<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 2, 1994 Commission file number 0-12643
------------ -------
GANDALF TECHNOLOGIES INC.
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
ONTARIO, CANADA NOT APPLICABLE
- --------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 COLONNADE ROAD SOUTH, NEPEAN, ONTARIO K2E 7M4
- ----------------------------------------- ------------------------------
(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code (613) 723-6500
--------------
NOT APPLICABLE
- -------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
*Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares outstanding as at July 31, 1994 was 28,072,333.
<PAGE>
GANDALF TECHNOLOGIES INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Consolidated Balance Sheet - 3
Consolidated Statements of Income and
Retained Earnings - 4
Consolidated Statement of Changes in
Financial Position - 5
Notes to Consolidated Financial Statements - 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations - 9
PART II OTHER INFORMATION 14
SIGNATURE PAGE 14
<PAGE>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Thousands of U.S. dollars)
July 2 March 31
1994 1994
------- --------
ASSETS
Current assets:
Cash and short-term deposits $ 5,641 $ 5,273
Accounts receivable 30,602 30,182
Inventories (note 1) 19,109 20,877
Other 3,053 4,022
-------- --------
Total current assets 58,405 60,354
Fixed assets (note 2) 20,122 20,214
Goodwill, net of amortization of $2,788
(March 31, 1994: $2,734) 3,626 3,680
Other assets (note 3) 4,877 4,938
-------- --------
Total assets $ 87,030 $ 89,186
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank operating lines (note 4) $ 13,170 $ 10,512
Accounts payable and accrued liabilities (note 5) 24,031 27,854
Deferred revenue 7,493 7,424
Current portion of long-term debt 383 586
-------- --------
Total current liabilities 45,077 46,376
Long-term debt 1,960 2,020
8.5% convertible debentures, due 2002 21,702 21,681
Shareholders' equity:
Capital stock:
Common shares, 28,072,333 issued and
outstanding (March 31, 1994: 28,072,333) 79,811 79,811
Retained earnings (deficit) (55,329) (53,770)
Cumulative translation adjustment (6,191) (6,932)
-------- --------
Total shareholders' equity 18,291 19,109
-------- --------
Total liabilities and shareholders' equity $ 87,030 $ 89,186
======== ========
(See accompanying notes to consolidated financial statements)
<PAGE>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
(Thousands of U.S. dollars except per share amounts)
13 Weeks Ended
July 2
--------------------
1994 1993
-------- -------
INCOME
Revenues:
Product revenue $ 20,745 $ 23,453
Service revenue 8,973 10,720
-------- --------
29,718 34,173
Operating expenses:
Cost of product sales 10,896 11,820
Service expenses 5,871 6,837
Selling and distribution 8,742 10,577
Administration and general 1,929 2,679
Research and development 2,413 3,083
Restructuring costs (note 6) 685 -
-------- --------
Loss from operations (818) (823)
Interest expense (798) (1,298)
Other income 57 174
-------- --------
Net loss for the period $ (1,559) $ (1,947)
======== ========
Basic loss per share (note 7) $ (0.06) $ (0.12)
======== ========
Weighted average number of
shares outstanding (thousands) 28,072 15,888
====== ======
RETAINED EARNINGS
Balance at beginning of period $(53,770) $ (6,532)
Net loss for the period (1,559) (1,947)
-------- --------
Balance at end of period $(55,329) $ (8,479)
======== ========
(See accompanying notes to consolidated financial statements)
<PAGE>
GANDALF TECHNOLOGIES INC.
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(Unaudited)
(Thousands of U.S. dollars)
13 Weeks Ended
July 2
---------------------
1994 1993
-------- -------
Operating activities:
Cash provided by (applied to) operations (note 8) $ (336) $ 419
Increase in operating working capital
requirements (note 9) (2,348) (5,809)
------- --------
Cash applied to operating activities (2,684) (5,390)
------- --------
Financing activities:
Increase in bank operating lines 2,658 754
Bank term loans retired - (400)
Other (265) (5)
------- --------
Cash provided by financing activities 2,393 349
------- --------
Investing activities:
Proceeds on disposal of assets 1,263 1,158
Purchase of fixed assets (674) (732)
Software development costs deferred (71) (753)
Other 72 121
------- --------
Cash provided by (applied to) investing activities 590 (206)
------- --------
Increase (decrease) in cash in the period 299 (5,247)
Effect of currency translation
adjustments on cash flows 69 (166)
Cash and short-term deposits, beginning of period 5,273 9,737
------- --------
Cash and short-term deposits, end of period $ 5,641 $ 4,324
======= ========
(See accompanying notes to consolidated financial statements)
<PAGE>
GANDALF TECHNOLOGIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts stated in thousands of U.S. dollars.)
1. INVENTORIES
July 2 March 31
1994 1994
------- --------
Raw materials $ 5,488 $ 5,587
Work-in-process 3,107 4,007
Finished goods 10,514 11,283
------- -------
$19,109 $20,877
======= =======
2. FIXED ASSETS
July 2 March 31
1994 1994
------- --------
Cost:
Land $ 221 $ 213
Buildings 4,635 4,535
Equipment 54,410 53,340
Leasehold improvements 1,876 1,779
------- --------
61,142 59,867
Accumulated depreciation 41,020 39,653
------- -------
Net book value $20,122 $20,214
======= =======
3. OTHER ASSETS
July 2 March 31
1994 1994
------- --------
Software development costs $ 846 $ 847
Deferred financing costs 1,500 1,541
Deferred income taxes 504 504
Other 2,027 2,046
------- -------
$ 4,877 $ 4,938
======= =======
<PAGE>
4. BANK OPERATING LINES
At July 2, 1994, the Company's authorized bank operating lines totalled
$18.1 million. This included $15.4 million from two committed credit
facilities with a Canadian chartered bank bearing interest at the bank's
prime rate plus 1.375%. During July 1994 the maturity date of these
facilities was extended to November 30, 1994. The other authorized amount
of $2.7 million related to a demand facility with a bank in the United
Kingdom bearing interest at 2.5% above the bank's prime rate. These
operating lines are secured by certain of the accounts receivable,
inventories and other assets of the Company. The amount available for
borrowing at any time under these facilities is determined based on margin
formulas relating to levels of accounts receivable, inventories and other
bank covenants. Under such formulas, $15.3 million was available to the
Company at July 2, 1994 and $13.2 million was being utilized ($12.3 million
of which related to the Canadian operating line). Cash and short-term
deposits held as of that date represented a further $5.6 million in cash
resources available to the Company.
At July 2, 1994, the Company was not in compliance with certain financial
covenants contained in the bank loan agreements with the Canadian chartered
bank. These financial covenants measure among other items the tangible net
worth of the Company, the current ratio and the debt to tangible net worth
ratio. The breach of these financial covenants constitutes an event of
default under the terms of the loan agreements for which the Company
obtained a waiver from the bank for the balance of the committed period.
Upon maturity of the Canadian operating loans on November 30, 1994, the
outstanding borrowings convert to facilities which are repayable on demand
unless a renewal of the committed operating facility is agreed between the
Company and the bank. While the Company currently believes that the
facilities will be renewed at satisfactory levels, there can be no
assurance that such renewal will occur since the future availability of
these credit facilities will in part be determined by future operating
performance.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
July 2 March 31
1994 1994
------- --------
Trade accounts payable $ 8,203 $ 9,784
Payroll, commissions and related taxes 4,084 3,594
Other payables including accrued restructuring charges 10,102 13,012
Income and other taxes payable 1,642 1,464
------- -------
$24,031 $27,854
======= =======
<PAGE>
6. RESTRUCTURING COSTS
Restructuring costs of $0.7 million during the first quarter of fiscal 1995
represent severance costs associated with the elimination of approximately
70 positions at the end of the first quarter in connection with an internal
functional realignment which was implemented in early July 1994.
7. BASIC LOSS PER SHARE
Fully diluted earnings per share information has not been presented as
potential conversions are anti-dilutive. Basic loss per share figures are
calculated using the monthly weighted average number of common shares
outstanding for the period.
8. CASH PROVIDED BY (APPLIED TO) OPERATIONS
Cash provided by (applied to) operations is computed as follows:
13 Weeks Ended
July 2
---------------------
1994 1993
------ ------
Loss from operations $ (818) $ (823)
Depreciation and amortization 1,210 2,493
Gain on disposal of assets (206) (347)
Income taxes 178 220
Interest paid (757) (1,298)
Other income 57 174
------- --------
$ (336) $ 419
9. INCREASE IN OPERATING WORKING CAPITAL REQUIREMENTS
The increase in operating working capital requirements is computed as
follows:
13 Weeks Ended
July 2
---------------------
1994 1993
------ ------
Accounts receivable $ (420) $ 2,156
Inventories 1,768 (157)
Prepaid expenses (141) (251)
Accounts payable and accrued liabilities (4,001) (7,096)
Deferred revenue 69 197
Foreign currency equity adjustment 377 (658)
------- -------
$(2,348) $(5,809)
======= =======
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
- ------------
The consolidated financial statements for the first quarter ended July 2,
1994, together with accompanying notes, should be read as an integral part
of this review. These financial statements have been prepared by management
in accordance with accounting principles generally accepted in Canada, the
application of which, in the case of the Company, conforms in all material
respects for the periods presented with accounting principles generally
accepted in the United States. All amounts are stated in U.S. dollars
unless otherwise indicated.
Results of Operations - First Quarter Ended July 2, 1994
- --------------------------------------------------------
The following table sets forth items derived from the quarterly
consolidated statements of income as a percentage of revenues for the
quarter ended July 2, 1994 and for each of the preceding four quarters.
The column in the table entitled "Percentage Change Quarter 1, 1995 vs
1994" represents the percentage change, either favourable or
(unfavourable), in the dollar amount of such items for the first quarter of
fiscal 1995 compared with the first quarter of fiscal 1994.
<TABLE>
<CAPTION>
Percentage
Fiscal 1994 Fiscal 1995 Change
------------------------------------------ --------- Quarter 1
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 1995 vs. 1994
--------- --------- --------- --------- --------- -------------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Revenues $34,173 $35,018 $30,266 $31,866 $29,718 (13.0)%
======= ======= ======= ======= ======= =======
(Percentage of Revenues)
Revenues:
Product 68.6% 70.3% 67.1% 70.4% 69.8% (11.5)%
Service 31.4 29.7 32.9 29.6 30.2 (16.3)
------- ------- ------- ------- -------
100.0% 100.0% 100.0% 100.0% 100.0% (13.0)
======= ======= ======= ======= =======
Gross Profit:
Product 49.6% 48.7% 44.4% 38.7% 47.5% (15.3)
Service 36.2 34.8 30.1 31.6 34.6 (20.1)
Combined 45.4 44.6 39.7 36.6 43.6 (16.5)
Expenses:
Selling & distribution 31.0 31.9 37.3 33.4 29.4 17.3
Administration & general 7.8 7.0 9.3 9.9 6.5 28.0
Research & development 9.0 9.6 13.9 11.5 8.1 21.7
Restructuring
and other costs - - - 90.0 2.3
------- ------- ------- ------- -------
Loss from operations (2.4) (3.9) (20.8) (108.2) (2.7)
Interest expense (3.8) (3.3) (3.3) (2.1) (2.7)
Other income 0.5 0.5 1.7 0.4 0.2
Income taxes - - - (3.6) -
------- ------- ------- ------- -------
Net loss (5.7%) (6.7%) (22.4%) (113.5%) (5.2%)
======= ======= ======= ======= =======
</TABLE>
<PAGE>
Revenues
- --------
The following table sets forth revenues by geographic segment for the
quarter ended July 2, 1994 and for each of the preceding four quarters.
The table also includes the change in revenues, expressed as a percentage,
in the first quarter of fiscal 1995 compared to the corresponding period of
fiscal 1994.
<TABLE>
<CAPTION>
Percentage
Fiscal 1994 Fiscal 1995 Change
------------------------------------------ --------- Quarter 1
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 1995 vs. 1994
--------- --------- --------- --------- --------- -------------
(Thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
United States $ 9,515 $ 9,226 $ 7,480 $ 8,936 $ 8,205 (13.8)%
United Kingdom 9,575 10,719 9,061 9,954 8,927 (6.8)
Canada 5,577 6,338 5,078 6,348 5,736 2.9
Holland/France 4,141 3,628 4,024 3,074 4,040 (2.4)
International markets 5,365 5,107 4,623 3,554 2,810 (47.6)
------- ------- ------- ------- -------
$34,173 $35,018 $30,266 $31,866 $29,718 (13.0)
======= ======= ======= ======= =======
</TABLE>
Revenues in the first quarter of fiscal 1995 of $29.7 million included
$20.7 million of product revenue and $9.0 million of service revenue. In
the first quarter of fiscal 1994 product revenue was $23.5 million and
service revenue was $10.7 million for total revenues of $34.2 million. The
impact of the strengthening of the U.S. dollar against certain other
foreign currencies over the last twelve months represented 2.5% of the
13.0% decline in revenues in the first quarter of fiscal 1995 compared to
the first quarter a year ago. Revenues in the fourth quarter of fiscal 1994
were $31.9 million (product revenue of $22.4 million and service revenue of
$9.4 million).
After adjusting for the impact of changes in foreign currency exchange
rates, product revenue declined 9.1% in the first quarter of fiscal 1995
compared to the same period a year ago as a result of a decline in demand
for the Company's traditional products which has more than offset growth in
new internetworking products introduced during fiscal 1994.
Service revenue in the first quarter of fiscal 1995 was $9.0 million, 16.3%
below the level in the first quarter of fiscal 1994. The Company has
experienced a decline in service revenue during the last year as a result
of lower product revenue during the last two fiscal years.
<PAGE>
Revenues in the North American market (United States and Canada) were $13.9
million in the first quarter of fiscal 1995, 8.8% lower than the fourth
quarter of fiscal 1994 and 7.6% lower than the comparable period a year
ago. The Company's European direct sales markets (United Kingdom, Holland
and France) reported revenues of $13.0 million in the first quarter of
fiscal 1995, unchanged from the fourth quarter of fiscal 1994 and 5.5%
lower than the first quarter of fiscal 1994. Revenues in the Company's
other international markets were $2.8 million in the first quarter of
fiscal 1995 compared to $5.4 million in the first quarter a year ago.
Gross Profit
- ------------
Gross margin on product revenue (product revenue minus the cost of product
sales expressed as a percentage of product sales) was 47.5% in the first
quarter of fiscal 1995 compared with 38.7% in the fourth quarter of fiscal
1994 and 49.6% in the first quarter a year ago. The gross margin on
product revenue for the fourth quarter of fiscal 1994 was adversely
affected by additional inventory reserves on mature product lines of $1.6
million. Exclusive of these provisions the gross margin percentage was
45.8%.
The gross margin on service revenue (service revenue less service expenses
expressed as a percentage of service revenue) was 34.6% in the first
quarter of fiscal 1995, 31.6% in the fourth quarter of fiscal 1994 and
36.2% in the first quarter a year ago. Restructuring actions taken in
fourth quarter of fiscal 1994 reduced costs associated with the service
operation and resulted in an improvement in the service margin during the
first quarter of fiscal 1995.
<PAGE>
Operating Expenses
- ------------------
Operating expenses (selling and distribution, administration and general,
and research and development) in the first quarter of fiscal 1995 exclusive
of restructuring and other costs were $13.1 million compared to $17.5
million in the fourth quarter of fiscal 1994 and $16.3 million in the first
quarter a year ago. Operating expenses declined in the first quarter of
fiscal 1995 as a result of significant restructuring and downsizing actions
which were undertaken during the fourth quarter of fiscal 1994.
Restructuring costs of $0.7 million during the first quarter of fiscal 1995
represent severance costs associated with the elimination of approximately
70 additional positions at the end of the first quarter in connection with
an internal functional realignment. Since 1991, the Company has received
grants of approximately $3.9 million under the Canadian Federal
Government's Microelectronics and Systems Development Program ("MSDP").
This funding is required to be repaid if certain conditions are met
relating to the commercialization of resulting technology. The Company
believes these conditions were substantially met during fiscal 1994 and
accordingly this funding will be required to be repaid in the future
following completion of the approved programs, which is expected to occur
during fiscal 1995. Repayment of annual amounts will be accrued in the
form of a royalty based on revenue and will be paid in the following year.
Operating Loss
- --------------
The Company reported a loss from operations of $0.8 million, which included
a restructuring charge of $0.7 million, on revenues of $29.7 million for
the first quarter ended July 2, 1994. The operating loss for the fourth
quarter of fiscal 1994 was $5.8 million, exclusive of restructuring and
other costs of $28.7 million. For the first quarter of fiscal 1994 the
operating loss was $0.8 million on revenues of $34.1 million.
Interest Expense
- ------------------
Interest expense for the first quarter of fiscal 1995 was $0.8 million
compared with $1.3 million in the first quarter of fiscal 1994. The
decrease in interest expense occurred as a result of the Company reducing
its borrowings under bank loans during fiscal 1994.
Net Loss
- --------
The net loss for the first quarter of fiscal 1995 was $1.6 million or $0.06
per share. The net loss figure for the first quarter of fiscal 1994 was
$1.9 million or $0.12 per share.
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's cash and short-term deposits position increased by $0.4
million to $5.6 million during the first quarter of fiscal 1995. This
increase was related to an increase of $2.7 million in borrowings under
bank operating lines. Exclusive of the $2.7 million increase in bank
operating lines, the Company recorded negative cash flow of $2.3 million in
the first quarter of fiscal 1995.
Negative cash flow from operations in the first quarter of fiscal 1995 was
$0.4 million exclusive of $2.3 million in payments for restructuring costs
which had been accrued in the fourth quarter of fiscal 1994. Negative cash
flow from operations during the third and fourth quarters of fiscal 1994
was $5.1 million and $2.4 million respectively. Cash provided by investing
activities during the first quarter of fiscal 1995 included proceeds of
$1.3 million from the sale of a portfolio investment.
At July 2, 1994, the Company's authorized bank operating lines totalled
$18.1 million. This included $15.4 million from two committed credit
facilities with a Canadian chartered bank bearing interest at the bank's
prime rate plus 1.375%. During July 1994 the maturity date of these
facilities was extended up to November 30, 1994. The other authorized
amount of $2.7 million related to a demand facility with a bank in the
United Kingdom bearing interest at 2.5% above the bank's prime rate. These
operating lines are secured by certain of the accounts receivable,
inventories and other assets of the Company. The amount available for
borrowing at any time under these facilities is determined based on margin
formulas relating to levels of accounts receivable, inventories and other
bank covenants. Under such formulas, $15.3 million was available to the
Company at July 2, 1994 and $13.2 million was being utilized ($12.3 million
of which related to the Canadian operating line). Cash and short-term
deposits held as of that date represented a further $5.6 million in cash
resources available to the Company.
At July 2, 1994, the Company was not in compliance with certain financial
covenants contained in the bank loan agreements with the Canadian chartered
bank. These financial covenants measure among other items the tangible net
worth of the Company, the current ratio and the debt to tangible net worth
ratio. The breach of these financial covenants constitutes an event of
default under the terms of the loan agreements for which the Company
obtained a waiver from the bank for the balance of the committed period.
Upon maturity of the Canadian operating loans on November 30, 1994, the
outstanding borrowings convert to facilities which are repayable on demand
unless a renewal of the committed operating facility is agreed between the
Company and the bank. While the Company currently believes that the
facilities will be renewed at satisfactory levels, there can be no
assurance that such renewal will occur since the future availability of
these credit facilities will in part be determined by future operating
performance.
The Company believes that its current financial base together with
currently available credit facilities can provide sufficient financial
resources for continued operations in the short-term. The Company believes
that the break even level for annual revenues as a result of restructuring
actions taken since January 1994 is approximately $125 million. The
Company's ability to generate positive cash flow is ultimately dependent on
its ability to attain this break even revenue level.
<PAGE>
II - OTHER INFORMATION
- ----------------------
Item 6(a) - Exhibits
- --------------------
10.20 Waiver of Default dated July 29, 1994 related to Credit
Agreements, dated as of January 7, 1994, between the Royal Bank
of Canada and the Company.
10.21 Amendment dated July 29, 1994 to Credit Facility dated January 7,
1994 between Royal Bank of Canada and the Company.
10.22 Amendment dated July 29, 1994 to Credit Facility dated January 7,
1994 between Royal Bank of Canada and Gandalf Canada Ltd.
Item 6(b) - Report on Form 8-K
- ------------------------------
There were no reports on Form 8-K filed for the quarter ended July 2, 1994.
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.
GANDALF TECHNOLOGIES INC.
August 11, 1994 s/T.A. VASSILIADES
_________________________ __________________________
Date Thomas A. Vassiliades
President
(Chief Executive Officer)
August 11, 1994 s/W.R. MACDONALD
__________________________ __________________________
Date Walter R. MacDonald
Vice President, Finance
(Chief Financial Officer)
L.J. (Jim) Blattman Royal Bank of Canada
Senior Manager 90 Sparks Street
Technology Banking Group Ottawa, Ontario
K1P 5T6
Tel: (613) 564-4898
Fax: (613) 564-4527
July 29, 1994
Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
AND
Gandalf Canada Ltd.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
Attention: Mr. Walter MacDonald
Vice-President, Finance & CFO
-----------------------------
Dear Sirs:
Royal Bank of Canada (the "Bank") refers to a letter agreement dated
January 7, 1994 between Gandalf Technologies Inc. ("GTI") and the Bank (the
"GTI Agreement") and to a letter agreement also dated January 7, 1994
between Gandalf Canada Ltd. ("GCL") and the Bank (the "GCL Agreement"),
collectively referred to herein as the Gandalf Agreements.
The Bank hereby acknowledges notice form GTI of its expected breach of
Sections 23(a), 23(b) and 23(c) of the GTI Agreement and Sections 24(a),
24(b) and 24(c) of the GCL Agreement for the fiscal quarter ended July 2,
1994. Specifically, Tangible Net Worth is expected to be $39,500,000, the
Current Ratio 1.30, and the ratio of Total Liabilities to Tangible Net
Worth 1.20. The Bank hereby waives its rights in respect of such breach
for the period July 2, 1994 to November 30, 1994 inclusive provided no
further deterioration occurs in any of Sections 23 (a), 23(b) and 23(c) of
the GTI Agreement and Sections 24(a), 24(b) and 24(c) of the GCL Agreement
as at the fiscal quarter ending October 1, 1994. This waiver is granted
only in respect of the aforementioned breach and only for the
aforementioned period and is further
- 1 -
<PAGE>
July 29, 1994
Gandalf Technologies Inc. &
Gandalf Canada Ltd.
- ---------------------------
subject to the following paragraph.
As long as any of the aforementioned sections of the Gandalf Agreements
remain in breach, GTI agrees with the Bank as follows:
a. To provide the Bank with the following information within
15 days of the end of each month:
i. Internally prepared consolidated financial
statements.
ii. A consolidated summary of bookings, billings and
backlog.
iii. A consolidated cash flow and margin forecast for
the following 13 weeks.
b. To pay to the Bank a risk premium calculated as 1/8 of 1%
per month on the aggregate of average outstanding balances under
the GCL Agreement and Segment (3) of the GTI Agreement, subject
to a monthly minimum payment of US $5,000. The risk premium will
be calculated and is payable monthly by the fifth day of each
month.
This letter supersedes our tolerance letter dated June 1, 1994.
Please acknowledge your acceptance of the above terms and conditions by
signing the attached copy of this letter in the space provided and
returning it to the undersigned no later than August 12, 1994.
Yours truly,
s/L.J. BLATTMAN
WE ACKNOWLEDGE AND ACCEPT THE TERMS AND CONDITIONS.
GANDALF TECHNOLOGIES IN. GANDALF CANADA LTD.
Per: s/W.R. MACDONALD, VP FINANCE Per: s/W.R. MACDONALD, VP FINANCE
---------------------------- -----------------------------
Per: s/T.A. VASSILIADES, Per: s/T.A. VASSILIADES,
PRESIDENT & CEO PRESIDENT & CEO
---------------------------- -----------------------------
Date: August 5, 1994 Date: August 5, 1994
-------------- --------------
- 2 -
L.J. (Jim) Blattman Royal Bank of Canada
Senior Manager 90 Sparks Street
Technology Banking Group Ottawa, Ontario
K1P 5T6
Tel: (613) 564-4898
Fax: (613) 564-4527
July 29, 1994
Gandalf Technologies Inc.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
Attention: Mr. Walter MacDonald
Vice-President, Finance
-----------------------
Dear Sirs:
We are pleased to offer the following amendments to the Credit Facility
detailed in a letter agreement between Gandalf Technologies Inc. and Royal
Bank of Canada dated January 7, 1994 (the "Agreement").
Schedule "A"
-----------
"GCL Margin Surplus" means the amount, if any, by which the
calculated Margin Requirement exceeds actual Borrowings, both
as defined in a letter agreement between the Bank and Gandalf
Canada Ltd. dated January 7, 1994.
"Margin Requirement" means the total amount of Borrowings
available under this Agreement, which amount may not exceed
75% of Good Accounts Receivable plus the GCL Margin Surplus.
"Maturity Date" means November 30, 1994.
- 1 -
<PAGE>
July 29, 1994
Gandalf Technologies Inc.
- -------------------------
All other terms and conditions remain unchanged.
This amendment is open for acceptance until August 12, 1994 unless extended
in writing by the Bank. Please acknowledge your acceptance by signing the
attached copy of this letter in the space provided below and returning it
to the undersigned.
Yours truly,
s/L.J. BLATTMAN
We acknowledge and accept the within
terms and conditions of this Agreement.
GANDALF TECHNOLOGIES INC.
Per: s/W.R. MACDONALD, VP Finance
----------------------------
Per: s/T.A. VASSILIADES, PRESIDENT & CEO
-----------------------------------
Date: August 5, 1994
--------------
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L.J. (Jim) Blattman Royal Bank of Canada
Senior Manager 90 Sparks Street
Technology Banking Group Ottawa, Ontario
K1P 5T6
Tel: (613) 564-4898
Fax: (613) 564-4527
July 29, 1994
Gandalf Canada Ltd.
130 Colonnade Road South
Nepean, Ontario
K2E 7M4
Attention: Mr. Walter MacDonald
Vice-President, Finance
-----------------------
Dear Sirs:
We are pleased to offer the following amendments to the Credit Facility
detailed in a letter agreement between Gandalf Canada Ltd. and Royal Bank
of Canada dated January 7, 1994 (the "Agreement").
Schedule "A"
-----------
"GTI Margin Surplus" means the amount, if any, by which the
calculated Margin Requirement exceeds actual Borrowings, both
as defined in a letter agreement between the Bank and Gandalf
Technologies Inc. dated January 7, 1994.
"Margin Requirement" means the total amount of Borrowings
available under this Agreement, which amount may not exceed
the sum of (i) 75% of Good Accounts Receivable from account
debtors resident in Canada, (ii) to a maximum value of
$8,000,000, 50% of the book value of the Inventory located in
the Province of Ontario and (iii) Liquid Collateral Security (iv)the
GTI Margin Surplus.
"Maturity Date" means November 30, 1994.
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<PAGE>
July 29, 1994
Gandalf Canada Ltd.
- -------------------------
All other terms and conditions remain unchanged.
This amendment is open for acceptance until August 12, 1994 unless extended
in writing by the Bank. Please acknowledge your acceptance by signing the
attached copy of this letter in the space provided below and returning it
to the undersigned.
Yours truly,
s/L.J. BLATTMAN
We acknowledge and accept the within
terms and conditions of this Agreement.
GANDALF CANADA LTD.
Per: s/W.R. MACDONALD, VP Finance
----------------------------
Per: s/T.A. VASSILIADES, PRESIDENT & CEO
-----------------------------------
Date: August 5, 1994
--------------
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