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, 1998
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, P.O. Box 748
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 affiliates are defined in Rule 12b-2 of the
Exchange
Act) of the registrant, computed by reference to the average of the
bid and asked price on September 10, 1998 was $927,896. In
addition to shares excluded by affiliates, this calculation also
excludes shares of the registrant's common stock that are held by
Schedule 13D filers.
The number of shares outstanding of the registrant's class of
common stock, as of the latest practicable date.
Class Outstanding at September 23, 1998
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. . . . . . . . . . 5
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . 6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS . . . . . . . . . . . . . 6
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS. . . . . . . . . . . . 6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION. . . . . . . . . . . . . 7
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . .8
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . .9
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS. . . . . . . . . . . . .9
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . .9
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT. . . . . . . . . . . 10
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . . 12
ITEM 13. EXHIBITS AND REPORTS OF FORM 8-K . . . . . 13
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
sells research and development engineering services to its
affiliate, Taylor Devices, Inc. ("Devices"), and pursuant to a
certain License Agreement dated November 1, 1959("License
Agreement") has licensed Devices to manufacture and sell certain of
the Company's patented products. The products sold are used in the
defense, aerospace and commercial industries. See "Patents,
Trademarks and Licenses."
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 arrangement 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.
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 1998, Devices incurred royalties
to the Company of $136,384. 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 1998. Royalties, if any,
are paid quarterly.
The Company holds approximately 31 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
somewhat diminished. In fiscal 1998, royalty income from the
patents accounted for 31.5% 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
The Company's current business is almost totally dependent on
Devices. In fiscal 1998, 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 with 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. "Patents, Trademarks and
Licenses." The Company's income from R&D was $296,116 and $223,507
for fiscal years 1998 and 1997, 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, 1998, the Company had three full time
employees, which does not include executive officers.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 800 square feet of office
space from Devices pursuant to a three year Lease Agreement between
the Company and Devices entered into on July 1, 1997, at a base
rental of $10,000 per year. This Lease Agreement replaces a former
lease arrangement on virtually identical terms. The Lease
Agreement can be canceled by a 90 days' written notice to the other
party. Rental payments for fiscal 1998 totaled $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 by the National Quotation Bureau ("NQB").
The market prices noted below for fiscal years 1998 and 1997
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 1998 Fiscal 1997
High Low High Low
First Quarter 3.75 3.25 2.50 2.0625
Second Quarter 3.125 2.75 3.25 2.50
Third Quarter 2.875 2.50 4.25 3.25
Fourth Quarter 3.00 2.6875 3.75 3.50
Holders
As of September 10, 1998, the approximate number of holders of
record of common stock of the Company was 905. 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 1,000.
Dividends
There are no restrictions on the payment of either cash or
stock dividends, but no dividends were declared in fiscal years
1998 or 1997.
ITEM 6. 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. Certain matters
discussed in this section and elsewhere in this report are forward-
looking statements. These forward-looking statements involve risks
and uncertainties including, but not limited to, economic
conditions, product demand and industry capacity, competition, and
other risks.
The Company reported record high Total Revenues in Fiscal Year 1998
(FY98), posting a 10.5% increase to $432,510 from the Fiscal Year
1997 (FY97) figure of $391,317. Net Income was $216,946, compared
to $231,650 in FY97 as the Company experienced increased operating
expenses and reduced earnings from Devices.
Royalty income for FY98 was $136,394, compared to $167,810 in FY97
as the Company's affiliate, Devices, experienced a shift in its
product mix for the year. The change in Royalties was more than
offset by an increase in Research and Development (R&D) revenues to
$296,116 from $223,507 in FY97. The R&D figure and the Total
Revenues figure of $432,510 represent the highest amounts recorded
in those categories since the 1991 restructuring.
Total Operating Expenses increased to $298,687 from the FY97 figure
of $263,750 as the Company experienced higher expense levels in
personnel, legal and patent acquisition areas. Operating Income
for FY98 was $133,823, up from the FY97 total of $127,567 and
represents the second best figure of the restructured era.
Interest expense and tax figures have been similar year to year,
resulting in an improvement in the Income Before Equity in Net
Income Of Affiliates to $89,606 in FY98 compared to $84,203 in
FY97. This figure represents the net results of the operational
aspects of the Company, and the FY98 figure is the second best
figure of the post-1991 period.
Equity in Net Income of Affiliates declined in FY98, from $147,447
in FY97 to $127,340 as Devices reported increased sales but reduced
income due to shipment delays and competitive pricing issues. Net
Income for FY98 was $216,946, compared to $231,650 in FY97, the net
result of improved operational income and reduced affiliate income.
The Company's balance sheet and general financial condition remain
stable and strong at the end of FY98. Fiscal Year 1999 represents
the final full year of the Company's obligation on its only
long-term debt and the decreasing interest expense should have a
positive impact on operational figures.
The Company's professional staff continues to maintain its high
utilization level, primarily in support of Devices' projects and
proposals. Among them are: three overseas bridge projects:
continued developmental testing (after successful pre-testing) of
a damper for the Space Shuttle Boom arm, and continued development
of modified isolators for navigators utilized by allied navies.
Projects which are in a more developmental/experimental stage than
those mentioned above include: wind damping devices for large,
interactive highway signs; semi-active controlled damping devices
utilizing passive resilient mounts (for a military application);
and some very preliminary efforts on the feasibility of using
non-cylindrical envelopes for damping applications. The Company
believes that the use of non-cylindrical envelopes could have
significant potential with respect to the installation of dampers
in existing structures and reduced construction costs on new
structures which include dampers.
With respect to the Year 2000 (Y2K) issue relating to Electronic
Data Processing (EDP) matters, the Company's Management initiated
a review in FY98. This review has, to date, concluded that the
Company: does not utilize any EDP systems for purposes of internal
control or record keeping; does not interface or interact with any
customer or vendor by means of EDP or Electronic Data Interchange
(EDI); and obtains supplies through the purchasing department of
Devices. Most of these supplies are of a an administrative,
non-crucial nature. The Management of Devices believes Devices and
its
key vendors, are Y2K compliant and, barring a systemic, nationwide
crisis with Y2K, materials and supplies are expected to be
available from one of several alternative sources. Management has
neither incurred any significant cost in conducting the survey, nor
does it anticipate any significant cost in addressing the Y2K
matter. At this time, Management sees no significant risks to the
operations of the Company when Y2K arrives, but will continue to
monitor the matter as the date approaches and more information
about potential and actual risks becomes available.
For FY99, Management is projecting continued good and stable
operating results and a contribution from its affiliates similar to
that of FY98. Management continues to recognize that pursuing the
development of patentable technologies is the Company's best
opportunity for continued growth and will continue to direct the
Company's efforts to that end.
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
On April 9, 1998 the Company filed a Form 8-K with the SEC
reporting a change in accountants. The Board of Directors
appointed Lumsden & McCormick as independent accountants. After a
review of accounting and auditing fees, the Company found it was
economically advantageous to obtain services from Lumsden &
McCormick. There have been no disagreements with the previous
auditors, J.D. Elliott & Co., on any matter of accounting
principles or practices, financial statement disclosure or auditing
scope or procedure or any reportable event.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS
DOUGLAS P. TAYLOR, (50) is President and Chief Executive Officer of
the Company since April 1991 and has been an executive officer
since 1979, and a Director since 1972. Since 1976, and 1977, he
has served as Director of Devices and another affiliate, Tayco
Realty Corporation ("Tayco Realty"), respectively. Mr. Taylor is
inventor/co-inventor on numerous U.S. Patents assigned to the
Company, and is widely published within the fluid power,
aerospace/defense, and structural engineering communities.
DAVID A. LEE, (67) 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, (73) is a patent attorney and has served as a
Director and Secretary of the Company and Devices since 1984.
PAUL L. TUTTOBENE, JR., (35) 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, (58) 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 1998 $0 $ 19,000
Chairman, President and 1997 $0 $ 18,000
Chief Executive Officer 1996 $0 $ 8,500
(1) The following is a summary of all other compensation paid or
accrued:
Directors'
Fees Royalties(A) Total
Fiscal Year Ended 6/30/98 $4,000 $15,000 $19,000
Fiscal Year Ended 6/30/97 $3,000 $15,000 $18,000
Fiscal Year Ended 6/30/96 $3,500 $ 5,000 $ 8,500
(A) A Royalty Agreement with the Chief Executive Officer
provides for a monthly payment of $1,666.66 ($20,000 per year)
beginning on October 1 of each year. Fiscal 1998 royalties earned
is for the nine month period, October 1997 to June 30, 1998.
Directors' fees in fiscal 1998 were $1,000 per meeting, with
the Secretary receiving an additional $2,250 for preparing the
minutes of each meeting. The Board of Directors met four times in
fiscal 1998, with all directors present. The Company has no
nominating, audit or other standing committee of the Board.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of September 23,
1998, 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 (4) Ownership (4)(5)
Taylor Devices, Inc. 228,317(1) 23%
90 Taylor Drive
North Tonawanda, NY 14120
Bruce Paul 136,180 13.7%
1 Hampton Road
Purchase, NY 10577
Paul H. Taylor 31,188 (2) 3%
3677 East River Road
Grand Island, NY 14072
Douglas P. Taylor 81,994 (3) 8.2%
90 Taylor Drive
North Tonawanda, NY 14120
Joseph P. Gastel - 0 - - 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 62 *
100 Taylor Drive
North Tonawanda, NY 14120
All Directors and 93,056 9.3%
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 Tech. See Item 12. "Certain
Relationships and Related Transactions."
2. Mr. Paul Taylor is father of Douglas P. Taylor, and
father-in-law of Richard G. Hill, who are both executive officers
and
directors of Devices. Including shares held by Messrs. Douglas P.
Taylor and his family, Paul H. Taylor and his wife, and the family
of Joyce Taylor Hill, daughter of Paul H. Taylor and wife of
Richard G. Hill, the Taylor family owns 176,115 shares, or
approximately 17.8% of the Company's common stock. Joyce Taylor
Hill, sister of Douglas P. Taylor, holds 34,674 shares as custodian
for her minor children, with 8,511 shares in her name and Richard
Hill beneficially owns 4,800 shares. Isabel B. Taylor, wife of
Paul H. Taylor, beneficially owns 8,928 shares. Elaine Cassel,
daughter of Mr. Taylor and Peter Cassel, his son-in-law
beneficially own 6,020 shares. In fiscal 1998, Paul H. Taylor
gifted a total of 50,637 shares of Company stock to his family,
donated 7,000 to charity and sold 16,954 shares on the open market.
3. Includes 43,942 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. In addition to information on the above table, on August 12,
1998, a Schedule 13D was filed with respect to the Company's stock
that includes the following persons: Aries Hill Corp, 16,400 shares
(1.656%); Brent Baird, 9,500 shares (.959%); Bridget B. Baird, as
Successor Trustee, 5,000 shares (.505%); The Cameron Baird
Foundation, 3,800 shares (.384%) and Jane D. Baird, 15,000 shares
(1.515%) total of filing persons 49,700 shares (5.019%). According
to a Schedule 13D Amendment dated August 10, 1998, these entities
in the aggregate also own 503,900 shares (19.705%) of the Common
Stock of Devices. The persons filing such Schedule 13D, rather
than the Company or Devices, are responsible for the accuracy and
completeness of such information.
5. 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
Just as Devices is the largest single shareholder of the
Company, similarly, the Company is the largest single shareholder
of Devices, owning approximately 25.2% of Devices' outstanding
common stock. See also Item 11. "Security Ownership of Certain
Beneficial Owners and Management." The Company owns approximately
42% of Tayco Realty, with the remaining 58% owned by Devices. The
Company rents space from Tayco Realty. See Item 2. "Description of
Property."
Under the License Agreement, the Company granted Devices
preferential rights to manufacture and sell in the United States
and Canada certain of the Company's patented products. The terms
of the License Agreement are more fully set forth in Item 1.
"Description of Business - Patents, Trademarks and Licenses."
In FY98, the Company paid patent fees of $35,093 to Mr. Joseph
P. Gastel for his services as the Company's patent attorney.
All transactions described above are on as favorable a basis to
the Company as if entered into with an unaffiliated party. The
Company, Devices, and Tayco Realty share common management and a
close business relationship. Particularly as it relates to the
Company and Devices, as separate corporations responsible to their
own shareholders, corporate interests may from time to time diverge
regarding development and licensing of future inventions and
patents. In that case, the Company would be permitted to license
future patents and inventions to licensees other than Devices,
which may render Devices' present License Agreement only minimally
beneficial.
Pursuant to a settlement of litigation between the Company and
Devices commenced by Paul H. Taylor, whereby the arrangement
resulted in the dismissal of all claims between the parties, the
settlement included an annual payment of principal and interest in
the amount of $35,000 paid by the Company over a six year period
that commenced January 1, 1994. As a term of the settlement, Paul
H. Taylor agreed to neither manufacture, sell or distribute the
Company's products, nor interfere with the management of the
Company, Devices or any affiliate by way of soliciting proxies,
nominating opposing directors or, in general, attempt to regain
control of the companies.
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, 1998
Statements of Changes in
Stockholders' Equity for the
years ended June 30, 1998 and 1997
Statements of Income for the
years ended June 30, 1998 and 1997
Statements of Cash Flows for the
years ended June 30, 1998 and 1997
Notes to Financial Statements June 30, 1998
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 (3)(v) of Annual Report on
Form 10-KSB, dated September 19, 1997.
(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) Rental Agreement dated July 1, 1997 between
registrant and 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. Tayco Realty Corporation is owned
42% by the registrant and 58% by Taylor Devices, Inc.
(23) Report and Consent of Independent Certified Public
Accountants Reports on Form 8-K:
Reports on Form 8-K:
A current report on Form 8-K filed April 9, 1998,
reporting a change in auditors.<PAGE>
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: September 23, 1998
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
By: /s/Paul L. Tuttobene By: /s/Janice M. Nicely
Paul L. Tuttobene, Director Janice M. Nicely, Director
<PAGE>
TAYCO DEVELOPMENTS, INC.
FINANCIAL STATEMENTS
June 30, 1998
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tayco Developments, Inc.
We have audited the accompanying balance sheet of Tayco
Developments, Inc. as of June 30, 1998, and the related statements
of income, changes in stockholders' equity, and cash flows for the
year 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 audit. The
financial statements of Tayco Developments, Inc. as of June 30,
1997 were audited by other auditors whose report dated July 14,
1997, expressed an unqualified opinion on those statements.
We conducted our audit 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
audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above
present fairly, in all material respects, the financial position
of Tayco Developments, Inc. as of June 30, 1998, and the results
of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/S/ Lumsden & McCormick, LLP
Lumsden & McCormick, LLP
Buffalo, New York
July 31, 1998
TAYCO DEVELOPMENTS, INC.
Balance Sheets
June 30, 1998 1997
_________________________
Assets
Current assets:
Cash $ 25,063 $ 24,006
Receivable - affiliates, net
(Note 8) 123,745 63,303
Prepaid income taxes - 13,071
Prepaid expenses 4,422 7,037
________________________
153,230 107,417
________________________
Investments in affiliates,
at equity (Note 2) 1,517,311 1,389,971
Property and equipment,
net (Note 3) 11,281 13,132
Other:
Patents, net 131,089 114,400
Cash value of life insurance,
net (Note 4) 56,780 49,104
________________________
187,869 163,504
________________________
$1,869,691 $1,674,024
=========================
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term
debt (Note 5) $ 33,437 $ 29,163
Accrued income taxes 4,543 -
Accrued expenses 17,375 11,069
_________________________
55,355 40,232
_________________________
Deferred income taxes (Note 6) 3,100 3,350
Long-term debt (Note 5) 14,411 50,563
Stockholders' equity:
Common stock, $.05 par value,
authorized 1,000,000 shares,
issued 993,922 shares 49,696 49,696
Paid-in capital 670,605 670,605
Retained earnings 1,082,153 865,207
________________________
1,802,454 1,585,508
Treasury stock - 3,709 shares
at cost (5,629) (5,629)
________________________
1,796,825 1,579,879
________________________
$1,869,691 $1,674,024
See Accompanying Notes =========================
TAYCO DEVELOPMENTS, INC.
Statements of Income
For the years ended June 30, 1998 1997
______________________
Revenues (Note 8)
Royalties $136,394 $167,810
Research and development 296,116 223,507
______________________
Total revenues 432,510 391,317
Operating expenses
Research and development 117,467 109,177
Selling, general and administrative 164,861 139,569
Depreciation 3,469 4,489
Amortization, patents 12,890 10,515
______________________
Total operating expenses 298,687 263,750
______________________
Operating income 133,823 127,567
Interest, net 7,467 7,557
______________________
Income before provision for income
taxes and equity in net income of
affiliates 126,356 120,010
Provision for income taxes (Note 6) 36,750 35,807
______________________
Income before equity in net
income of affiliates 89,606 84,203
Equity in net income of affiliates
(Note 2) 127,340 147,447
______________________
Net income $216,946 $231,650
======================
Basic earnings per common share
(Note 7) $ .22 $ .23
See accompanying notes.
TAYCO DEVELOPMENTS, INC.
Statements of Changes in Stockholders' Equity
For the years ended June 30, 1998 and 1997
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
________________________________________
Balance, July 1, 1996 $49,696 $670,605 $ 633,557 $(5,629)
Net income for the
year ended June 30,
1997 - - 231,650 -
________________________________________
Balance, June 30, 1997 49,696 670,605 865,207 (5,629)
Net income for the
year ended June 30,
1998 - - 216,946 -
_________________________________________
Balance, June 30, 1998 $49,696 $670,605 $1,082,153 $(5,629)
=========================================
See accompanying notes.
TAYCO DEVELOPMENTS, INC.
Statements of Cash Flows
For the years ended June 30, 1998 1997
_______________________
Cash flows from operating activities:
Net income $ 216,946 $ 231,650
Adjustments to reconcile net income
to net cash flows from
operating activities:
Depreciation and amortization 16,359 15,004
Equity in net income of
affiliates (127,340) (147,447)
Deferred income taxes (250) 3,350
Changes in other current
assets and current
liabilities:
Receivable - affiliates, net (60,442) 20,303
Prepaid income taxes 13,071 (13,071)
Prepaid expenses 2,615 (3,806)
Accrued income taxes 4,543 (18,747)
Accrued expenses 6,306 (14,047)
________________________
Net cash flows from
operating activities 71,808 73,189
________________________
Cash flows from investing activities:
Acquisition of property and
equipment (1,618) (9,950)
Acquisition of patents (29,579) (26,988)
Increase in cash value of life
insurance, net (7,676) (5,327)
________________________
Net cash flows for
investing activities (38,873) (42,265)
________________________
Cash flows for financing activities:
Repayment of long-term debt (31,878) (30,391)
________________________
Net increase in cash 1,057 533
Cash - beginning 24,006 23,473
________________________
Cash - ending $25,063 $24,006
========================
See accompanying notes.
TAYCO DEVELOPMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations:
Tayco Developments, Inc. (the Company) 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 8).
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.
Property and Equipment:
Property and equipment is stated at cost net of accumulated
depreciation. Depreciation is provided using the straight-line
and accelerated methods for financial reporting and income tax
reporting purposes. Estimated useful lives range from 5 to 7
years.
Cash Value of Life Insurance:
Cash value of life insurance is stated at the surrender value of
the contracts less outstanding policy loans.
Income Taxes:
The provision for income taxes is based on pretax financial
accounting income. Deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary
differences between the tax and financial statement bases of
assets and liabilities.
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 amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
2. INVESTMENTS IN AFFILIATES:
Investments in affiliates consisted of the following:
1998 1997
_____________________
Investment, at cost
Taylor Devices, Inc.
(26% ownership) $ 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 1,039,045 911,705
_____________________
$1,517,311 $1,389,971
=====================
Equity in net income of affiliates consisted of the following:
1998 1997
_____________________
Taylor Devices, Inc. $106,337 $125,381
Tayco Realty Corporation 21,003 22,066
_____________________
$127,340 $147,447
=====================
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 ($66,295 balance at June 30, 1998) is being
amortized on a straight-line basis 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, 1998 and 1997.
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 these affiliates:
1998 1997
_______________________
Balance Sheet:
Current assets $ 7,589,637 $5,612,622
Property & equipment, net 2,924,412 2,573,419
Other assets 928,704 877,520
_______________________
$11,442,753 $9,063,561
=======================
Current liabilities $ 4,027,572 $2,764,084
Noncurrent liabilities 1,973,624 1,457,714
Stockholders' equity 5,441,557 4,841,763
_______________________
$11,442,753 $9,063,561
=======================
Income Statement:
Sales, net $10,234,022 $10,002,839
=======================
Net income $508,496 $580,376
=======================
3. PROPERTY AND EQUIPMENT:
1998 1997
_______________________
Laboratory equipment $24,511 $24,511
Shop equipment 34,249 32,631
Furniture and fixtures 14,629 14,629
_______________________
73,389 71,771
Less accumulated depreciation 62,108 58,639
_______________________
$11,281 $13,132
=======================
Depreciation expense was $3,469 and $4,489 for the years ended
June 30, 1998 and 1997.
4. CASH VALUE OF LIFE INSURANCE:
1998 1997
_______________________
Cash values $130,424 $120,982
Less policy loans 73,644 71,878
_____________________
$ 56,780 $ 49,104
=====================
Interest on outstanding policy loans is payable at 6% per annum.
5. LONG-TERM DEBT:
1998 1997
_____________________
Unsecured loan payable to a former
officer/stockholder of the
Company, monthly principal and
interest installments of $2,917,
with interest at 4.8%, payable
through December 1999. $47,848 $79,726
Less current portion 33,437 29,163
_____________________
$14,411 $50,563
=====================
6. PROVISION FOR INCOME TAXES:
1998 1997
_____________________
Current tax provision:
Federal $27,200 $23,287
State 9,800 9,170
_____________________
37,000 32,457
Deferred tax provision:
Federal (170) 2,667
State (80) 683
______________________
(250) 3,350
______________________
$36,750 $35,807
======================
A reconciliation of provision for income taxes at the statutory
rate to income tax provision at the Company's effective rate is as
follows:
1998 1997
_____________________
Computed tax at the expected
statutory rate $42,961 $40,803
State tax - net of Federal tax
benefit 6,415 6,503
Effect of graduated Federal rates (12,626) (11,617)
Other, net - 118
_____________________
$36,750 $35,807
=====================
7. BASIC EARNINGS PER COMMON SHARE:
Basic 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 basic earnings per
share was 990,213 for the years ended June 30, 1998 and 1997.
8. RELATED PARTY TRANSACTIONS:
Royalties consist 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 expenses under the
lease was $10,000 for the years ended June 30, 1998 and 1997.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash, receivables, and other accrued
expenses approximate fair value because of the short maturity of
these instruments.
Based on borrowing rates currently available to the Company for
loans similar to its fixed rate long-term debt (see Note 5), the
fair value approximates carrying value at June 30, 1998.
10. CASH FLOWS INFORMATION:
Net cash flows from operating activities reflect cash payments for
interest and income taxes for the years ended June 30, 1998 and
1997 as follows:
1998 1997
_______________________
Interest $ 8,608 $ 8,656
=======================
Income taxes $19,386 $64,275
=======================
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