<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended October 31, 1997 Commission File Number 0-8193
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ---------------------
DAEDALUS ENTERPRISES, INC.
--------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-1873250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 1869
-------------
ANN ARBOR, MICHIGAN 48106 (313) 769-5649
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(Address of principal executive offices) (Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Number of shares outstanding of common stock, $.01 par value, as of December 3,
1997
534,574 shares
<PAGE> 2
FORM 10-Q
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DAEDALUS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
October 31,
- ------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING REVENUE
Standard products $ 356,588 $ 586,746
Product development 113,589 256,331
- ------------------------------------------------------------------------------------------------------------
470,177 843,077
Other Income 13,492 2,740
- ------------------------------------------------------------------------------------------------------------
483,669 845,817
COST AND EXPENSES
Cost of revenue - standard products 218,619 307,455
Cost of revenue - product development 136,958 213,808
Research and development 9,855 29,128
Selling and administrative 204,333 256,949
Interest 10,507 15,618
- ------------------------------------------------------------------------------------------------------------
580,272 822,958
- ------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) BEFORE INCOME TAXES (96,603) 22,859
CREDIT FOR INCOME TAXES - NOTE C 0 0
- ------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ (96,603) $ 22,859
- -------------------------------------------------------------------------===================================
NET EARNINGS (LOSS) PER SHARE $ (0.18) $ 0.04
- -------------------------------------------------------------------------===================================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE> 3
FORM 10-Q
DAEDALUS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, July 31,
1997 1997
(unaudited)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS - Note D
CURRENT ASSETS
Cash and cash equivalents $ 7,293 $ 39,068
Accounts receivable, less allowance of $2,500 137,279 239,703
Unbilled accounts receivable 225,117 28,500
Inventories - Note B 575,842 601,462
Other current assets 19,151 18,075
- -------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 964,682 926,808
PROPERTY AND EQUIPMENT
Land 177,131 177,131
Building 1,433,898 1,433,898
Machinery and equipment 841,766 831,767
Special equipment 464,921 445,310
- -------------------------------------------------------------------------------------------------------------
2,917,716 2,888,106
Less accumulated depreciation (1,774,447) (1,745,474)
- -------------------------------------------------------------------------------------------------------------
1,143,269 1,142,632
OTHER ASSETS 250 250
- -------------------------------------------------------------------------------------------------------------
$ 2,108,201 $ 2,069,690
- ---------------------------------------------------------------------------==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable to bank - Note D $ 310,000 $ 0
Accounts payable 71,233 197,563
Accrued compensation and related costs 76,817 103,369
Customer deposits 33,300 57,142
Reserve for product warranties 30,000 30,000
Other accrued liabilities 33,935 28,274
Mortgage debt - Note D 237,332 242,238
- -------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 792,617 658,586
STOCKHOLDERS' EQUITY
Common stock, $.01 par value
Authorized--2,000,000 shares 5,346 5,340
Issued and outstanding--534,574 shares
(July 31, 1997--534,024 shares)
Additional paid-in capital 1,165,778 1,164,700
Retained earnings 144,460 241,064
- -------------------------------------------------------------------------------------------------------------
1,315,584 1,411,104
- -------------------------------------------------------------------------------------------------------------
$ 2,108,201 $ 2,069,690
- ---------------------------------------------------------------------------==================================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE> 4
FORM 10-Q
DAEDALUS ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1997 1996
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (96,603) $ 22,859
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation 28,973 34,363
Amortization of software 0 14,594
Net book value of special equipment sold 0 138,726
Decrease (increase) in accounts receivable (94,193) 181,153
Decrease in inventory 25,620 69,928
Increase in other assets (1,076) (1,347)
Increase (decrease) in accounts payable and accrued expenses (147,222) 3,118
Decrease in customer deposits (23,842) 0
- --------------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES (308,343) 463,394
INVESTING ACTIVITIES
Purchase of property and equipment (29,610) (109,859)
- --------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (29,610) (109,859)
FINANCING ACTIVITIES
Proceeds from revolving line of credit 555,000 332,000
Payments on revolving line of credit (245,000) (679,000)
Payments on long-term debt (4,906) (4,583)
Proceeds of stock issued pursuant to stock option and
stock purchase plan 1,084 708
- --------------------------------------------------------------------------------------------------------------
CASH PROVIDED (USED) IN FINANCING ACTIVITIES 306,178 (350,875)
INCREASE (DECREASE) IN CASH (31,775) 2,660
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 39,068 56,768
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 7,293 $ 59,428
- -----------------------------------------------------------------------------=================================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE> 5
FORM 10-Q
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
NOTE A - BASIS OF PRESENTATION
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments) that are, in the opinion of management, necessary for a
fair presentation of the results of operations, financial position and cash
flows for the periods presented. The accompanying unaudited financial
statements have been prepared in accordance with the instructions to Form 10-Q
and, therefore, do not include all information necessary to be in conformity
with generally accepted accounting principles.
Reference is made to the Notes to Consolidated Financial Statements in the
Annual Report to Stockholders for the year ended July 31, 1997.
The results of operations for the three months ended October 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
NOTE B - INVENTORY
Inventory includes work-in-process of approximately $90,000 and $115,000 as
of October 31, 1997 and July 31, 1997, respectively. The remaining inventory
consists of parts and subassemblies, both purchased and manufactured, that can
be used in the manufacturing process or sold as spare parts.
NOTE C - INCOME TAXES
The Company estimates its provision for income taxes using its estimated annual
effective rate. The Company has limited the recognition of income tax
benefit for its net operating loss carryforwards due to cumulative losses
realized in recent years. The valuation allowance for deferred taxes is
$437,000 at October 31, 1997 and $409,000 at July 31, 1997.
NOTE D - REVOLVING CREDIT
On October 31, 1997, the Company had a $1,550,000 line of credit with a
bank, with availability subject to a formula, bearing interest at one and
one-half percent above the bank's prime rate (effective rate of 10%). The
formula is $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. As of October 31, 1997, total remaining
availability was $581,000 based on the formula. The outstanding balance under
this line of credit agreement was approximately $310,000 at October 31, 1997,
with $59,000 of the line of credit agreement reserved for a standby letter of
credit. This compares to an outstanding balance of zero (effective rate of 10%)
at July 31, 1997 with an additional $59,000 reserved for a standby letter of
credit.
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FORM 10-Q
The Company has classified its total mortgage liability as current because
the mortgage agreement is cross-collateralized and cross-defaulted with the line
of credit, which is a secured master demand note.
NOTE F - EARNINGS PER SHARE
The computation of net earnings per share is based on the weighted average
number of shares of common stock outstanding during the three month periods
ended October 31, 1997 and 1996. The weighted average number of shares used in
the computation was 534,391 and 533,124 for the three months ended October 31,
1997 and 1996, respectively, all of which were issued and outstanding. No
adjustments were made to either net earnings (loss) or the number of shares
outstanding in calculating earnings (loss) per share as such adjustments would
have been antidilutive.
NOTE G - SUBSEQUENT EVENT
The Company announced an agreement in principle to enter into a merger
agreement (the "Merger") with S. T. Research Corporation ("STR"), a Virginia
corporation, on November 11, 1997. Under the agreement, each of the outstanding
shares of STR would be exchanged for newly issued shares of the Company's
common stock and STR would become a wholly owned subsidiary of the Company. STR
is a supplier of technology-driven solutions for communications and radar
intercept equipment to the U. S. government (its principal customer) and a major
supplier of threat warning systems to the surface and subsurface community. STR
had revenues of approximately $24 million during its last fiscal year, and total
assets of approximately $10.7 million and working capital of approximately $1.5
million at September 30, 1997. The Merger is expected to close in the first
quarter of calendar 1998 and will be subject to the negotiation and execution of
a definitive merger agreement and the satisfaction of various conditions,
including the approval of the Merger by the shareholders of STR and approval by
the Company's stockholders of an amendment to its Certificate of Incorporation
to permit the issuance of shares pursuant to the Merger.
Item 2. 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.
<PAGE> 7
FORM 10-Q
These two portions of the business are conducted by the same pool of
personnel using the same equipment and operating space and constitute a single
industry segment. The margins associated with these two portions of the business
are different, with standard products generally having higher margins than
customer-funded development projects. The Company receives the majority of its
revenue from a small number of relatively large contracts. Standard product
contracts are generally of higher dollar value than customer-funded product
development contracts, with each contract representing a substantial portion of
total revenue each year. Therefore, the timing of the receipt of a standard
product sales contract as well as the related manufacturing endeavor can have a
material impact on a quarter-to-quarter or year-to-year comparison of the
Company's results of operations. Most standard product sales contracts and some
customer-funded product development contracts are also accompanied by a
significant deposit. Therefore, the timing of the contract receipt can have a
material impact on the Company's cash flow.
The Company incurred a loss in the first quarter of fiscal 1997 after incurring
significant losses in total for the last three fiscal years. These losses
have caused the Company to experience severe liquidity problems and its bank
line of credit is being utilized to maintain operations. The Company's
short-term viability and operating results are dependent on its ability to
acquire additional equity capital or increase the level of new business and cash
flow. See "Merger", "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 (described in the Company's Form 10-K)
and attain consistent profitability.
MERGER
The Company announced an agreement in principle to enter into a merger
agreement (the "Merger") with S. T. Research Corporation ("STR"), a Virginia
corporation, on November 11, 1997. Under the agreement, each of the outstanding
shares of STR would be exchanged for newly issued shares of the Company's common
stock and STR would become a wholly owned subsidiary of the Company. STR is a
supplier of technology-driven solutions for communications and radar intercept
equipment to the U. S. government (its principal customer) and a major supplier
of threat warning systems to the surface and subsurface community. STR had
revenues of approximately $24 million during its last fiscal year, and total
assets of approximately $10.7 million and working capital of approximately $1.5
million at September 30, 1997. The Merger is expected to close in the first
quarter of calendar 1998 and will be subject to the negotiation and execution of
a definitive merger agreement and the satisfaction of various conditions,
including the approval of the Merger by the shareholders of STR and approval by
the Company's stockholders of an amendment to its Certificate of Incorporation
to permit the issuance of shares pursuant to the Merger. The Company expects
its domestic and total consolidated revenues to increase materially if the
Merger is consummated and believes that the Merger will provide the Company with
additional equity capital on a consolidated basis.
<PAGE> 8
FORM 10-Q
OPERATING REVENUE
Standard product revenue and product development revenue for the three month
period ended October 31, 1997 decreased from the comparable period of fiscal
1997 due to the low level of backlog at the beginning of fiscal 1998 and the low
level of bookings received during the period.
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 fiscal years is causing severe
liquidity problems. See "Merger", "New Orders and Backlog" and "Liquidity and
Sources of Capital".
DOMESTIC VS. INTERNATIONAL REVENUE
International revenue represented 9% and 65% of operating revenue during
the first three months of fiscal 1998 and 1997, respectively. International
revenue decreased primarily due to the Company's low level of international
backlog at the beginning of fiscal 1998 and the low level of bookings received
during the period. The increase in domestic operating revenue during the first
quarter of fiscal 1998 from the same period in fiscal 1997 is due to the
Company's recognition of revenue on several domestic contracts that were in
backlog at the beginning of fiscal 1998.
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. See "Merger".
NEW ORDERS AND BACKLOG
In the three months ended October 31, 1997, the Company received orders in the
amount of approximately $98,000 as compared to approximately $1,259,000 in the
comparable period of fiscal 1997. The Company's backlog at the end of the first
quarter was approximately $278,000, compared to approximately $1,430,000 at the
end of the comparable period in fiscal 1997. Since the end of the first quarter
of fiscal 1998, the Company has received additional orders of $246,000.
Approximately $190,000 of the first quarter fiscal 1998 backlog is for standard
products, with the balance being related to the two Phase II Small Business
Innovation Research (product development) contracts.
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 some high value
components in inventory that will enable the Company to immediately recognize
revenue upon receiving one of these standard product orders. The results of
operations for future periods are dependent upon the receipt and timing of
future
<PAGE> 9
FORM 10-Q
orders, the success of management's growth strategy and the completion of the
Merger. See "Merger" and "Liquidity and Sources of Capital".
COST OF REVENUE
In the first quarter of fiscal 1998, cost of revenue increased as a percentage
of revenue compared to the same period in fiscal 1997 due primarily to higher
than anticipated costs on the two Small Business Innovative Research programs.
RESEARCH AND DEVELOPMENT
Research and development expense declined in the first quarter of fiscal 1998
as compared to the same period one year earlier primarily due to Airborne
Digital Camera enhancements in the first quarter of fiscal 1997.
SELLING AND ADMINISTRATIVE EXPENSE
Selling and administrative expense decreased in the first quarter of fiscal
1998 compared to the same period in fiscal 1997, primarily due to agent
commissions paid in the first quarter of fiscal 1997.
INTEREST
Interest expense decreased in the first quarter of fiscal 1998 compared to the
same period in fiscal 1997 due principally to the Company's reduced borrowings.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's primary sources of liquidity were funds from operations and
borrowings under a line of credit secured by substantially all of the Company's
assets including real estate. The Company's line of credit provides for
borrowings of up to $1,550,000, with availability subject to a formula, bearing
interest at one and one-half percent above the lending bank's prime rate. The
formula permits 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. As of October
31, 1997, the Company had an outstanding balance of $310,000 under the line of
credit, an additional $59,000 reserved for a standby letter of credit and
additional borrowing availability of $581,000.
The Company's mortgage indebtedness requires the Company to make monthly
payments of $3,585 for both principal and interest and to make a balloon
payment on November 1, 2000. The mortgage bears interest at one and one-half
percent over prime. The Company has classified its total mortgage liability
as current because the mortgage agreement is cross-collateralized and
cross-defaulted with the line of credit, which is a secured master demand note.
<PAGE> 10
FORM 10-Q
In the event the lending bank believes that the prospect of payment of the
Company's indebtedness under the line of credit is impaired, the lending bank is
permitted under the agreement governing the line of credit to declare such
indebtedness due and payable. The lending 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 if other sources of capital are not available. Moreover, the
Company must continue to significantly increase its backlog during fiscal 1998
in order to generate sufficient cash flow to sustain its operations. See "New
Orders and Backlog".
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 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 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 announced an agreement in principle to enter into the Merger with
STR which, if consummated, management believes will provide the Company with
additional equity capital and related technological and marketing capabilities
and will have a positive effect on the Company's short and long term
liquidity. The closing of the Merger is subject to the negotiation and
execution of a definitive merger agreement and the satisfaction or waiver of
certain conditions likely to be contained therein. As a result, there can be no
assurance that the Merger will be consummated. See "Merger" for a description
of the proposed Merger.
Working capital decreased to $172,000 at October 31, 1997 from $268,000 at
July 31, 1997, due primarily to the decreased revenue and earnings for the first
quarter. Current assets increased by approximately $38,000 due primarily
to an increase in receivables at the end of the first quarter.
Cash used by operating activities was $306,000 during the first quarter of
fiscal 1998 as compared to cash provided of $463,000 in the first quarter of
fiscal 1997, due primarily to the $147,000
<PAGE> 11
FORM 10-Q
reduction in accounts payable and accrued expenses and the $94,000 increase in
accounts receivable.
The Company expects continued investment for capital expenditures, primarily for
equipment and software relating to the Company's growth plan during the
remainder of fiscal 1998, but has not entered into any material commitments.
Due to its current financial position, the Company intends to reduce
internal research and development expenses and to keep marketing and other
administrative costs to a minimum until its financial condition improves
significantly.
The foregoing discussion and analysis contains a number of "forward-looking
statements", as that term is used in the Securities Exchange Act of 1934, with
respect to the Company's expectations for future periods. Such statements are
subject to various risks and uncertainties, which are described in the
foregoing discussion and analysis.
Item 3. Quantitative and Qualitative Disclosures About Market Risk - Not
applicable.
PART II - OTHER INFORMATION
All items omitted are not applicable or the answers thereto are negative.
Item 2(a). Changes in Securities and Use of Proceeds
On October 24, 1997, the Company's Bylaws were amended to provide that the
annual meeting of stockholders shall be held within the first two weeks of
December of each year or at such other date and time as the Board of Directors
may determine.
Item 6(a): Exhibits
Exhibit No. Description
----------- -----------
3.03 Bylaws of the Company, with all amendments thereto, as
presently in effect
27 Financial Data Schedule
<PAGE> 12
FORM 10-Q
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DAEDALUS ENTERPRISES, INC.
Date: December 3, 1997 by: /s/ Thomas R. Ory
------------------------------------
Thomas R. Ory, President & CEO
(Duly Authorized Officer)
Date: December 3, 1997 by: /s/ Jane E. Barrett
------------------------------------
Jane E. Barrett, Vice-President-Finance &
Treasurer
(Principal Financial & Accounting Officer)
<PAGE> 13
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.03 Bylaws of the Company, with all amendments thereto, as
presently in effect
27 Financial Data Schedule
<PAGE> 1
FORM 10-Q
EXHIBIT 3.03
BYLAWS
OF
DAEDALUS ENTERPRISES, INC.
OFFICES
1. The Corporation shall at all times maintain a registered office in
the State of Delaware, which, except as otherwise ordered by the Board of
Directors, shall be at Wilmington, Delaware.
2. The Corporation may also have offices at such other places within
or outside of the State of Delaware as the Board of Directors shall from time to
time appoint or the business of the Corporation require.
SEAL
3. The Corporation shall have a seal which shall have inscribed
thereon the name of the Corporation, the state of incorporation, and the words
"Corporate Seal". Such seal may be used by causing it or a facsimile to be
imprinted, affixed or otherwise reproduced.
CAPITAL STOCK
4. The shares of the capital stock of the Corporation shall be issued
by the Board of Directors, in such amounts, at such times, for such
consideration, and on such terms and conditions as the Board shall deem
advisable, subject to any restrictions and provisions of the Articles of
Incorporation of the Corporation and to any further provisions of these Bylaws.
5. The shares of the capital stock of the Corporation shall be
represented by certificates signed and sealed in accordance with the provisions
of the laws of the State of Delaware. Certificates shall have a form and
content complying with the laws of the State of Delaware and approved by the
Board of Directors.
6. The shares of the capital stock of the Corporation are transferable
only on the books of the Corporation upon surrender of the certificates therefor
properly endorsed for transfer, or otherwise properly assigned, and the
presentation of such evidences of ownership of the shares and validity of the
assignment as the Corporation may require.
7. The Corporation shall be entitled to treat the person in whose name
any share of stock is registered as the owner thereof for purposes of dividends
and other distributions in the course of business or in the course of
recapitalization, consolidation, merger, reorganization, liquidation, or
otherwise, and for the purpose of votes, approvals, and consents by
shareholders, and for the purpose of notices to shareholders, and for all other
purposes whatever, and shall not
<PAGE> 2
FORM 10-Q
be bound to recognize any equitable or other claim to or interest in such shares
on the part of any other person, whether or not the Corporation shall have
notice thereof, save as expressly required by the laws of the State of Delaware.
8. The Board of Directors may appoint one or more transfer agents and
registrars, and may require certificates for shares to bear the signature of
such transfer agent(s) and registrar(s).
9. Upon the presentation to the Corporation of a proper affidavit
attesting the loss, destruction or mutilation of any certificate for shares of
stock of the Corporation, the Board of Directors may direct the issuance of a
new certificate in lieu of and to replace the certificate so alleged to be lost,
destroyed or mutilated. The Board of Directors may require as a condition
precedent to the issuance of a new certificate any or all of the following,
to-wit: (a) additional evidence of the loss, destruction or mutilation claimed;
(b) advertisement of the loss in such manner as the Board of Directors may
direct or approve; (c) a bond or agreement of indemnity, in such form and amount
and with such surety (or without surety) as the Board of Directors may direct or
approve; (d) the order or approval of a court.
SHAREHOLDERS AND MEETINGS OF SHAREHOLDERS
10. All meetings of shareholders shall be held at such place within or
outside of the State of Delaware as shall be fixed by the Board of Directors and
stated in the notice of meeting.
11. The annual meeting of shareholders of the Corporation shall be held
on the second Wednesday in January of each year, at 2:00 o'clock in the
afternoon. Directors shall be elected at each annual meeting by a plurality
vote and such other business shall be transacted as may come before the
meeting. [Amended January 14, 1969 & Amended October 15, 1983]
12. Special meetings of shareholders may be called at any time by the
President and shall be called by the President or Secretary at the written
request of a majority of the directors or of shareholders holding a majority of
the shares of stock of the Corporation outstanding and entitled to vote. The
request shall state the purpose or purposes for which the meeting is to be
called. The notice of every special meeting of shareholders shall state the
purpose for which it is called.
13. Written notice of each meeting of shareholders shall be mailed to
each shareholder of record at his last address as it appears on the books of the
Corporation at least ten days prior to the date of the meeting.
14. The Board of Directors shall have power to close the stock transfer
books of the Corporation for a period not more than sixty nor less than ten days
preceding the date of any meeting of shareholders, or the date for payment of
any dividend, or the date for the allotment of rights, or the date when any
change or conversion or exchange of capital stock shall go into effect;
provided, however, that in lieu of closing the stock transfer books as
aforesaid, the Board of Directors may fix in advance a date not more than sixty
nor less than ten days preceding the date of any meeting of shareholders, or the
date for any payment of dividends, or the date for allotment of rights, or the
date when any change or conversion or exchange of capital stock shall
<PAGE> 3
FORM 10-Q
go into effect, as a record date for the determination of the shareholders
entitled to vote at any such meeting or entitled to receive payment of any such
dividend or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock, and in
such case only such shareholders as shall be shareholders of record on the date
so fixed shall be entitled to vote at such meeting, or to receive payment of
such dividend, or to receive such allotment of rights, or to exercise such
rights, as the case may be notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid. This
bylaw shall in no way affect the rights of a shareholder and his transferee or
transferor as between themselves.
15. The holders of a majority of the outstanding shares of stock of the
Corporation having voting power (excluding shares belonging to the Corporation)
present or represented by proxy shall constitute a quorum at any meeting of
shareholders for the transaction of business, except as otherwise provided by
statute. In the absence of a quorum, the shareholders present in person or by
proxy shall have power to adjourn the meeting from time to time, without notice
other than an announcement at the meeting, until a quorum is present. At such
adjourned meeting, any business may be transacted which might have been
transacted at the meeting as originally notified.
16. All proxies shall be filed with the secretary at or before the
meeting at which they are intended to be used. A proxy shall be deemed
sufficient if it appears on its face to confer the requisite authority and is
signed by the owner of the stock to be voted. No witnesses to the execution of
any proxy shall be required.
17. Unless otherwise provided by the Articles of Incorporation or by
statute, each shareholder of the Corporation shall, at every meeting of
shareholders, be entitled to one vote in person or by proxy for each share of
capital stock of the Corporation registered in his name.
18. Any other corporation owning voting shares in this Corporation may
vote the same by its President or by proxy appointed by him, unless some other
person shall be appointed to vote such shares by resolution of the Board of
Directors of such shareholder corporation. A partnership holding shares of this
Corporation may vote such shares by any partner or by proxy appointed by any
partner. [Amended December 11, 1990]
DIRECTORS AND MEETINGS OF DIRECTORS
19. The business of the Corporation shall be managed by the Board of
Directors who shall exercise all the powers of the Corporation not reserved to
or conferred on the shareholders by statute, the Articles of Incorporation or
the Bylaws of the Corporation.
20. The number of directors shall be not less than three (3) nor more
than nine (9). [Amended December 4, 1972]
<PAGE> 4
FORM 10-Q
21. Directors shall be elected at each annual meeting of shareholders
and shall hold office until the next annual meeting of shareholders and/or until
their respective successors are elected and qualified, or until they resign.
Directors need not be stockholders.
22. Vacancies in the Board of Directors occurring by reason of death,
resignation, increase in the number of directors, or otherwise, may be filled by
the remaining members of the Board by a majority vote, and the directors so
elected shall hold office until the next annual meeting of stockholders and
until their successors are duly elected.
23. Regular meetings of the Board of Directors shall be held at such
times and at such place or places as the directors shall, from time to time,
determine at a prior meeting. Special meetings of the Board may be called by
the Chairman of the Board or President of the Corporation and shall be called by
either of said officers upon the written request of any two directors. Special
meetings shall be held at the office of the Corporation or at such places as is
stated in the notice of the meeting. No notice shall be required for regular
meetings of the Board. Notices of special meetings shall be given by mail at
least five days before the meeting or by telegram at least three days before the
meeting. Notice may be waived. Notices need not include any statement of the
purpose of the meeting.
24. When all of the directors shall be present at any meeting, however
called or notified, they may act upon any business that might lawfully be
transacted at regular meetings of the Board, or at special meetings duly called,
and action taken at such meetings shall be as valid and binding as if legally
called and notified.
25. A majority of the Board of Directors shall constitute a quorum for
the transaction of business, and the acts of a majority of the directors present
at any meeting at which there is a quorum present shall be the acts of the
Board; provided, however, that the directors may act in such other manner, with
or without a meeting, as may be permitted by the laws of the State of Delaware
and provided further, that if all of the directors shall consent in writing to
any action taken by the Corporation, such action shall be as valid as though it
had been authorized at a meeting of the Board.
26. The Board of Directors may, by resolution passed by a majority of
the whole Board, designate three or more of their number to constitute an
executive committee to have and exercise the authority of the Board of Directors
between meetings of the Board, subject to such limitations and restrictions as
the Board may impose. The Board may appoint such other committees as it
considers appropriate.
27. Directors shall receive such salaries and such fees for attendance
at meetings of the Board or of committees thereof as the Board shall fix.
OFFICERS
28. The Board of Directors shall elect a Chairman, a President, a
Secretary, and a Treasurer and may elect one or more Vice Presidents, Assistant
Secretaries and Assistant
<PAGE> 5
FORM 10-Q
Treasurers. The Chairman and the President shall be directors of the
Corporation. Other officers need not be directors, but a Vice President who is
not a director cannot succeed to or fill the office of President. Any two of
the above offices, except those of President and Vice President, may be held by
the same person, but no officers shall execute, acknowledge or verify any
instrument in more than one capacity.
29. Officers of the Corporation shall hold office until they resign or
until their successors are chosen and qualified. Any officer, agent or employee
may be removed at any time by the Board. Vacancy occurring in any office or
position at any time may be filled by the Board.
30. All officers, agents and employees of the Corporation shall
respectively have such authority and perform such duties in the conduct and
management of the Corporation as may be delegated by the Board of Directors or
by these Bylaws.
31. Officers shall receive such compensation as may from time to time
be determined by the Board of Directors. Agents and employees shall receive such
compensation as may from time to time be determined by the President of the
Corporation.
32. The President shall preside at all meetings of shareholders. The
Chairman shall preside at all meetings of the Board of Directors; in his absence
the President shall preside.
33. The President shall be the executive officer of the Corporation,
supervising and directing the operations of the Business in accordance with the
policies determined by the Board of Directors.
34. The Vice President, in the absence or incapacity of the President,
shall perform the duties of that office. If there be more than one vice
president, the Board of Directors may designate the Vice President who is to
perform the duties of the President in the event of his absence or incapacity.
The Vice President shall have such other duties and authority as may be
delegated by the Board of Directors.
35. The Secretary shall attend all meetings of the Board of Directors
and all meetings of shareholders and shall record all votes and minutes from all
proceedings in a book to be kept for that purpose. He shall keep in safe
custody the seal of the Corporation and, when authorized by the Board, affix the
same to any instrument requiring it, and, when so affixed, it shall be attested
by his signature or by the signature of the Treasurer or an Assistant
Secretary. The Secretary shall perform such other duties and have such other
authorities as are delegated to him by the Board of Directors.
36. The Treasurer shall be responsible for all funds of the
Corporation, accounts receivable and payable, taxes and corporate debt. He
shall prepare and be responsible for all general ledger and financial statements
and statistical reports and shall perform such other duties as shall be assigned
by the Board of Directors.
<PAGE> 6
FORM 10-Q
37. The Board of Directors of the Corporation may require any officer,
agent or employee to give bond for the faithful discharge of his duty and for
the protection of the Corporation, in such sum and with such surety as the Board
deems advisable.
BANKING, CHECKS AND OTHER INSTRUMENTS
38. The Board of Directors shall by resolution designate the bank or
banks in which the funds of the Corporation shall be deposited, and such funds
shall be deposited in the name of the Corporation and shall be subject to checks
drawn as authorized by resolution of the Board of Directors.
39. The Board of Directors may in any instance designate the officers
and agents who shall have authority to execute any contract, conveyance, or
other instrument in behalf of the Corporation; or may ratify or confirm any
execution. When the execution of any instrument has been authorized without
specification of the executing officer or agents, the President or any Vice
President, and the Secretary or Assistant Secretary or Treasurer or Assistant
Treasurer may execute the same in the name and on behalf of the Corporation and
may affix the corporate seal thereto.
40. The fiscal year of the Corporation shall begin on the first day of
January and end on the thirty-first day of December. [Amended January 14, 1969]
BOOKS AND RECORDS
41. The proper officers and agents of the Corporation shall keep and
maintain such books, records and accounts of the Corporation's business and
affairs and such stock ledgers and lists of shareholders as the Board of
Directors shall deem advisable and as shall be required by the laws of the State
of Delaware and/or other states or jurisdictions empowered to impose such
requirements.
INDEMNIFICATION
42. Each person now or in the future a director, officer, agent or
employee of the Corporation (and his heirs, executors and administrators) shall
be indemnified by the Corporation against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement, actually and reasonably
incurred by him in connection with any action, suit or proceeding to which he
may be made a party by reason of his being, or having been, a director, officer,
agent or employee of the Corporation (whether or not he continues to be such at
the time of incurring such expenses) if he acted in good faith and in a manner
he reasonably believed to be in and not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. This provision is
intended to provide for directors, officers, agents and employees of the
Corporation such indemnification as permitted under the Delaware corporation
law; it shall not operate to indemnify
<PAGE> 7
FORM 10-Q
any director, officer, agent or employee in any case in which such
indemnification is for any reason contrary to law. [Amended May 22, 1987]
AMENDMENTS
43. These Bylaws may be altered or repealed and new bylaws may be made,
altered or repealed at any regular meeting of the stockholders or the Board of
Directors, or at any special meeting of the stockholders or Board of Directors
provided that notice of such proposed making, alteration or repeal be included
in the notice of such special meeting. The power of the stockholders and the
Board shall include the fixing and appointing of the number of directors.
AMENDMENTS TO THE
BYLAWS OF
DAEDALUS ENTERPRISES, INC.
The following amendments were adopted by the Board of Directors at a meeting
held on January 14, 1969:
RESOLVED, that Paragraph 40 of the Bylaws of Daedalus Enterprises, Inc.
be, and the same hereby is, amended to read in its entirety as follows: "The
fiscal year of the Corporation shall begin on the first day of August and end on
the thirty-first day of July."
RESOLVED, that Paragraph 11 of the Bylaws of Daedalus Enterprises, Inc.
be, and the same hereby is, amended to read in its entirety as follows: "The
annual meeting of the shareholders of the Corporation shall be held on the first
Monday in December of each year, at two o'clock in the afternoon. Directors
shall be elected at each annual meeting by a plurality vote and such other
business shall be transacted as may come before the meeting."
The following amendments were adopted by the Board of Directors at a
meeting held on December 4, 1972:
RESOLVED, that Section 20 of the Bylaws of this Corporation be and they
are hereby amended to read as follows:
"20. The number of Directors shall be not less than three (3) nor more
than ten (10)."
The following amendments were adopted by the Board of Directors at a
meeting held on October 15, 1983:
RESOLVED, that Paragraph 11 of the Bylaws of Daedalus Enterprises, Inc.,
as amended on January 14, 1969, be and the same hereby is, amended to read in
its entirety as follows: "The Annual Meeting of the Shareholders of the
Corporation shall be held within the first two weeks of December of each year at
two o'clock in the afternoon. Actual date of the meeting will be set by the
Board of Directors at their regular meeting in October of each year.
<PAGE> 8
FORM 10-Q
Directors shall be elected at each annual meeting by a plurality vote and such
other business shall be transacted as may come before the meeting."
RESOLVED, FURTHER, that the above resolution pertains to all annual
meetings of the shareholders of the Corporation since 1971.
The following amendment was adopted by the Board of Directors at a
meeting held on May 22, 1987:
RESOLVED, that Paragraph 42 of the Bylaws of Daedalus Enterprises, Inc.
be, and the same hereby is, amended in its entirety to read as follows:
"42. (a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director or officer of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as director or officer or in any other capacity while serving as a
director or officer, shall be indemnified and held harmless by the Corporation
to the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended, (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment) against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts to be paid in settlement) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to a
person who has ceased to be a director or officer and shall inure to the benefit
of his or her heirs, executors and administrators; provided, however, that
except as provided in paragraph (b) hereof with respect to proceedings seeking
to enforce rights to indemnification, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it
<PAGE> 9
FORM 10-Q
shall ultimately be determined that such director or officer is not entitled
to be indemnified under this Section or otherwise.
(b) Right of Director or Officer Claimant to Bring Suit. If a claim
under paragraph (a) of this Section is not paid in full by the Corporation
within sixty (60) days after a written claim has been received by the
Corporation, except in a case of a claim for expenses incurred in defending a
proceeding in advance of its final disposition, in which case the applicable
period shall be twenty (20) days, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Corporation. A determination that the claimant has not met the
applicable standard of conduct, when made: (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who are not parties to such
action, suit, or proceeding; or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion; or (3) by the stockholders, shall serve as
evidence in support of a contention by the Corporation that the claimant has not
met that standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
(d) Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification, and to be paid by the Corporation
the expenses incurred in defending any proceeding in advance of its final
disposition, to any employee or agent of the Corporation to the fullest extent
of the provisions of this Section with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
(e) Insurance. The Corporation may maintain insurance, at its expense,
to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law."
<PAGE> 10
FORM 10-Q
The following amendment was adopted by the Board of Directors at a meeting held
on December 11, 1990:
RESOLVED, that Paragraph 18 of the Bylaws of Daedalus Enterprises,
Inc., be and the same hereby is, amended in its entirety to read as follows:
"18. (a) Inspectors of Elections. The Board of Directors shall
appoint, prior to the meeting, one or more inspectors of elections. The
inspectors will be responsible for ascertaining the number of shares outstanding
and the voting power of each, determining the shares represented at the meeting
and validity of proxies and ballots, counting all votes and ballots,
determining and retaining for a reasonable period a record of the disposition
of any challenges made to any determination by the inspectors, and certifying
their determination of the number of shares represented at the meeting, and
their count of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist in the performance of the duties of the
inspectors."
The following amendment was adopted by the Board of Directors at a
meeting held on October 24, 1997:
RESOLVED, that Paragraph 11 of the Bylaws of Daedalus Enterprises, Inc,
as amended October 15, 1983, be and the same hereby is, amended to read in its
entirety as follows:
The Annual Meeting of the Shareholders of the Corporation shall be held
within the first two weeks of December of each year at two o'clock in the
afternoon, or at such other date and time as the Board of Directors may
determine from time to time. Directors shall be elected at each annual
meeting by a plurality vote and such other business shall be transacted
as may come before the meeting.
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<PERIOD-END> OCT-31-1997
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<CURRENT-ASSETS> 19,151
<PP&E> 2,917,716
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0
0
<COMMON> 5,346
<OTHER-SE> 1,315,584
<TOTAL-LIABILITY-AND-EQUITY> 2,108,201
<SALES> 470,177
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<CGS> 355,577
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<INCOME-PRETAX> (96,603)
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