SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission file number 2-15966
ended June 30, 1996
TAYCO DEVELOPMENTS, INC.
(Exact name of registrant as specified in its charter)
New York 16-0835557
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Taylor Drive
North Tonawanda, New York 14120-0748
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (716) 694-0877
Securities registered pursuant to Section 15(d) of the Act:
Common Stock, ($.05 par value)
(Title of class)
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 twelve months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No ________
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to Form 10-KSB.
[ X ] N/A
The aggregate market value of the common stock held by non-affiliates (as
defined in Rule 405 of the Securities Act of 1933) of the registrant
based upon average of the bid and asked price on September 16, 1996, the
latest practicable date, was: $1,392,249.
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 20, 1996
Common Stock, $.05 par value 990,213
TAYCO DEVELOPMENTS, INC.
FORM 10-KSB INDEX
PAGE
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . .3
ITEM 2. DESCRIPTION OF PROPERTY. . . . . . . . . . .6
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . .7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . .7
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . .7
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION. . . . . . . . . . . . . . . . . .8
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . .9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE . . .9
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS. . . . . . . . . . . . . . 10
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . 10
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT . . . . . . . . . . . . . . 11
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
. . . . . . . . . . . . . . . . . . . . . .13
ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K . . . . . 14
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
The Company was incorporated in the State of New York on
July 22, 1955, and is a patent holding company engaged in research,
development and licensing to manufacture shock and vibration
isolators, energy storage and shock absorption components for use
on various types of vehicles, machinery and equipment. The Company
maintains its offices at 100 Taylor Drive, North Tonawanda, New
York 14120-0748.
The Company entered into a License Agreement on November 1,
1959 ("License Agreement") with its affiliate, Taylor Devices, Inc.
("Devices"), also a corporation organized in the State of New York
on July 22, 1955. Devices is licensed to manufacture and sell
certain of the Company's patented products. The products sold are
used in the defense, aerospace and commercial industries.
The Company owns 42% of the equity securities of Tayco Realty
Corporation ("Tayco Realty"), a corporation organized in the State
of New York on September 7, 1977; the other 58% of Tayco Realty
stock is owned by Devices. The Company was a 60% guarantor of the
indebtedness of Tayco Technology, Incorporated ("Tayco
Technology"), now merged into Devices, and continues to repay
Devices for its portion of the indebtedness assumed by Devices.
See Item 12. "Certain Relationships and Related Transactions."
In addition to receiving royalties, the Company sells research
and development engineering services to Devices. The Company
continues to research and develop new and advanced technology
products.
Principal Products
The Company's primary products include a wide spectrum of
components utilized for the absorption and/or attenuation of
transient and/or steady state motion of mechanical elements.
Specific components include shock absorbers, vibration dampers,
seismic shock arresters, vehicle suspension devices and recoil
absorbers. These components may utilize either hydraulic,
elastomer, or electronic means to obtain their required output.
A correlative component of these products is the analysis and
development of design specifications for various types of energy
absorption devices. The Company maintains an extensive computer
data base of shock pulses, combined with its own proprietary
structural analysis computer codes. The Company markets analytical
services utilizing these assets.
Distribution
The Company has no need for sales representatives or
distributors because the major part of its work is performed under
contract with Devices.
Competition
The Company faces no significant competition due to the nature
of its patented products, and the subcontracting work performed
under a contractual relationship with Devices.
Raw Materials and Supplies
Due to the nature of its business, the Company has no need for
raw materials and supplies which are considered scarce or in short
supply. The occasional purchase of supplies is made through local
suppliers which are readily available.
Patents, Trademarks and Licenses
Under the License Agreement, the Company granted Devices
preferential rights to market, in the United States and Canada, all
existing and future inventions and patents owned by the Company.
Certain of these patents were assigned to Devices in connection
with Devices' assumption of the Company's portion of the
indebtedness of Tayco Technology. See Item 12. "Certain
Relationships and Related Transactions." The term of the License
Agreement is the life of the last-to-expire patent on which Devices
is paying royalties, which is December 1, 2014. Devices pays a 5%
royalty to the Company on sales of items sold and shipped. During
fiscal 1996, Devices incurred royalties to the Company of $129,325.
Payments are required to be made quarterly without interest;
payments are current. No other allocation of expenses is made from
the Company to Devices.
The License Agreement also provides for the Company to pay
Devices 10% of the gross royalties received from third parties who
are permitted to make, use and sell machinery and equipment under
patents not subject to the License Agreement, and apparatus and
equipment subject to the License Agreement but modified by Devices,
with rights to such modification having been assigned to the
Company. No royalties were received in 1996. Royalties, if any,
are paid quarterly.
The Company holds approximately 41 patents expiring at
different times until the year 2014. With the Company's additions
to its engineering staff, and the research and development
activities ("R&D") for Devices, the importance of these patents has
diminished. In fiscal 1996, royalty income from the patents
accounted for only 34% of the Company's income.
Although the Company and Devices share common management and
a close business relationship, as separate corporations responsible
to their own shareholders, interests may diverge regarding
development and licensing of future inventions and patents. In
that case, the Company would be permitted to license future
inventions and patents to licensees other than Devices, rendering
Devices' option on future inventions and patents under its License
Agreement minimally beneficial.
Dependence Upon Customers/Terms of Sale/Sales Backlog
Generally, the Company's current business is almost totally
dependent on Devices. In fiscal 1996, 100% of sales were to
Devices in the form of both direct and subcontracted project
engineering. Terms of sale are normally net 30 days, with purchase
orders issued on a "cost plus" basis. Work is subcontracted from
Devices as needed, and consequently there is no backlog. All
contract arrangements are at arm's length and are at terms no less
favorable to the Company than if made to an independent third
party.
Government Contracts
The Company has proposals pending to the federal government,
but no assurances can be given that any contracts will be
forthcoming.
Research and Development
The Company engages in R&D in connection with the design of
products that are sold by Devices. See Item 1. "Description of
Business - Patents, Trademarks and Licenses." The Company's income
from R&D was $249,227 and $277,472 for fiscal years 1996 and 1995,
respectively.
Government Regulation
Compliance with federal, state and local provisions which have
been enacted or adopted regulating the discharge of materials into
the environment have had no material effect on the Company, and the
Company believes that it is in substantial compliance with such
provisions.
The Company is subject to the Occupational Safety and Health
Act, ("OSHA") and the rules and regulations promulgated thereunder,
which establishes strict standards for the protection of employees,
and imposes fines for violations of such standards. The Company
believes that it is in substantial compliance with OSHA provisions
and does not anticipate any material corrective expenditures in the
near future. There have been no significant costs or efforts in
conjunction with compliance with environmental standards.
Employees
As of June 30, 1996, the Company had three full time
employees, which does not include executive officers.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 1,200 square feet of office
space from Devices pursuant to a one year written lease agreement
between the Company and Devices and is renewed annually. The lease
was originally with Tayco Technology, now merged with Devices.
Rental payments for fiscal 1996 totaled $10,000. The lease
agreement has been renewed for fiscal 1997 at a base rental of
$10,000. The total rent paid by the Company is determined in
accordance with the base rental, and is subject to adjustment for
increases in taxes, maintenance costs and for utilization of
additional space by the Company. The real property utilized by the
Company is in good condition, adequate for present operations and
adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's common stock is traded over the counter and is
listed on pink sheets of the National Quotation Bureau ("NQB").
The market prices noted below for fiscal years 1996 and 1995
were obtained from the NQB and represent estimated prices between
dealers, without retail mark-up, mark-down or commission. Prices
do not necessarily represent actual transactions because trades in
the Company's shares are sporadic.
Fiscal 1996 Fiscal 1995
High Bid Low Bid High Bid Low Bid
First Quarter 4 2 1 5/8 1
Second Quarter 4 2 1/2 2 1/8 1
Third Quarter 3 1/4 1 3/4 2 5/8 1 1/4
Fourth Quarter 2 1/4 1 1/2 2 1/4 1 1/2
Holders
As of September 20, 1996, the approximate number of holders of
record of common stock of the Company was 885. Due to a
significant number of shares of the Company's common stock held in
street name, the Company believes that the total number of
beneficial owners of its common stock exceeds 950.
Dividends
There are no restrictions on the payment of either cash or
stock dividends, but no dividends were declared in fiscal years
1996 or 1995. It is highly unlikely that the Company will pay
dividends until its financial condition has significantly improved.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Led by increased royalties, stable expenses and improved
equity earnings, the Company experienced a profitable fiscal year
1996 (FY96).
FY96's royalty income nearly doubled, from FY95's figure of
$64,976 to $129,325. This increase was created by a shift in the
product mix shipped in FY96 by the Company's affiliate, Devices,
and the first royalties generated by a new patent which was awarded
early in the fiscal year. R&D revenues dropped by around 10%, as
the defense/aerospace project, which consumed most of the staff's
time in FY94 and FY95, came to the conclusion of the development
phase early in the fiscal year.
Operating expenses decreased slightly in FY96 due primarily to
an adjustment in the rental charge from Devices. Interest expense
declined approximately 25% as the Company's share of the loans
associated with its former affiliate, Tayco Technology, continued
to decrease.
Pretax income of $142,585 was $46,061 and 48% better than
FY95's figure, due largely to the increased royalties and
stabilized expenses. Equity in the net income of affiliates rose
from $141,823 in FY95 to $160,069 in FY96, as Devices experienced
its second consecutive year of record revenues and net income. Net
income rose by 21%, from $211,892 to $257,127. The improvement of
almost $46,000 consisted of approximately $27,000 from operations
and approximately $19,000 from Devices.
The Company's staff continues to dedicate a substantial
portion of its efforts to meeting Devices' requirements on bid
proposals. As the interest level in Devices' seismic products
applications increases, the demands on the Company's staff are
expected to also increase. Other significant efforts are directed
at confirming new applications for the Company's (and Devices')
existing technologies.
The Company's financial condition remains strong and stable.
Early in FY97, final payments were made on two more Tayco
Technology loans and only one is now being repaid. This final loan
will be paid in full early in FY98. See Item 12. "Certain
Relationships and Related Transactions."
Management believes that certain of the elements that made
FY96 profitable will hold for FY97, but others will not. Royalty
revenues should remain close to FY96's level, as Devices' shipment
forecast for FY97 contains a significant level of defense products,
but it is unlikely that the equity in Devices' net income will
approach the levels of FY95 or FY96. In those two years, Devices'
income benefitted greatly from a combination of tax refunds and net
operating loss carry-forwards. Now that these benefits have been
fully depleted, Devices' net income will be subject to normal tax
rates for the first time since 1994.
At this time Management believes FY97 will be a good year, one
that will show positive financial performance and continued
technological progress.
ITEM 7. FINANCIAL STATEMENTS
For information concerning this Item, see the Company's
balance sheet and related financial statements and notes at Item
13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
There have been no disagreements between the Company and its
accountants as to matters which require disclosure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
DOUGLAS P. TAYLOR, (48) President and Chief Executive Officer of
the Company since April 1991 was Executive Vice President since
1979, and a Director since 1972. Since 1976, and 1977, he has
served as Director of Devices and Tayco Realty, respectively. Mr.
Taylor is inventor/co-inventor on 21 U.S. Patents assigned to the
Company, and is widely published within the fluid power,
aerospace/defense, and structural engineering communities.
DAVID A. LEE, (65) has served as a Vice President of the Company
since April 1991, and a Director since November 1991. Dr. Lee has
served as a consultant to Devices since 1974. He has a Ph.D. and
M.E. degree in mechanical engineering from the University of
Southern California at Los Angeles, and a B.S. degree in
mechanical engineering from the California Institute of Technology.
JOSEPH P. GASTEL, (71) is a patent attorney and has served as a
Director and Secretary of the Company and Devices since 1984.
PAUL L. TUTTOBENE, JR., (33) President of PLT Associates, a
corporation which serves as a manufacturer's representative for the
Company, has been a Director of the Company since November 1991.
He has a B.S. degree in marketing from St. John Fisher College.
JANICE M. NICELY, (56) serves the Company and Devices as
Shareholder Relations Manager and has been with the Company since
1980. Ms. Nicely has been a Director since November 1992.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation of the Company's Chief Executive Officer. No
executive officer in the Company receives a salary.
SUMMARY COMPENSATION TABLE
ANNUAL
COMPENSATION
All Other
Name and Principal Compensation
Position Year Salary Total(1)
Douglas P. Taylor 1996 $0 $ 8,500
Chairman, President and 1995 $0 $ 8,000
Chief Executive Officer 1994 $0 $ 8,000
(1) The following is a summary of all other compensation earned:
Directors'
Fees Royalties Total
Fiscal Year Ended 6/30/96 $3,500 $ 5,000 $ 8,500
Fiscal Year Ended 6/30/95 $3,000 $ 5,000 $ 8,000
Fiscal Year Ended 6/30/94 $3,000 $ 5,000 $ 8,000
Directors' fees in fiscal 1996 were $1,000 per meeting, with
the Secretary receiving an additional $2,250 for preparing the
minutes of each meeting. Prior to and including November 10, 1995,
the directors were paid $750 for each meeting with the secretary
receiving $2,000 for preparing the minutes. The Board of Directors
met four times in fiscal 1996.
The legal services provided by Mr. Gastel, resulting in fees
less than $26,000, are on terms similar to those that would have
been arranged with third parties, and are favorable to the Company.
The Company has no nominating, audit or other committee of the
Board.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of September 16,
1996, as to persons known by the Company to be the beneficial
owners of more than five percent (5%) of the Company's common
stock, as well as shares owned by the named Executive Officer, each
director and all directors and executive officers as a group:
Amount of
Name and Address Direct/Indirect Percent of
of Beneficial Owner Ownership Ownership (4)
Taylor Devices, Inc. 228,317 (1) 23%
90 Taylor Drive
North Tonawanda, NY 14120
Paul H. Taylor 155,913 (2) 15.7%
3677 East River Road
Grand Island, NY 14072
Douglas P. Taylor 52,594 (3) 5.3%
90 Taylor Drive
North Tonawanda, NY 14120
Joseph P. Gastel 0 *
722 Ellicott Square Bldg.
Buffalo, NY 14203
David A. Lee 10,000 1%
1819 Wilshire Blvd.
Santa Monica, CA 90403
Paul L. Tuttobene, Jr. 1,000 *
84 Benedict Road
Pittsford, NY 14534
Janice M. Nicely 58 *
100 Taylor Drive
North Tonawanda, NY 14120
All Directors and 63,652 6.4%
officers as a group
* less than 1%
1. These shares were purchased in January 1992 in a private sale
at their fair market value, in consideration of Devices' partially
discharging certain of the Company's obligations as a guarantor of
the indebtedness of Tayco Technology. See Item 12. "Certain
Relationships and Related Transactions."
2. Mr. Taylor is father of Douglas P. Taylor, and father-in-law of
Richard G. Hill, both of whom are executive officers and directors
of Devices. Including shares held by Messrs. Douglas P. Taylor,
Paul H. Taylor and Joyce Taylor Hill, daughter of Paul H. Taylor
and wife of Richard G. Hill, the Taylor family owns 232,792 shares,
or approximately 23.5% of the Company's common stock. Joyce Taylor
Hill, sister of Douglas P. Taylor, holds 14,274 shares of Company
stock as custodian for her minor children, with 2,511 shares in her
name.
3. Includes 20,542 shares held beneficially and of record by
Sandra Taylor, wife of Mr. Douglas P. Taylor, as custodian for
their minor children, and as to which Mr. Taylor disclaims any
beneficial ownership.
4. Information presented in this table has been supplied by the
respective shareholders or by the Company, as transfer agent.
Other than for certain arrangements between the Company and its
affiliates, the Company knows of no contractual arrangement which
may result in a change in control of the Company at any subsequent
date. See Item 12. "Certain Relationships and Related
Transactions."
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Devices is the largest single shareholder of the Company as a
result of a private sale purchase by Devices of the Company's
common stock and Paul H. Taylor is the second largest. See Item
11. "Security Ownership of Certain Beneficial Owners and
Management." Also, the Company owns approximately 42% of Tayco
Realty, with 58% owned by Devices. Devices and the Company have
also entered into certain licensing arrangements arising out of
patents owned by the Company. See Item 1. "Description of Business
- - - Patents, Trademarks and Licenses."
In 1987, the Company guaranteed 60% and Devices guaranteed 40%
of approximately $850,000 of loans for Tayco Technology, their
former affiliate. In March 1991, certain of the lenders called
their loans and the Company was unable to assume its portion of the
obligations under the guaranties, Devices assumed all obligations
and continued to make all payments as they came due. In January
1992, Devices acquired approximately 23% of the restricted common
stock of the Company at its fair market value in consideration of
Devices discharging certain of the Company's obligations as a
guarantor. See Item 11. "Security Ownership of Certain Beneficial
Owners and Management." In addition, the Company granted Devices
an irrevocable proxy to vote the 697,567 shares which the Company
owns in Devices, which proxy was renewed until July 1, 1997, or
until the indebtedness is discharged in full, whichever is the
earlier to occur. Douglas P. Taylor, as President of Devices, has
been authorized to vote such shares. In 1994, Tayco Technology was
merged into Devices and Devices formally agreed to assume all of
Tayco Technology's obligations. As of July 31, 1996, approximately
$23,424 remains outstanding on these loans, of which $14,054 is the
Company's portion. See Item 6. "Management's Discussion and
Analysis or Plan of Operation."
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
A. FILED AS PART OF THIS REPORT:
1. Financial Statements: See attached index.
Balance Sheet at June 30, 1996
Statements of Changes in
Stockholders' Equity for the
years ended June 30, 1996 and 1995
Statements of Income for the
years ended June 30, 1996 and 1995
Statements of Cash Flows for the
years ended June 30, 1996 and 1995
Notes to Financial Statements June 30, 1996
3. Exhibits
(3) Articles of Incorporation and By-laws.
(i) Certificate of Incorporation filed by the New
York State Department of State on July 22, 1955,
incorporated by reference to exhibit 1 of Report on Form
8-K, dated September 30, 1992.
(ii) Amendment to Certificate of Incorporation filed
by the New York Department of State on October 23, 1959,
incorporated by reference to exhibit 2 of Report on Form
8-K, dated September 30, 1992.
(iii) Amendment to Certificate of Incorporation filed
by the New York Department of State on September 5, 1961,
incorporated by reference to exhibit 3 of Report on Form
8-K, dated September 30, 1992.
(iv) Amendment of Certificate of Incorporation filed
by the New York Department of State on November 17, 1992,
incorporated by reference to the Annual Report on Form
10-KSB, dated September 30, 1992.
(v) By-laws of the Registrant, as amended,
incorporated by reference to exhibit 4 of Report on Form
8-K, dated September 30, 1992.
(4) Instruments defining the rights of security holders,
including indentures.
(i) Irrevocable Proxy, dated as of August 1, 1991,
incorporated by reference to Item 7 B of Registrant's
Schedule 13D, Amendment No. 2, dated November 6, 1991.
(ii) Pledge and Irrevocable Proxy Agreement, dated
as of August 1, 1991, incorporated by reference to Item
7 C of Registrant's Schedule 13D, Amendment No. 3, dated
November 14, 1991.
(iii) Extension No. 1 to Irrevocable Proxy, dated as
of August 1, 1994 and incorporated by reference to
Amendment No. 5 to the Schedule 13D, filed by the
Registrant in connection with ownership of Registrant's
shares in Devices on August 29, 1994.
(iv) Amendment No. 1 to the Pledge and Irrevocable
Proxy Agreement, dated as of August 1, 1994 together with
attached schedules and arrangements with other
shareholders incorporated by reference to Amendment No.
5 to the Schedule 13D filed by the Registrant in
connection with ownership of Registrant's shares in
Devices on August 29, 1994.
(10) Material contracts
(i) License Agreement between the registrant and
Taylor Devices, Inc. dated November 1, 1959, incorporated
by reference to exhibit 5 of Report on Form 8-K, dated
September 30, 1992.
(ii) Patent License Agreement between Tayco
Developments, Inc. and Tayco Technology, Inc. dated
March 2, 1987, incorporated by reference to exhibit 6 of
Report on Form 8-K, dated September 30, 1992.
(iii) Rental Agreement dated September 24, 1991
between registrant and Tayco Technology, Inc., Division
of Taylor Devices, Inc. Attached to and incorporated
into this Annual Report on Form 10-KSB.
(11) Statement of Computation of Per Share Earnings
This computation appears in the Notes to Financial
Statements.
(21) Subsidiaries of the registrant
Tayco Realty Corporation, organized in New York on
September 7, 1977.
(23) Report and Consent of Independent Certified Public
Accountants Reports on Form 8-K:
Reports on Form 8-K:
None
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE: August 22, 1996
TAYCO DEVELOPMENTS, INC.
(Registrant)
By: /s/ Douglas P. Taylor
Douglas P. Taylor,
President and Director
(Principal Executive Officer)
and
By: /s/ Kenneth G. Bernstein
Kenneth G. Bernstein,
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
By: /s/ Joseph P. Gastel By: /s/ David A. Lee
Joseph P. Gastel, Director David A. Lee, Director
Date: August 22, 1996 Date: August 22, 1996
By: /s/ Paul L. Tuttobene By: /s/ Janice M. Nicely
Paul L. Tuttobene, Director Janice M. Nicely, Director
Date: August 22, 1996 Date: August 22, 1996
CONSENT OF INDEPENDENT AUDITORS
Board of Directors of Tayco Developments, Inc.
We consent to the incorporation by reference in this Annual
Report on Form 10-KSB (Commission File Number 2-15966) of Tayco
Developments, Inc. of our report dated July 17, 1996, included in
the June 30, 1996 Annual Report to Stockholders of Tayco
Developments, Inc.
/s/J.D. Elliott & Co., P.C.
J.D. Elliott & Co., P.C.
September 20, 1996
FINANCIAL STATEMENTS
TAYCO DEVELOPMENTS, INC.
June 30, 1996
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
of Tayco Developments, Inc.
We have audited the accompanying balance sheets of Tayco
Developments, Inc. as of June 30, 1996 and 1995, and the related
statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Tayco Developments, Inc. as of June 30, 1996 and 1995, and the
results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
/S/J.D. Elliott & Co., P.C.
J. D. ELLIOTT & CO., P.C.
July 17, 1996
TAYCO DEVELOPMENTS, INC.
BALANCE SHEETS
June 30, 1996 and 1995
ASSETS 1996 1995
Current
Cash $ 23,473 $ 24,981
Receivables - affiliates, net 83,606 45,205
Prepaid expenses 3,231 3,142
Total current assets 110,310 73,328
Investments in Affiliates,
at Equity (Note 2) 1,242,524 1,082,455
Furniture and Equipment -
at Cost (Note 1) 61,821 52,527
Less: accumulated depreciation 54,150 52,527
7,671 -
Other
Patents, net (Note 1) 97,927 92,964
Cash value - life insurance, net 43,777 36,486
141,704 129,450
$ 1,502,209 $ 1,285,233
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Current portion of long-term debt
(Note 3) $ 27,803 $ 26,506
Accounts payable - trade - 467
Accrued income taxes 18,747 16,768
Accrued expenses 25,116 37,805
Total current liabilities 71,666 81,546
Long-Term Debt (Note 3) 82,314 112,585
Total liabilities 153,980 194,131
Commitments and Contingencies
(Note 7)
Stockholders' Equity
Common stock, par value $.05 a
share, authorized 1,000,000
shares, issued 993,922 shares 49,696 49,696
Paid-in capital 670,605 670,605
Retained earnings 633,557 376,430
1,353,858 1,096,731
Less: Treasury stock,
3,709 shares at cost 5,629 5,629
Total stockholders'
equity 1,348,229 1,091,102
$ 1,502,209 $ 1,285,233
The accompanying notes are an integral part of these financial
statements.
TAYCO DEVELOPMENTS, INC.
STATEMENTS OF INCOME
For the years ended June 30, 1996 and 1995
1996 1995
Revenues (Note 6)
Royalties $ 129,325 $ 64,976
Research and development 249,227 277,472
Total revenues 378,552 342,448
Operating Expenses
Research and development 105,079 102,627
Selling, general, and administrative 111,146 123,408
Depreciation 1,623 -
Amortization, patents 9,067 7,779
Total operating expenses 226,915 233,814
Operating income 151,637 108,634
Other Expenses
Interest, net 9,052 12,110
Income before provision for income
taxes and equity in net income
affiliates 142,585 96,524
Provision for Income Taxes (Note 4) 45,527 26,455
Income before equity in net income
of affiliates 97,058 70,069
Equity in Net Income of Affiliates
(Note 2) 160,069 141,823
Net income $ 257,127 $ 211,892
Net Income Per Common Share (Note 5) $ .26 $ .21
The accompanying notes are an integral part of these financial
statements.
TAYCO DEVELOPMENTS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended June 30, 1996 and 1995
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
Balance, July 1, 1994 $ 49,696 $670,605 $164,538 $ (5,629)
Net income for the year
ended June 30, 1995 - - 211,892 -
Balance, June 30, 1995 49,696 670,605 376,430 (5,629)
Net income for the year
ended June 30, 1996 - - 257,127 -
Balance, June 30, 1996 $ 49,696 $670,605 $633,557 $ (5,629)
The accompanying notes are an integral part of these financial statements.
TAYCO DEVELOPMENTS, INC.
STATEMENTS OF CASH FLOWS
For the years ended June 30, 1996 and 1995
1996 1995
Cash Flows From Operating Activities
Net income $ 257,127 $ 211,892
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 10,690 7,779
Equity in net income of affiliates (160,069) (141,823)
Changes in:
Receivables - affiliates, net (38,401) (11,709)
Prepaid and refundable income taxes - 9,687
Prepaid expenses (89) (362)
Accounts payable - trade (467) (8,018)
Accrued income taxes 1,979 16,768
Accrued expenses (12,689) (13,108)
Cash value - life insurance (7,291) (7,029)
Net cash provided by operating
activities 50,790 64,077
Cash Flows From Investing Activities
Acquisition of patents (14,030) (18,863)
Acquisition of furniture and equipment (9,294) -
Net cash used for investing
activities (23,324) (18,863)
Cash Flows Used For Financing Activities
Repayment of long-term debt (28,974) (29,865)
Net (decrease)/increase in cash (1,508) 15,349
Cash Balance, Beginning of Year 24,981 9,632
Cash Balance, End of Year $ 23,473 $ 24,981
Supplemental Disclosure of Cash Flow Information
1996 1995
Cash paid during the year for:
Interest $ 10,075 $ 12,110
Income taxes $ 43,548 $ -
Schedule of Non-Cash Investing Activities
1996 1995
Investment in affiliate $ - $ 148,000
Conversion of long-term receivables -
affiliate to additional cost of
investment - 148,000
Cash investment in affiliate $ - $ -
The accompanying notes are an integral part of these financial statements.
TAYCO DEVELOPMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
NOTE 1 - CORPORATE ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Corporate Activity - Tayco Developments, Inc.'s ("The Company") primary
business activity is a patent holding company engaged in research,
development and licensing services for use in the manufacturing operation
of its affiliate, Taylor Devices, Inc. ("Devices"). The Company's
revenues are derived from services provided to Devices (see Note 6).
Investments in Affiliates - Investments in affiliates, where less than
50% but more than 20% of the outstanding stock is owned by the Company,
are recorded on the equity method.
Research and Development - The cost of material and labor incurred for
research and development is expensed when incurred.
Patents - The cost of obtaining patents, which represent legal
expenditures incurred for patents and patent applications, is capitalized
and amortized over a 15 to 17 year life on a straight-line basis.
Depreciation - The cost of furniture and equipment is depreciated over
the estimated useful life of 5 years using accelerated methods.
Income Taxes - Deferred income taxes are provided to reflect the tax
consequences on future years of temporary differences between the tax
bases of assets and liabilities and their financial reporting amounts at
each year-end using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. As of June 30, 1996, there
were no temporary differences for income tax reporting and financial
reporting purposes (see Note 4).
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the year. Actual results could differ from those
estimates.
Reclassifications - Certain 1995 financial statement items have been
reclassified to conform to the current year's format.
NOTE 2 - INVESTMENTS IN AFFILIATES
Investments in affiliates consisted of the following:
1996 1995
Investment, at cost
Taylor Devices, Inc. (26% ownership) (1) $ 375,866 $ 375,866
Tayco Realty Corporation ("Realty")
(42% ownership) 102,400 102,400
478,266 478,266
Cumulative equity in net income of the
affiliates 764,258 604,189
$1,242,524 $1,082,455
(1) Effective July 1, 1994, $148,000 due from a former affiliate,
Tayco Technology, Incorporated ("Technology"), which merged into
Devices on this date, were capitalized as additional cost of the
investment in Devices.
Equity in net income of affiliates consisted of the following:
1996 1995
Taylor Devices, Inc. $ 149,392 $ 137,921
Tayco Realty Corporation 10,677 3,902
$ 160,069 $ 141,823
The cost of the investments in the affiliates exceeded the Company's
share of the underlying book value of net assets of these affiliates by
$143,667 at the various dates of acquisition, and this excess ($72,119
balance at June 30, 1996) is being amortized on a straight-line basis
primarily over 40 years, by reducing reported equity in net income of
affiliates. Amortization of this excess cost was $2,912 for the years
ended June 30, 1996 and 1995.
The common shares of Realty and approximately 57% of the common shares
of Devices owned by the Company are unregistered, and therefore, their
marketability is limited.
Following is a summary of the combined financial position and results
of operations of investee affiliates:
Balance Sheet: 1996 1995
Current assets $5,147,591 $5,006,968
Property and equipment, net 2,414,489 1,970,634
Other assets 837,841 817,016
$8,399,921 $7,794,618
Current liabilities $2,567,978 $2,430,228
Noncurrent liabilities 1,750,583 2,012,092
Stockholders' equity 4,081,360 3,352,298
$8,399,921 $7,794,618
Income Statement:
Sales, net $8,916,836 $8,069,154
Net income $ 634,008 $ 561,670
NOTE 3 - LONG-TERM DEBT
Long-term debt consisted of the following:
1996 1995
Six-year unsecured loan payable to
a former officer/stockholder of
the Company, providing for monthly
principal and interest installments
of $2,917, with interest at 4.8%,
payable through December 1999
(see Note 8) $ 110,117 $ 139,091
Less: Current portion 27,803 26,506
$ 82,314 $ 112,585
The aggregate maturities of long-term debt for each of the following
years are:
1997 $ 27,803
1998 31,751
1999 33,305
2000 17,258
$ 110,117
NOTE 4 - PROVISION FOR INCOME TAXES
The provision for income taxes consisted of the following:
1996 1995
Current Tax Provision
Federal $ 33,422 $ 17,846
State 12,105 8,609
$ 45,527 $ 26,455
A reconciliation of provision for income taxes at the statutory rate to
income tax provision at the Company's effective rate is as follows:
1996 1995
Computed tax at the expected
statutory rate $ 48,479 $ 32,818
Increase/(decrease) attributable to:
State tax net of Federal tax benefit 7,989 5,682
Effect of graduated Federal rates (10,318) (11,750)
Officers' life insurance (637) (547)
Penalties not deductible 14 252
$ 45,527 $ 26,455
The components of the Company's deferred tax assets consisted of the
following:
1996 1995
Benefit of capital loss carryforward
Federal $ - $ 158,672
State - 40,581
Less: Valuation allowance - (199,253)
Net deferred tax assets $ - $ -
The deferred tax benefit and related valuation allowance above related
to a capital loss carryforward of approximately $507,000 which expired in
June 1996 and was not utilized.
NOTE 5 - EARNINGS PER COMMON SHARE
Earnings per common share have been computed based upon the weighted
average of common shares outstanding during the year. The number of
shares used in the computation of earnings per share was 990,213 for the
years ended June 30, 1996 and 1995.
NOTE 6 - RELATED PARTY TRANSACTIONS
Royalties consisted of revenues earned from Devices for the use of the
Company's patents in their manufacturing operations.
Research and development consists of revenues earned for services
performed by the Company's research engineers for Devices.
The Company leases office and laboratory facilities from Devices at a
current annual rental of $10,000. Rental expense under the lease was
$10,000 and $32,000 for the years ended June 30, 1996 and 1995,
respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company is a guarantor of certain outstanding loan obligations of
Devices in the principal amount of approximately $27,000 as of June 30,
1996. In addition, the Company has pledged its shares of Devices common
stock and certain patents as collateral for its obligation under the
guarantee.
NOTE 8 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair value
of each class of financial instruments for which it is practicable to
estimate that value.
The carrying amounts of cash, receivables, and other accrued expenses
approximate fair value because of the short maturity of these instruments.
The fair value of the Company's long-term debt (including current
installments) is estimated to be $102,195 based on current market interest
rates offered to its affiliate, Taylor Devices, Inc., for debt with
similar terms and maturities.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 23,473
<SECURITIES> 0
<RECEIVABLES> 83,606
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 110,310
<PP&E> 61,820
<DEPRECIATION> 54,149
<TOTAL-ASSETS> 1,502,209
<CURRENT-LIABILITIES> 71,666
<BONDS> 0
0
0
<COMMON> 49,696
<OTHER-SE> 1,298,533
<TOTAL-LIABILITY-AND-EQUITY> 1,502,209
<SALES> 249,227
<TOTAL-REVENUES> 378,552
<CGS> 226,915
<TOTAL-COSTS> 226,915
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,052
<INCOME-PRETAX> 142,585
<INCOME-TAX> 45,527
<INCOME-CONTINUING> 97,058
<DISCONTINUED> 0
<EXTRAORDINARY> 160,069
<CHANGES> 0
<NET-INCOME> 257,127
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
Exhibit (10)(iii) to 1996 10-KSB
SCHEDULE OF RENT PAYMENTS DUE
TO TAYCO TECHNOLOGY
TO: The Treasurer
Taylor Devices, Inc.
90 Taylor Drive
North Tonawanda, NY 14120
TO: The Treasurer
Tayco Developments, Inc.
100 Taylor Drive
North Tonawanda, NY 14120
It has come to my attention that our former President never formalized
any rental agreements between firms occupying our facility on a rental basis
and Tayco Technology, Inc.
Our records show the following rents due as of January 1, 1991:
1. Taylor Devices: $20,000 for one year floor space rental.
NOTE: This amount is now paid in full.
2. Tayco Developments: $12,000 for one year rental
NOTE: This amount is due and payment is hereby demanded.
3. Tayco Realty: $8,000 for one year floor space rental.
NOTE: This amount is paid in full.
It has come to our attention that as of July 1, 1991, many changes have
taken place at the Technology facility. These include:
1. Tayco Technology no longer occupies floor space at the facility.
2. Tayco Realty no longer occupies floor space at the facility.
3. Taylor Devices no longer uses the large back office, but instead uses the
small executive office.
SCHEDULE OF RENT PAYMENTS DUE
TO TAYCO TECHNOLOGY
(con't)
4. Tayco Developments uses both the large central office, the large back
office, and a portion of the lower floor.
5. Taylor Devices uses much of the lower floor.
Since the remaining tenants use virtually all of the building, rents are
hereby increased, with an effective back date to July 1, 1991. Rents
due and payable are:
1. Taylor Devices: 1/2 year at $20,000/year = $10,000
1/2 year at $30,000/year = $15,000
With the $20,000 already paid for 1991, Taylor Devices has a balance
of $5,000 due and payable immediately.
2. Tayco Developments: 1/2 year at $12,000/year = $ 6,000
1/2 year at $30,000/year = $15,000
Tayco Developments has a balance due of $21,000 due and payable
immediately.
Due to the fact that some of our tenants have paid rent very late in the
past (and present), for 1992, we will alter our policy to the following:
Rule 1. 1992 rent payment is due and payable in full on December 1, 1991.
This applies to all tenants, with no exceptions.
Rule 2. 1992 rent payment from Taylor Devices is $32,000, due and payable
December 1, 1991.
Rule 3. 1992 rent payment from Tayco Developments is $32,000, due and payable
December 1, 1991.
Additional rules for all tenants are as follows:
Rule 4. No rent payment made will be returned or rebated to a tenant for any
reason.
Rule 5. Tenants must keep the facility clean, neat, and secure at all times.
SCHEDULE OF RENT PAYMENTS DUE
TO TAYCO TECHNOLOGY
(con't)
Rule 6. Tenants agree to hold Tayco Technology harmless for any and all
injury or liability claims by employees of tenants.
Rule 7. All tenants accept the requirement that immediate eviction can occur
to any tenant who violates any rule listed herein. Tayco
Technology is the only party to this agreement who determines that
a rule has been violated.
Thank you,
/s/ Douglas P. Taylor
Douglas P. Taylor DATE: 9/24/91
President
Accepted by Taylor Devices, Inc. Accepted by Tayco Developments, Inc.
/s/ Frank Sorto /s/ Frank Sorto
Frank Sorto Frank Sorto
Treasurer Treasurer
DATE: 9/25/91 DATE: 9/25/91
ADDENDUM TO
SCHEDULE OF RENT PAYMENT DUE TO TAYCO TECHNOLOGY
TO: The Treasurer of Tayco Developments, Inc.
This Addendum incorporates, by reference, the terms conditions, and rules
of the three page SCHEDULE OF RENT PAYMENTS DUE TO TAYCO TECHNOLOGY prepared
and signed by Douglas P. Taylor on 9/24/91 and accepted by Frank Sorto on
9/25/91. A copy of that agreement has been attached to this Addendum.
The following items are changed by this Addendum.
1. All references to Tayco Technology shall now read: Tayco Technology
Division of Taylor Devices, Inc.
2. Tayco Developments' rent payment is established at $10,000.00 per
year for the period 7/1/96 to 6/30/97. The rent is due in full no
later than July 31, 1996.
3. Tayco Developments shall have use of approximately 800 square feet
located on the second floor of the building and use of all restroom
and kitchen facilities. Use of the Conference Center is dependent
upon obtaining prior approval from Taylor Devices.
4. Rules 4 thru 7, on page 3 of the 9/91 Schedule, remain in effect.
Date: 5/31/96 Date: 5/31/96
Accepted by Tayco Technology
Division of Taylor Devices, Inc. Accepted by Tayco Developments, Inc.
/s/ Kenneth G. Bernstein /s/ Douglas P. Taylor
Kenneth G. Bernstein Douglas P. Taylor
Treasurer President
ADDENDUM TO
SCHEDULE OF RENT PAYMENT DUE TO TAYCO TECHNOLOGY
TO: The Treasurer of Tayco Developments, Inc.
This Addendum incorporates, by reference, the terms conditions, and rules
of the three page SCHEDULE OF RENT PAYMENTS DUE TO TAYCO TECHNOLOGY prepared
and signed by Douglas P. Taylor on 9/24/91 and accepted by Frank Sorto on
9/25/91. A copy of that agreement has been attached to this Addendum.
The following items are changed by this Addendum.
1. All references to Tayco Technology shall now read: Tayco Technology
Division of Taylor Devices, Inc.
2. Tayco Developments' rent payment is established at $10,000.00 per year
for the period 7/1/95 to 6/30/96. The rent is due in full no later
than July 7, 1995.
3. Tayco Developments shall have use of approximately 800 square feet
located on the second floor of the building and use of all restroom
and kitchen facilities. Use of the Conference Center is dependent
upon obtaining prior approval from Taylor Devices.
4. Rules 4 thru 7, on page 3 of the 9/91 Schedule, remain in effect.
Date: 5/31/95 Date: 5/31/95
Accepted by Tayco Technology
Division of Taylor Devices, Inc. Accepted by Tayco Developments, Inc.
/s/ Kenneth G. Bernstein /s/ Douglas P. Taylor
Kenneth G. Bernstein Douglas P. Taylor
Treasurer President
