if suit is
instituted, whether at the trial court level, appellate level, in a
bankruptcy, probate or administrative proceeding or otherwise) incurred in
collecting or attempting to collect this Note or incurred in any other
matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no
contract agreements, oral or written, establishing a term of this Note and
agree(s) that the terms and conditions of this Note may not be amended,
waived or modified except in a writing signed by an officer of the Bank
expressly stating that the writing constitutes an amendment, waiver or
modification of the terms of this Note. As used in this Note, the word
"undersigned" means, individually and collectively, each maker,
accommodation party, endorser and other party signing this Note in a similar
capacity. If any provision of this Note is unenforceable in whole or part
for any reason, the remaining provisions shall continue to be effective.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF MICHIGAN.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY
JURY IS A CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER
CONSULTING (OR HAVING HAD HE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR
CHOICE, KNOWINGLY AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY
RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE
OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
For Corporation or Partnerships
DAEDALUS ENTERPRISES, INC. /s/ Thomas R. Ory Its: President
300 Parkland Plaza By: -------------------
P.O. Box 1869 Thomas R. Ory
Ann Arbor, MI 48106
For Individuals, Sole Proprietorships, Trusts, or Estates
Name(s) of Obligor(s) Signature(s) of Obligor(s)
- ---------------------- --------------------- --------------------------
Street Address
- ---------------------- --------------------- --------------------------
City, State Zip Code
For Bank Use Only
Loan Officer Initials Loan Group Name
WGB CMD-AA
Loan Officer I.D. No. Loan Group No.
976 91168
Exhibit 11.01
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------
<S> <C> <C> <C>
AS REPORTED $ (1.85) $ (0.70) $ (1.24)
PRIMARY
Average shares outstanding $522,597 $513,287 $506,750
Dilutive stock options--
based upon treasury stock
method using average
market price 0 0 0
------- ------- -------
TOTAL $522,597 $513,287 $506,750
======= ======= =======
Net loss as reported $(966,585) $(361,773) $(630,803)
Effect of application of
modified treasury
stock method 0 0
ADJUSTED NET EARNINGS $(966,585) $(361,773) $(630,803)
======= ======= =======
PER SHARE AMOUNT $(1.850) $(0.705) $(1.245)
======= ======= =======
FULLY DILUTED
Average shares outstanding $522,597 $513,287 $506,750
Dilutive stock options--
based upon treasury
stock method using ending
market price 0 0 0
------- ------- -------
TOTAL $522,597 $513,287 $506,750
======= ======= =======
Net loss as reported $(966,585) $(361,773) $(630,803)
Effect of application of
modified treasury
stock method 0 0 0
------- ------- -------
ADJUSTED NET EARNINGS $(966,585) $(361,773) $(630,803)
======= ======= =======
PER SHARE AMOUNT $(1.850) $(0.705) $(1.245)
</TABLE>
Exhibit 21.01
SUBSIDIARIES OF THE COMPANY
Name of Subsidiary Place of Incorporation
Technical Promotions, Inc. Michigan
Daedalus International, Inc. Michigan
Daedalus Enterprises International
Corp.(1) Barbados
(1) 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 18, 1996 (October 25, 1996 as to the third and
fifth paragraphs of Note D and the entire Note K), (which expresses an
unqualified opinion and includes and explanatory paragraph relating to
substantial doubt about the Company's ability to continue as a going
concern) appearing in the Annual Report on Form 10-K of Daedalus
Enterprises, Inc. and Subsidiaries for the year ended July 31, 1996.
/s/Deloitte & Touche LLP
- ---------------------------
Deloitte & Touche LLP
Ann Arbor, Michigan
October 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1995
<CASH> 56,768
<SECURITIES> 0
<RECEIVABLES> 807,603
<ALLOWANCES> 2,500
<INVENTORY> 640,213
<CURRENT-ASSETS> 1,509,913
<PP&E> 2,826,620
<DEPRECIATION> 1,606,526
<TOTAL-ASSETS> 2,769,453
<CURRENT-LIABILITIES> 1,296,578
<BONDS> 0
<COMMON> 5,329
0
0
<OTHER-SE> 1,467,546
<TOTAL-LIABILITY-AND-EQUITY> 2,769,453
<SALES> 2,086,786
<TOTAL-REVENUES> 2,090,223
<CGS> 1,431,646
<TOTAL-COSTS> 1,431,646
<OTHER-EXPENSES> 1,493,162
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 76,638
<INCOME-PRETAX> (834,585)
<INCOME-TAX> 132,000
<INCOME-CONTINUING> (966,585)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (966,585)
<EPS-PRIMARY> (1.85)
<EPS-DILUTED> (1.85)
</TABLE>
