UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

   
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE    ACT OF 1934

For the quarterly period ended August 31, 2012

OR

   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE      ACT OF 1934

For the transition period from                      to                     

Commission File Number 0-3498

TAYLOR DEVICES, INC.

 

(Exact name of registrant as specified in its charter)

     
NEW YORK   16-0797789
 
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
90 Taylor Drive, North Tonawanda, New York   14120-0748
 
(Address of principal executive offices)   (Zip Code)

716-694-0800

(Registrant’s telephone number, including area code)

 

 

(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 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 þ      No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ     No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

             
Large accelerated filer o       Accelerated filer o
             
Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company þ

    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o       No þ

 

As of October 11, 2012, there were outstanding 3,310,341 shares of the registrant’s common stock, par value $.025 per share.

 
 

 

TAYLOR DEVICES, INC.

 

Index to Form 10-Q

 

 

 

PART I FINANCIAL INFORMATION                                                                                                                     PAGE NO.
       
  Item 1. Financial Statements  
       
    Condensed Consolidated Balance Sheets as of August 31, 2012 and May 31, 2012 3
       
    Condensed Consolidated Statements of Income for the three months ended August 31, 2012 and August 31, 2011 4
       
    Condensed Consolidated Statements of Cash Flows for the three months ended August 31, 2012 and August 31, 2011 5
       
    Notes to Condensed Consolidated Financial Statements 6
       
  Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

 7
  Item 3. Quantitative and Qualitative Disclosures About Market Risk  

13

 

         
  Item 4. Controls and Procedures   13
       
PART II

OTHER INFORMATION

 

  

 

 

 Item 1. Legal Proceedings 14

 

 

 Item 1A. Risk Factors 14

 

 

 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 14

 

 

 Item 3. Defaults Upon Senior Securities 15

 

 

 Item 4. Mine Safety Disclosures 15

 

 

 Item 5. Other Information 15
  Item 6. Exhibits 15

 

 

      

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 16

SIGNATURES

 

   17

 

 

 

2
 

 

 

TAYLOR DEVICES, INC. AND SUBSIDIARY        
         
Condensed Consolidated Balance Sheets (Unaudited)      
  August 31,   May 31,  
  2012   2012  
         
Assets        
Current assets:        
     Cash and cash equivalents $        277,816   $           73,952  
     Accounts receivable, net 8,357,491   5,610,328  
     Inventory 8,938,339   8,372,535  
     Costs and estimated earnings in excess of billings 3,863,436   5,492,028  
     Other current assets 1,300,475   1,432,717  
          Total current assets 22,737,557   20,981,560  
         
Maintenance and other inventory, net 955,752   844,834  
Property and equipment, net 4,882,757   4,481,953  
Other assets 154,896   153,550  
  $   28,730,962   $    26,461,897  
Liabilities and Stockholders' Equity        
Current liabilities:        
     Short-term borrowings $     3,740,000   $         261,657  
     Accounts payable 1,842,637   3,361,742  
     Accrued commissions 700,458   631,221  
     Billings in excess of costs and estimated earnings 235,608   668,900  
     Other current liabilities 2,285,235   2,257,732  
          Total current liabilities 8,803,938   7,181,252  
         
Long-term liabilities 283,985   283,985  
         
Stockholders' Equity:        
     Common stock and additional paid-in capital 7,411,251   7,372,689  
     Retained earnings 14,730,771   14,122,954  
  22,142,023   21,495,643  
     Treasury stock -  at cost (2,498,983 )  (2,498,983 ) 
          Total stockholders'equity 19,643,039   18,996,660  
         
  $   28,730,962   $    26,461,897  
         
         
See notes to condensed consolidated financial statements.        

 

 

 

 

 

 

 

 

3
 

 

 

 

 

TAYLOR DEVICES, INC. AND SUBSIDIARY    
     
Condensed Consolidated Statements of Income  
  (Unaudited)
  August 31,
 For the three months ended 2012 2011
     
     
Sales, net  $  7,316,667  $  4,572,702
     
Cost of goods sold      4,698,057      2,734,583
     
     Gross profit      2,618,610      1,838,119
     
Selling, general and administrative expenses      1,722,673       1,285,901
     
     Operating income         895,937         552,218
     
Other income, net             6,880           35,899
     
     Income before provision for income taxes         902,817         588,117
     
Provision for income taxes         295,000         180,000
     
     Net income  $     607,817  $     408,117
     
Basic and diluted earnings per common share  $           0.18  $            0.13
     
     
See notes to condensed consolidated financial statements.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4
 

 

 

 

 

 

 

TAYLOR DEVICES, INC. AND SUBSIDIARY        
         
Condensed Consolidated Statements of Cash Flows        
  (Unaudited)
  August 31,
For the three months ended 2012   2011  
         
Operating activities:        
Net income  $       607,817    $     408,117  
Adjustments to reconcile net income to net cash flows from operating activities:        
   Depreciation and amortization   127,384          128,553  
   Stock options issued for services 35,599   26,502  
   Changes in other assets and liabilities:        
      Accounts receivable (2,747,163 )           68,158  
      Inventory         (676,722 )   (1,465,897 )
      Costs and estimated earnings in excess of billings      1,628,592            72,559  
      Other current assets           132,242           275,142  
      Accounts payable      (1,519,105 )         346,473  
      Accrued commissions             69,237         (100,157 )
      Billings in excess of costs and estimated earnings         (433,292 )         323,962  
      Other current liabilities            27,503        1,055,413  
          Net operating activities      (2,747,908 )      1,138,825  
         
Investing activities:        
   Acquisition of property and equipment        (528,188 )       (410,681 )
   Other investing activities             (1,346 )           (1,347 )
          Net investing activities        (529,534 )       (412,028 )
         
Financing activities:        
   Net short-term borrowings        3,478,343             (1,372 )
   Proceeds from issuance of common stock, net               2,963               2,559  
   Acquisition of treasury stock                       -           (49,767 )
          Net financing activities       3,481,306           (48,580 )
         
          Net change in cash and cash equivalents          203,864           678,217  
         
Cash and cash equivalents - beginning             73,952        2,193,534  
         
          Cash and cash equivalents - ending  $       277,816    $  2,871,751  
         
See notes to condensed consolidated financial statements.        

 

 

5
 

 

 

TAYLOR DEVICES, INC.

 

Notes to Condensed Consolidated Financial Statements

 

1.The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of August 31, 2012 and May 31, 2012, the results of operations for the three months ended August 31, 2012 and August 31, 2011, and cash flows for the three months ended August 31, 2012 and August 31, 2011. These financial statements should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Annual Report to Shareholders for the year ended May 31, 2012. Certain amounts have been reclassified in the prior period financial statements to conform with the presentation adopted for August 31, 2012.

 

2.The Company has evaluated events and transactions for potential recognition or disclosure in the financial statements through the date the financial statements were issued.

 

3.There is no provision nor shall there be any provisions for profit sharing, dividends, or any other benefits of any nature at any time for this fiscal year.

 

4.For the three month periods ended August 31, 2012 and August 31, 2011, the net income was divided by 3,309,758 and 3,222,455, respectively, which is net of the Treasury shares, to calculate the net income per share.

 

5.The results of operations for the three month period ended August 31, 2012 are not necessarily indicative of the results to be expected for the full year.

 

6.Recently issued Financial Accounting Standards Board Accounting Standards Codification guidance has either been implemented or is not significant to the Company.

 

6
 

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

 

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 of Financial Condition and Results of Operations," and elsewhere in this 10-Q 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, uncertainty regarding how long the worldwide economic recession will continue and whether the recession will deepen; reductions in capital budgets by our customers and potential customers; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products; and other factors, many or all of which are 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 condensed consolidated statements of income is shown below:

 

Summary comparison of the three months ended August 31, 2012 and 2011
    Increase /
    (Decrease)
Sales, net    $  2,744,000
Cost of goods sold    $  1,963,000
Selling, general and administrative expenses    $     437,000
Income before provision for income taxes    $     315,000
Provision for income taxes    $     115,000
Net income    $     200,000

 

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.

 

 

 

 

 

7
 

 

For the three months ended August 31, 2012 (All figures discussed are for the three months ended August 31, 2012 as compared to the three months ended August 31, 2011.)

 

   Three months ended August 31  Change
  2012 2011 Amount Percent
Net Revenue  $      7,317,000  $     4,573,000  $    2,744,000 60%
Cost of sales          4,698,000         2,735,000        1,963,000 72%
Gross profit  $      2,619,000  $     1,838,000  $      781 ,000 42%
… as a percentage of net revenues 36% 40%    

 

 

The Company's consolidated results of operations showed a 60% increase in net revenues and an increase in net income of 49%. Revenues recorded in the current period for long-term construction projects (“Project(s)”) were 63% higher than the level recorded in the prior year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 54% higher than the level recorded in the prior year. The gross profit as a percentage of net revenues for the current and prior year periods was 36% and 40%. We had 24 Projects in process during the current period compared with 38 during the same period last year.

 

Sales of the Company’s products are made to three general groups of customers: industrial, construction and aerospace / defense. As the construction market improves around the world, we are experiencing a greater increase in demand from our customers for products to provide protection to buildings and bridges from wind and seismic events. A breakdown of sales to the three general groups of customers is as follows:

 

  Three months ended August 31  
  2012 2011  
Industrial 9% 13%
Construction 65% 53%
Aerospace / Defense 26% 34%
           

 

At August 31, 2011, the Company had 132 open sales orders in our backlog with a total sales value of $21.9 million. At August 31, 2012, the Company has 12% more open sales orders in our backlog (148 orders) and the total sales value is $13.8 million or 37% less than the prior year value.

.

The Company's backlog, revenues, commission expense, gross margins, gross profits, and net income fluctuate from period to period. The changes in the current period, compared to the prior period, are not necessarily representative of future results.

 

Net revenue by geographic region, as a percentage of total net revenue for three month periods ended August 31, 2012 and August 31, 2011 is as follows:

 

  Three months ended August 31
  2012 2011
USA 52% 48%
Asia 40% 41%
Other 8% 11%

 

 

 

 

 

8
 

 

Selling, General and Administrative Expenses

 

   Three months ended August 31  Change
   2012  2011  Amount Percent
Outside Commissions  $        279,000  $      130,000  $    149,000 115%
Other SG&A         1,444,000       1,156,000        288,000   25%
Total SG&A  $     1,723,000  $   1,286,000  $    437,000   34%
   … as a percentage of net revenues 24% 28%    

 

 

Selling, general and administrative expenses increased by 34% from the prior year. Outside commission expense increased by 115% from last year's level. This fluctuation was primarily due to the significant increase in commissionable sales in the current year and in the current year there is a lower percentage of Project sales sold through our Asian Representatives net of commissions. Other selling, general and administrative expenses increased 25% from last year to this. This increase is primarily due to an increase in air-freight charges incurred in order to meet contractual obligations to deliver products on schedule along with an increase in estimated incentive compensation expense in the current period related to the higher level of sales and operating results.

 

The above factors resulted in operating income of $896,000 for the three months ended August 31, 2012, up 62% from the $552,000 in the same period of the prior year.

 

Stock Options

 

The Company has a stock option plan which provides for the granting of nonqualified or incentive stock options to officers, key employees and non-employee directors. Options granted under the plan are exercisable over a ten year term. Options not exercised at the end of the term expire.

 

The Company expenses stock options using the fair value recognition provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). The Company recognized $36,000 and $27,000 of compensation cost for the three month periods ended August 31, 2012 and August 31, 2011.

 

The fair value of each stock option grant has been determined using the Black-Scholes model. The model considers assumptions related to exercise price, expected volatility, risk-free interest rate, and the weighted average expected term of the stock option grants. Expected volatility assumptions used in the model were based on volatility of the Company's stock price for the thirty month period ending on the date of grant. The risk-free interest rate is derived from the U.S. treasury yield. The Company used a weighted average expected term. The following assumptions were used in the Black-Scholes model in estimating the fair market value of the Company's stock option grants:

 

  August 2012   August 2011
Risk-free interest rate: 1.875%   1.875%
Expected life of the options: 2.9 years   2.7 years
Expected share price volatility: 43%   49%
Expected dividends: zero   zero
       
These assumptions resulted in estimated fair-market value per stock option: $2.46   $1.74

 

 

The ultimate value of the options will depend on the future price of the Company's common stock, which cannot be forecast with reasonable accuracy.

 

 

 

9
 

 

A summary of changes in the stock options outstanding during the three month period ended August 31, 2012 is presented below:

        Weighted-
    Number of   Average
    Options   Exercise Price
Options outstanding and exercisable at May 31, 2012:              163,750   $6.300
Options granted:                14,500   $8.055
Options outstanding and exercisable at August 31, 2012:              178,250   $6.440
Closing value per share on NASDAQ at August 31, 2012:       $8.720

 

 

Capital Resources, Line of Credit and Long-Term Debt

 

The Company's primary liquidity is dependent upon the working capital needs. These are mainly inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued commissions, and billings in excess of costs and estimated earnings. The Company's primary source of liquidity has been operations and bank financing.

 

Capital expenditures for the three months ended August 31, 2012 were $528,000 compared to $411,000 in the same period of the prior year. As of August 31, 2012, the Company has commitments for capital expenditures of $1,425,000 during the next twelve months. These purchases are related to the substantial renovation of the new buildings acquired in the fiscal year ended May 31, 2012, as discussed below.

 

In December 2011, the Company closed on its purchase of three industrial buildings in the City of North Tonawanda, NY. The location of the site is 1.4 miles from the Company’s existing facilities on Tonawanda Island. In February 2012, the Company closed on its purchase of vacant lots adjacent to the new facilities. The combined real estate of the new parcel totals 9+ acres.

 

The additional manufacturing space is needed to address overcrowding of the Company’s large parts machining and assembly areas due to increased sales of large seismic protection products. Total area of the three newly purchased buildings is 46,000 square feet, which more than doubles the Company’s current manufacturing space.

 

When the three buildings are fully renovated and modified, the Company’s production machinery will be relocated from the Company’s Tonawanda Island site, and large overhead cranes will be installed to move large parts from machine to machine. It is the Company’s intent to move all machining and metalworking operations to the new site. This will allow the former machining areas at the existing Tonawanda Island site to house greatly expanded assembly and product testing areas. All corporate and engineering offices will be unaffected by the change and will remain on Tonawanda Island.

 

The renovations and modifications to the buildings are extensive, with a total project cost (including the initial purchase price) of $2.5 million. The first of the three buildings is in service, with the remaining two buildings to be completed and in service by December 2013. The Company anticipates that its current cash and bank line of credit resources will be sufficient for that purpose.

 

The Company believes it is carrying adequate insurance coverage on its facilities and their contents.

 

The Company has available a $6,000,000 bank demand line of credit, with interest payable at the Company's option of 30, 60, 90 or 180 day LIBOR rate plus 2.5%, or the bank's prime rate less .25%. There is a $3,740,000 principal balance outstanding as of August 31, 2012. There was a $258,000 principal balance outstanding at May 31, 2012. The increase in the outstanding balance of the debt is primarily due to the increases in retained amounts for construction Projects included in accounts receivable, as discussed below, and the recent expenditures towards the renovation of the new buildings, as discussed above. The interest rate on the outstanding balance at August 31, 2012 is 3%. The line is secured by accounts receivable, equipment, inventory, and general intangibles, and a negative pledge of the Company’s real property. This line of credit is subject to the usual terms and conditions applied by the bank, is subject to renewal annually, and is not subject to an express requirement on the bank’s part to lend. The outstanding balance on the line of credit fluctuates as the Company's various long-term projects progress.

10
 

The Company is in compliance with restrictive covenants under the line of credit. In these covenants, the Company agrees to maintain the following minimum levels of the stated item:

 

Covenant   Minimum per Covenant   Current Actual   When Measured
Minimum level of working capital   $3,000,000   $13,934,000   Quarterly
Minimum debt service coverage ratio   1.5:1   n/a   Fiscal Year-end

 

All of the $2,260,000 unused portion of our line of credit is available without violating any of our debt covenants.

 

Inventory and Maintenance Inventory

 

   August 31, 2012  May 31, 2012 Increase /(Decrease)
Raw materials  $    632,000    $     622,000    $          10,000   2%
Work in process     7,684,000        7,112,000              572,000   8%
Finished goods        622,000           638,000              (16,000 ) -3%
Inventory     8,938,000 90%      8,372,000 91%            566,000   7%
Maintenance and other inventory     956,000 10%         845,000 9%            111,000   13%
Total  $ 9,894,000 100%  $  9,217,000 100%  $        677,000   7%
               
Inventory turnover 2.0   2.7        

 

NOTE: Inventory turnover is annualized for the three month period ended August 31, 2012

 

Inventory, at $8,938,000 as of August 31, 2012, is $566,000 or 7% higher than the prior year-end level of $8,372,000. Approximately 86% of the current inventory is work in process, 7% is finished goods, and 7% 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 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 technological 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. The maintenance inventory increased 13% since May 31, 2012. Management of the Company has recorded an allowance for potential inventory obsolescence. The provision for potential inventory obsolescence was $45,000 for each of the three month periods ended August 31, 2012 and August 31, 2011. 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 (CIEB"), and Billings in Excess of Costs and Estimated Earnings ("BIEC")

 

   August 31, 2012  May 31, 2012 Increase /(Decrease)  
Accounts receivable  $  8,357,000    $  5,610,000   $  2,747,000     49%
CIEB      3,863,000        5,492,000      (1,629,000 ) -30%
Less: BIEC         236,000           669,000         (433,000 ) -65%
Net  $11,984,000    $10,433,000    $ 1,551,000    15%
               
Number of an average day’s sales outstanding in accounts receivable 103   52        
                   

 

11
 

 

The Company combines the totals of accounts receivable, the current asset CIEB, and the current liability, BIEC, 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 $8,357,000 as of August 31, 2012 includes approximately $3,385,000 of amounts retained by customers on Projects. It also includes $42,000 of an allowance for doubtful accounts (“Allowance”). The accounts receivable balance as of May 31, 2012 of $5,610,000 included an Allowance of $42,000. The number of an average day's sales outstanding in accounts receivable (“DSO”) increased from 52 days at May 31, 2012 to 103 at August 31, 2012. The DSO is a function of 1.) the level of sales for an average day (for example, total sales for the past three months divided by 90 days) and 2.) the level of accounts receivable at the balance sheet date. The level of sales for an average day in the first quarter of the current year is approximately 24% less than in the fourth quarter of the prior year when the Company recorded record high level of sales. The level of accounts receivable at the end of the current fiscal quarter is 49% more than at the end of the prior year. The combination of these two factors caused the DSO to increase from last year end to this quarter-end. The $2,747,000 increase in accounts receivable is primarily due to a 137% increase in the retained amounts by customers on construction Projects. The retained amounts are high at this time due to the recent completion or near completion of several Projects. It is expected that the retained amounts will be released in the normal course of the business in accordance with the related contracts. The Company expects to collect the net accounts receivable balance, including the retainage, during the next twelve months.

 

As noted above, CIEB 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. The $3,863,000 balance in this account at August 31, 2012 is 30% less than the prior year-end. The Company expects to bill the entire amount during the next twelve months. 59% of the CIEB balance as of the end of the last fiscal quarter, May 31, 2012, was billed to those customers in the current fiscal quarter ended August 31, 2012. The remainder will be billed as the Projects progress, in accordance with the terms specified in the various contracts.

 

The balances in this account are comprised of the following components:

 

   August 31, 2012  May 31, 2012
Costs  $         6,300,000    $         9,342,000
Estimated Earnings             1,462,000               2,251,000
Less: Billings to customers             3,899,000               6,101,000
CIEB  $         3,863,000    $         5,492,000
Number of Projects in progress 18   20

 

As noted above, BIEC represents billings to customers in excess of revenues recognized. The $236,000 balance in this account at August 31, 2012 is down from the $669,000 balance at the end of the prior year. This decrease is the result of normal flow of the projects through production with billings to the customers as permitted in the related contracts. The balance in this account fluctuates in the same manner and for the same reasons as the account “costs and estimated earnings in excess of billings”, discussed above. Final delivery of product under these contracts is expected to occur during the next twelve months.

 

The balances in this account are comprised of the following components:

 

   August 31, 2012  May 31, 2012
Billings to customers  $         1,006,000    $         1,107,000
Less: Costs                521,000                  328,000
Less: Estimated Earnings                249,000                  110,000
BIEC  $            236,000    $            669,000
Number of Projects in progress 6   8

 

12
 

Summary of factors affecting the balances in CIEB and BIEC:

 

   August 31, 2012  May 31, 2012
Number of Projects in progress 24   28
Aggregate percent complete 65%   61%
Average total sales value of Projects in progress $555,000   $715,000
Percentage of total value invoiced to customer 37%   36%

 

The Company's backlog of sales orders at August 31, 2012 is $13.8 million, down 21% from $17.5 million at the end of the prior year. $4.5 million of the current backlog is on Projects already in progress.

 

Other Balance Sheet Items

 

Accounts payable, at $1,843,000 as of August 31, 2012, is 45% less than the prior year-end. The volume of purchases is lower to support the decrease in sales volume from the final quarter of fiscal 2012. 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, 2012 are $700,000, up 11% from the $631,000 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 only slightly from the prior year-end, to $2,285,000. Payments on these liabilities will take place as scheduled within the next twelve months.

 

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

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Smaller reporting companies are not required to provide the information called for by this item.

 

Item 4. 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, 2012 and have concluded that as of the evaluation date, the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer to allow timely decisions regarding required disclosure.

 

(b) Changes in internal control over financial reporting.

 

There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter ended August 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company's control over financial reporting.

 

 

 

 

13
 

 

 

Part II - Other Information

 

  ITEM 1 Legal Proceedings        
               
    There are no other legal proceedings except for routine litigation incidental to the business.
               
  ITEM 1A Risk Factors        
    Smaller reporting companies are not required to provide the information called for by this item.
               
  ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds
               
    (a) The Company sold no equity securities during the fiscal quarter ended August 31, 2012 that were not registered under the Securities Act.
    (b) Use of proceeds following effectiveness of initial registration statement:
      Not Applicable
    (c) Repurchases of Equity Securities – Quarter Ended August 31, 2012
               
      Period (a) Total Number of Shares Purchased (b) Average Price Paid Per Share ( c ) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
               
       June 1, 2012 -        
       June 30, 2012 - - -  
               
       July 1, 2012 -        
       July 31, 2012 - - -  
               
       August 1, 2012 -        
       August 31, 2012 -   -  
              (1)
       Total - - - $419,815.00
      (1) The Company has designated $419,815 of cash on hand as available for open-market purchases of its outstanding common stock.
               
    (d) Under the terms of the Company's credit arrangements with its primary lender, the Company is required to maintain net working capital of at least $3,000,000, as such term is defined in the credit documents.  On August 31, 2012, under such definition the Company's net working capital was significantly in excess of such limit.  Additional information regarding the Company’s line of credit and restrictive covenants appears under the caption “Capital Resources, Lines of Credit and Long-Term Debt” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.
               
  ITEM 3 Defaults Upon Senior Securities
               
    None          
               
  ITEM 4 Mine Safety Disclosures        
             
    Not applicable        
               
  ITEM 5 Other Information        
               
    (a) Information required to be disclosed in a Report on Form 8-K, but not reported
               
      None        
               
    (b) Material changes to the procedures by which Security Holders may recommend nominees to the Registrant's Board of Directors
               
      None        
               
  ITEM 6 Exhibits          
    31(i) Rule 13a-14(a) Certification of Chief Executive Officer.
    31(ii) Rule 13a-14(a) Certification of Chief Financial Officer.
    32(i) Section 1350 Certification of Chief Executive Officer.
    32(ii) Section 1350 Certification of Chief Financial Officer.
    101.INS* XBRL Instance Document
    101.SCH* XBRL Taxonomy Extension Schema Document
    101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
    101.DEF* XBRL Taxonomy Extension Definition Linkbase Document
    101.LAB* XBRL Taxonomy Extension Label Linkbase Document
    101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
               
  * In accordance with Rule 406T(b)(2) of Regulation S-T, the interactive data files in this Report shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liability of that section and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

 

14
 

 

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, 2012, the related condensed consolidated statements of income for the three months ended August 31, 2012 and August 31, 2011 and cash flows for the three months ended August 31, 2012 and August 31, 2011. These interim financial statements are the responsibility of the Company's management.

 

We conducted our reviews 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 (United States), 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, 2012, 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 August 7, 2012, 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, 2012 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

October 11, 2012

 

 

 

 

 

 

 

15
 

 

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)

 

 

 

 

Date: October 11, 2012     /s/Douglas P. Taylor          
 

 

 

 

 

 

    

Douglas P. Taylor

President

Chairman of the Board of Directors

(Principal Executive Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Date: October 11, 2012     /s/Mark V. McDonough
 

 

 

 

    

Mark V. McDonough

Chief Financial Officer