SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10‑QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For quarter ended August 31, 2005

Commission File Number 0‑3498

 

 

 

Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 12 months and (2) has been subject to the filing requirements for the past 90 days.

Yes

X

No

State the number of shares outstanding of each of the Issuer's classes of common equity as of the latest practicable date.

 

 

TAYLOR DEVICES, INC.

Index to Form 10-QSB

 

 

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Balance Sheets		(Unaudited)
		August 31, 2005	May 31, 2005
Assets
Current assets:
	Cash and cash equivalents	$      33,838	$        63,397
	Accounts receivable, net	1,939,306	2,718,902
	Inventory	4,576,757	4,771,086
	Costs and estimated earnings in excess of billings	1,914,270	1,657,170
	Other current assets	852,324	920,638
	Total current assets	9,316,495	10,131,193
Maintenance and other inventory, net		619,468	661,500
Property and equipment, net		3,413,096	3,477,672
Investment in affiliate, at equity		447,627	451,877
Intangible and other assets		167,620	168,376
		$ 13,964,306	$ 14,890,618
Liabilities and Stockholders' Equity
Current liabilities:
	Short-term borrowings and current portion of long-term debt	$   1,167,034	$  1,621,119
	Payables - trade	708,771	770,330
	Accrued commissions	515,806	576,550
	Billings in excess of costs and estimated earnings	-	288,003
	Other current liabilities	458,902	386,586
	Total current liabilities	2,850,513	3,642,588
Long-term liabilities		916,660	998,719
Payables - affiliate		421,259	589,976
Minority stockholder's interest		458,215	450,991
Stockholders' Equity:
	Common stock and additional paid-in capital	4,391,001	4,391,001
	Retained earnings	5,819,627	5,710,312
		10,210,628	10,101,313
	Treasury stock - at cost	(892,969)	(892,969)
	Total stockholders' equity	9,317,659	9,208,344
		$ 13,964,306	$ 14,890,618

See notes to condensed consolidated financial statements.

 

 

 

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Income		(Unaudited)
		For the three months ended
		August 31, 2005	August 31,  2004
Sales, net		$ 3,110,099	$ 2,451,419
Cost of goods sold		2,134,790	1,595,625
	Gross profit	975,309	855,794
Selling, general and administrative expenses		749,458	692,962
	Operating income	225,851	162,832
Other expense, net		(32,062)	(34,729)
	Income before provision for income taxes, equity in net income
	of affiliate and minority stockholder's interest	193,789	128,103
Provision for income taxes		73,000	50,800
	Income before equity in net income of affiliate
	and minority stockholder's interest	120,789	77,303
Equity in net income (loss) of affiliate		(4,250)	3,847
	Income before minority stockholder's interest	116,539	81,150
Minority stockholder's interest		(7,224)	(7,501)
	Net income	$   109,315	$     73,649
	Basic and diluted earnings per common share	$        0.04	$         0.02

See notes to condensed consolidated financial statements.

 

 

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
					(Unaudited)
For the three months ended					August 31, 2005	August 31, 2004
Cash flows from operating activities:
	Net income				$   109,315	$   73,649
	Adjustments to reconcile net income to net cash flows from
	operating activities:
		Depreciation and amortization			82,193	87,368
		Gain on sale of equipment			-	-
		Bad debts expense			24,000	-
		Equity in net income (loss) of affiliate			4,250	(3,847)
		Deferred income taxes			-	-
		Minority stockholder's interest			7,224	7,501
		Changes in other assets and liabilities:
			Accounts receivable		755,596	(522,450)
			Inventory		236,361	(256,670)
			Costs and estimated earnings in excess of billings		(257,100)	138,356
			Other current assets		45,828	(77,684)
			Payables - trade		(61,559)	(172,233)
			Accrued commissions		60,744	(51,978)
			Billings in excess of costs and estimated earnings		288,003	241,520
			Other current liabilities		72,316	(27,979)
				Net cash flows from (for) operating activities	669,677	(564,447)
Cash flows from investing activities:
	Acquisition of property and equipment				(15,517)	(68,172)
	Other investing activities				21,142	(227,189)
				Net cash flows from (for) investing activities	5,625	(295,361)
Cash flows from financing activities:
	Net short-term borrowings and repayments on long-term debt				(536,144)	1,243,566
	Payables - affiliate				(168,717)	(57,346)
	Proceeds from long-term debt				-	-
	Proceeds from issuance of common stock				-	53,301
				Net cash flows from (for) financing activities	(704,861)	1,239,521
				Net increase (decrease) in cash and cash equivalents	(29,559)	379,713
Cash and cash equivalents - beginning					63,397	88,390
				Cash and cash equivalents - ending	$     33,838	$  468,103

See notes to condensed consolidated financial statements.

 

 

TAYLOR DEVICES, INC.

Notes to Condensed Consolidated Financial Statements

 

 

TAYLOR DEVICES, INC.

Item 2.  Management's Discussion and Analysis or Plan of Operation

Cautionary Statement

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements.  Information in this Item 2, "Management's Discussion and Analysis or Plan of Operation," and elsewhere in this 10-QSB that does not consist of historical facts, are "forward-looking statements."  Statements accompanied or qualified by, or containing, words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of future performance.  The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements.  Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control.  Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results.  The Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based.

Results of Operations

A summary of the period to period changes in the principal items included in the consolidated statements of income is shown below:

Sales under certain fixed-price contracts, requiring substantial performance over several periods prior to commencement of deliveries, are accounted for under the percentage-of-completion method of accounting whereby revenues are recognized based on estimates of completion prepared on a ratio of cost to total estimated cost basis.  Costs include all material and direct and indirect charges related to specific contracts.

Adjustments to cost estimates are made periodically and any losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined.  However, any profits expected on contracts in progress are recognized over the life of the contract.

For financial statement presentation purposes, the Company nets progress billings against the total costs incurred on uncompleted contracts.  The asset, "costs and estimated earnings in excess of billings," represents revenues recognized in excess of amounts billed.  The liability, "billings in excess of costs and estimated earnings," represents billings in excess of revenues recognized.

For the three months ended August 31, 2005  (All figures being discussed are for the three months ended August 31, 2005 as compared to the three months ended August 31, 2004.)

	Three months ended		Change
	August 31, 2005	August 31, 2004	Increase / (Decrease)	Percent Change
Net Revenue	$3,110,000	$2,451,000	$   659,000	27%
Cost of sales	2,135,000	1,596,000	539,000	34%
Gross profit	$   975,000	$   855,000	$   120,000	14%
¼as a percentage of net revenues	31%	35%

The Company's consolidated results of operations showed a 27% increase in net revenues and a 48% increase in net income to $109,000. Gross profit increased by 14%.  Revenues recorded in the current period for long-term construction projects increased by 112% over the unusually low level recorded in the prior year period.  These current year's projects contributed a gross profit margin of 34%, down slightly from the 38% in the prior year's period.  The overall gross profit as a percentage of net revenues for the quarter was 31%, down slightly from the 35% for the same period in the prior year.   

Selling, General and Administrative Expenses

	Three months ended		Change
	August 31,  2005	August 31, 2004	Increase /  (Decrease)	Percent Change
Outside Commissions	$   124,000	$   104,000	$    20,000	19%
Royalties	34,000	36,000	(2,000)	-6%
Other SG&A	591,000	553,000	38,000	7%
Total SG&A	$   749,000	$   693,000	$    56,000	8%
¼as a percentage of net revenues	24%	28%

Selling, general and administrative expenses increased by approximately 8% from the prior year primarily due to higher levels of commission expense, which is directly related to the level of sales for the period.  Overall expenses were in line with last year.

The above factors resulted in an operating income of $226,000 for the three months ended August 31, 2005, up 39% from the $163,000 in the same period of the prior year.

Interest expense is slightly less than in the prior year due to a lower debt level in the current year.  Long-term debt is being repaid as scheduled.  The operating line of credit usage averaged slightly less than last year.  The line of credit is used primarily to fund the production of larger projects that do not allow for advance payments or progress payments. 
 

Capital Resources, Line of Credit and Long-Term Debt

The Company's primary liquidity relates to the working capital needs.  These are primarily inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued commissions, billings in excess of costs and estimated earnings, and debt service.  The Company's primary sources of liquidity have been from operations and from bank financing. 

Capital expenditures for the three months ended August 31, 2005 were $16,000 compared to $68,000 in the same period of the prior year.  There are no material commitments for capital expenditures as of August 31, 2005.

The Company has a line of credit with a bank for $5,000,000.  There is a $933,000 balance outstanding as of August 31, 2005.  This is down from the $1,390,000 balance outstanding as of May 31, 2005.  The outstanding balance on the line of credit will fluctuate as the Company's various long-term projects progress.

Principal maturities of long-term debt for the remainder of the current fiscal year and the subsequent five years are as follows: 2006 - $152,000; 2007 - $241,000; 2008 - $232,000; 2009 - $138,000; 2010 - $72,000; and 2011 - $27,000

Inventory and Maintenance Inventory

August 31, 2005

May 31, 2005

Decrease

NOTE: Inventory turnover is annualized for the three-month period ended August 31, 2005.

Inventory, at $4,577,000 as of August 31, 2005, is approximately 4% lower than the prior year-end.  Of this, approximately 85% is work in process, 7% is finished goods, and 8% is raw materials.

Maintenance and other inventory represent stock that is estimated to have a product life cycle in excess of twelve months. This stock represents certain items that the Company is required to maintain for service of products sold and items that are generally subject to spontaneous ordering.  This inventory is particularly sensitive to technical obsolescence in the near term due to its use in industries characterized by the continuous introduction of new product lines, rapid technological advances and product obsolescence.  Management of the Company has recorded an allowance for potential inventory obsolescence. The provision for potential inventory obsolescence was $45,000 for the three-month period ended August 31, 2005 and for the same period last year.  The Company continues to rework slow-moving inventory, where applicable, to convert it to product to be used on customer orders.

Accounts Receivable, Costs and Estimated Earnings in Excess of Billings,

and Billings in Excess of Costs and Estimated Earnings

August 31, 2005

May 31, 2005

Increase /(Decrease)

Accounts receivable

$1,939,000

$2,719,000

$ (780,000)

-29%

Costs and estimated earnings in excess of billings

1,914,000

1,657,000

257,000

16%

Less: Billings in excess of costs and estimated earnings

-

288,000

(288,000)

Net

$3,853,000

$4,088,000

$  (235,000)

-6%

The Company combines the totals of accounts receivable, the asset "costs and estimated earnings in excess of billings", and the liability, "billings in excess of costs and estimated earnings", to determine how much cash the Company will eventually realize from revenue recorded to date.  As the accounts receivable figure rises in relation to the other two figures, the Company can anticipate increased cash receipts within the ensuing 30-60 days. 

Accounts receivable of $1,939,000 as of August 31, 2005 includes approximately $7,000 of amounts retained by customers on long-term construction projects.  The Company expects to collect all of these amounts, including the retainage, during the next twelve months.

As noted above, the current asset, "costs and estimated earnings in excess of billings," represents revenues recognized in excess of amounts billed.  Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill and collect from the customer, payments in advance of shipments.  Unfortunately, provisions such as this are often not possible in certain governmental contracts and contracts with many foreign customers.  The $1,914,000 balance in this account at August 31, 2005 is a 16% increase from the prior year-end.  This increase results from work commencing on several long-term construction projects that were not in process at May 31, 2005.  There are no progress billings to the customer permitted on some of these projects. The Company expects to bill the entire amount during the next twelve months.

As noted above, the current liability, "billings in excess of costs and estimated earnings", represents billings to customers in excess of revenues recognized.  The zero balance in this account at August 31, 2005 is a decrease from the $288,000 balance at the end of the prior year.  This decrease is due to the near completion of two long-term construction projects for which the Company had previously invoiced the customers. Final delivery of product under these contracts occurred within one month of the end of the first quarter.

The Company's backlog of sales orders at August 31, 2005 is $7.8 million, up slightly from the backlog at the end of the prior year of $7.3 million.  $4.0 million of the current backlog is on projects already in progress as of August 31, 2005.

Accounts payable, at $709,000 as of August 31, 2005, is only slightly less than the prior year-end.  

Commission expense on applicable sales orders is recognized at the time revenue is recognized.  The commission is paid following receipt of payment from the customers.  Accrued commissions as of August 31, 2005 are $516,000.  This is slightly less than the $577,000 accrued at the prior year-end.  The Company expects the current accrued amount to be paid during the next twelve months.  Other current liabilities increased slightly from the prior year-end to $459,000.

The Company paid $169,000 to Developments during the three months ended August 31, 2005 to reduce the principal balance on the note payable.

Management believes that the Company's cash flows from operations and borrowing capacity under the bank line of credit will be sufficient to fund ongoing operations, capital improvements and share repurchases for the next twelve months. 

 

 

TAYLOR DEVICES, INC.

 

Item 3.  Controls and Procedures

                    (a)           Evaluation of disclosure controls and procedures. 

                    The Company's principal executive officer and principal financial officer have evaluated the Company's disclosure controls and procedures as of August 31, 2005 and have concluded that as of the evaluation date, the disclosure controls and procedures were adequate to ensure that material information relating to the Company was made known to the officers by others within the Company. 

                    (b)           Changes in internal controls.          

                    There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's control over financial reporting.

 

 

TAYLOR DEVICES, INC.

 

Part II - Other Information

 

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Taylor Devices, Inc.

We have reviewed the accompanying condensed consolidated balance sheet of Taylor Devices, Inc. and Subsidiary as of August 31, 2005, the related condensed consolidated statements of income for the three months ended August 31, 2005 and August 31, 2004 and cash flows for the three months ended August 31, 2005 and August 31, 2004.  These interim financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of May 31, 2005, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated July 22, 2005, we expressed an unqualified opinion on those financial statements.  In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2005 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

Lumsden & McCormick, LLP
Buffalo, New York
September 28, 2005

 

 

 

TAYLOR DEVICES, INC.

 

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.

 

TAYLOR DEVICES, INC.

(Registrant)