-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, HKR5jmHU0tL+LU/C8DQL8GA6utWA9Jg5Qx3Z4yQAb65CK4vNYNqJgOJVpTdbk4+O ML1TeOG3vplKjX9WidmWVw== 0000355876-94-000011.txt : 19940817 0000355876-94-000011.hdr.sgml : 19940817 ACCESSION NUMBER: 0000355876-94-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940702 FILED AS OF DATE: 19940816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GANDALF TECHNOLOGIES INC CENTRAL INDEX KEY: 0000355876 STANDARD INDUSTRIAL CLASSIFICATION: 3577 STATE OF INCORPORATION: A6 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12643 FILM NUMBER: 94544533 BUSINESS ADDRESS: STREET 1: 130 COLONNADE RD S STREET 2: ZIP K2E 7M4 CITY: NEPEAN ONTARIO CANAD STATE: A6 BUSINESS PHONE: 6137236500 10-Q 1 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. 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 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) 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) 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) 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 ======= ======= 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 ======= ======= 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) ======= ======= 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.
Percentage Fiscal 1994 Fiscal 1995 Change ------------------------------------------ --------- Quarter 1 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 1995 vs. 1994 --------- --------- --------- --------- --------- ------------- (Thousands of dollars) 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%) ======= ======= ======= ======= =======
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.
Percentage Fiscal 1994 Fiscal 1995 Change ------------------------------------------ --------- Quarter 1 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 1995 vs. 1994 --------- --------- --------- --------- --------- ------------- (Thousands of dollars) 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) ======= ======= ======= ======= =======
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. 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. 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. 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. 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) EX-10 2 EXHIBIT 10.20 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 - 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 - EX-10 3 EXHIBIT 10.21 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 - 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 -------------- - 2 - EX-10 4 EXHIBIT 10.22 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. - 1 - 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 -------------- - 2 - -----END PRIVACY-ENHANCED MESSAGE-----