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Previous: SEPARATE ACCOUNT VA 2LNY OF FIRST TRANSAMERICA LIFE INS CO, 485BPOS, 1999-09-23 |
Next: COCENSYS INC, SC 14D1/A, 1999-09-23 |
For the fiscal year Commission file number 2-15966
ended June 30, 1999
TAYCO DEVELOPMENTS, INC.
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 1, 1999 was $958,905. 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 27, 1999
Common Stock, $.05 par value 990,213
PAGE
PART I 3
ITEM 1. DESCRIPTION OF BUSINESS 3
ITEM 2. DESCRIPTION OF PROPERTY 5
ITEM 3. LEGAL PROCEEDINGS 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 5
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 . 6
ITEM 7. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . 8
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 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 does not use sales representatives or distributors because the majority 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
No raw materials are used in the Company's business and supplies 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 August 10, 2017. Devices pays a 5% royalty to the Company on sales of items sold and shipped. During fiscal 1999, Devices incurred royalties to the Company of $181,810. 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 1999. Royalties, if any, are paid quarterly. Under the License Agreement, royalties are also paid to Douglas P. Taylor. See Item 10. "Executive Compensation."
The Company holds approximately 33 patents expiring at different times until the year 2017. In fiscal 1999, royalty income from the patents accounted for 41.9% 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 1999, 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 $252,173 and $296,116 for fiscal years 1999 and 1998, 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, 1999, 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 1999 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
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 1999 and 1998 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 1999 Fiscal 1998
High Low High Low
First Quarter 2.75 2.00 3.75 3.25
Second Quarter 2.125 1.500 3.125 2.75
Third Quarter 1.875 1.3125 2.875 2.50
Fourth Quarter 2.8750 2.3750 3.00 2.6875
Holders
As of September 1, 1999, the approximate number of holders of record of common stock of the Company was 503. 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 1999 or 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, which are not historical facts, are forward-looking statements. As such, these statements involve risk and uncertainties including, but not limited to, economic conditions, product demand and industry capacity, competition, pricing pressures, the need for the Company to keep pace with customer needs and technological developments, and other factors.
The Company recorded record high Revenue, Operating Income and Net Income figures in FY99, with contributions coming from both the operational and affiliate segments.
Total Revenues for FY99 were $433,983, up slightly from the figure of $432,510 for FY98. Within this total figure, Royalties increased to a record-high level of $181,810 compared to a total of $136,394 for FY98 as the Company's affiliate, Devices, posted its highest shipment figure ever, with a product mix favorable to the Company. Research and Development income declined in FY99, from the level of $296,116 for FY98 to $252,173, a change that continues to reflect the Company's increasing concentration on internally directed efforts.
The Total Operating Expense figure improved by approximately $9,200 in FY99. Efficiencies in the Selling, General and Administrative area, due primarily to lowered insurance expenditures, exceeded $22,000, more than offsetting $13,000 of increased Research and Development expenses. With the improved Total Revenue and Operating Expenses figures, the FY99 Operating Income, at $144,474 was $10,651 higher than the FY98 Operating Income of $133,823.
Interest Expense declined by approximately $4,000 as the Company neared the end of its obligation on its sole interest-bearing commitment. Taxes increased by $6,750 as a function of higher earnings and a slightly higher marginal rate than experienced in FY98. Income Before Equity In Net Income of Affiliates improved by 10.8% in FY99, totaling $97,461 compared to $89,606 in FY98.
The FY99 figure for Equity in Net Income of Affiliates was $195,517, an increase of $68,177 and 53.5% over the FY98 figure of $127,340. This record-high figure of $195,517 reflects the Company's shares of Devices' record profits in FY99, and a small, but steady contribution from the Company's other affiliate, Tayco Realty Corporation ("Tayco Realty").
The contribution of record high operating income and record high affiliate income resulted in a record high Net Income to the Company in FY99. The $292,978 figure is approximately 35% better than the FY98 Net Income of $216,946 and 14% higher than the Company's previous high figure of $257,127, set in FY96. Earnings per share for FY99 rose about $.08 per share, from $.219 in FY98 to $.296 for FY99.
The Company's Balance Sheet reflects the continuing stability experienced in FY99. The only item of note is the dwindling of the long term debt, which will be paid in full prior to the end of calendar year 1999.
For the upcoming year, FY00, Management anticipates that the Company's operations will continue to be profitable and that the Company's affiliates will continue to produce equity income for the Company. The Company's management, and that of the Company's affiliates, continue to seek opportunities which will produce Research and Development revenue in the short term and Royalty revenue in the long term. However, the timing and ultimate finalization of these opportunities is generally not within the control of the Company's management and cannot be relied upon as a basis for predicting specific results. The Company's engineers are currently engaged in numerous projects, both internally and externally generated, involving new concepts and upgrades of existing technologies in military applications, civil engineering and commercial motion control. At this time, management is not able to establish what contributions, if any, these efforts will make to the financial results for FY00.
For FY00, and the immediate future, the Company has no plans for expanding its operations, acquiring any capital equipment, or seeking any acquisitions that would require it to raise any incremental funds.
Year 2000
Certain statements included in this discussion regarding the Company's Year 2000 (Y2K) compliance are forward looking statements. These include management's best estimates for completion dates for certain priorities. Specific factors that might cause material differences include, but are not limited to, the ability to locate and correct, if needed, any relevant software and embedded components or the compliance of third parties. The Company's assessments of the effects of Y2K on the Company are based, in part, upon the information received from third parties and the Company's reliance on such information. Consequently, the risk that inaccurate information has been supplied by a third party upon which the Company may rely, must be considered as a risk factor that could affect the Company's Y2K efforts.
As previously reported, the Company's primary software is an off-the-shelf, widely used product, designed to accommodate the Y2K. Should a failure occur, it could result in some unknown level of inconvenience until the software is modified or replaced. The Company's computers have been tested for functionality after January 1, 2000, and modifications were made where required.
The Company's transfer agent and SEC filing agent, Devices, notified the Company of a potential information technology (IT) problem with their shareholder communications system. A new Y2K compliant program was installed during the first quarter of calendar 1999 and Devices completed a successful testing at the end of the second quarter of calendar 1999, and the Company should now be Y2K compliant.
Management believes the Company is substantially Y2K compliant with respect to its general operations. However, there can be no guarantee that the systems of other companies on which the Company's systems may rely on will be converted on a timely basis or that a failure to convert by another company, or a conversion that is incompatible with the Company systems would not have a material impact on the Company. The Company believes that all areas could temporarily function by manual methods of operation.
At this time, management is unaware of any Y2K problems other than a universal disruption of power, communications, transportation, banking, etc. that could have a significant impact on the Company's operation.
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, upon the recommendation of the Audit Committee, the Board of Directors changed the Company's certified accountants from J.D. Elliott & Co. to Lumsden & McCormick, LLP for reasons of economy. There were 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 any reportable event.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DOUGLAS P. TAYLOR, (51) 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 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, (68) 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, (74) is a patent attorney and has served as a Director and Secretary of the Company and Devices since 1984.
PAUL L. TUTTOBENE, JR., (36) 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, (59) 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.
ANNUAL
COMPENSATION
All Other
Name and Principal Compensation
Position Year Salary Total(1)
Douglas P. Taylor 1999 $0 $ 30,000
Chairman, President and 1998 $0 $ 24,000
Chief Executive Officer 1997 $0 $ 18,000
(1) The following is a summary of all other compensation paid or accrued:
Directors'
Fees Royalties(A) Total
Fiscal Year Ended 6/30/99 $ 2,250 $ 30,000 $ 32,250
Fiscal Year Ended 6/30/98 $ 4,000 $ 20,000 $ 24,000
Fiscal Year Ended 6/30/97 $ 3,000 $ 15,000 $ 18,000
(A) A Royalty Agreement with the Chief Executive Officer provides for a monthly payment of $2,500 ($30,000 per year).
In fiscal 1999, Directors' fees were increased by $250 per meeting so that each member of the Board of Directors received a fee of $1,000 for the first Board meeting attended, and $1,250 for the following Board meeting. The Secretary receives a fee of $2,250 per meeting for services in addition to his fee as a director. The Board of Directors met two times in fiscal 1999, 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 1, 1999, 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 139,400 14.1%
1 Hampton Road
Purchase, NY 10577
Douglas P. Taylor 81,994 (2)(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. Douglas P. Taylor is a shareholder, a director, the President and CEO of Devices. The Taylor family owns or controls 173,317 shares in the Company, or approximately 17.5% of its common stock, including shares held by Mr. Taylor. Also included in this number are the shares held by Mr. Taylor's sister, Joyce Taylor Hill, who owns 8,511 shares in her name, and holds 34,674 shares as custodian for minor children. Richard G. Hill, her husband and the brother-in-law of Mr. Taylor, beneficially owns 4,800 shares. Mr. Hill is also a shareholder, director, and Vice President of Devices. Mr. Taylor's father, Paul H. Taylor, and his mother, Isabel B. Taylor, own 28,309 and 8,928 shares, beneficially or of record, respectively. Peter Cassel and his wife, Elaine Taylor Cassel, Mr. Taylor's sister, own 6,020 shares. Including shares beneficially owned by Messrs. Taylor and Hill in Devices, the Taylor family owns or controls 83,278 shares or 3% of the common stock of Devices.
3. Includes 38,642 shares held by Sandra Taylor, wife of Mr. Douglas P. Taylor, in custodial accounts 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 543,900 shares (19.5%) 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% 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."
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, 1999
Statements of Changes in
Stockholders' Equity for the
years ended June 30, 1999 and 1998
Statements of Income for the
years ended June 30, 1999 and 1998
Statements of Cash Flows for the
years ended June 30, 1999 and 1998
Notes to Financial Statements June 30, 1999
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. incorporated by reference to exhibit (10) (ii) of Annual Report on Form10-KSB dated September 19, 1997.
(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.
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 10, 1999
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
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 20, 1999, included in the June 30, 1999 Annual Report to Stockholders of Tayco Developments, Inc.
/s/ Lumsden & McCormick, LLP
LUMSDEN & McCORMICK, LLP
Buffalo, New York
August 13, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Tayco Developments, Inc.
We have audited the accompanying balance sheets of Tayco Developments, Inc. as of June 30, 1999 and 1998, 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 audits 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, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
/s/ Lumsden & McCormick, LLP
Lumsden & McCormick, LLP
Buffalo, New York
July 20, 1999
TAYCO DEVELOPMENTS, INC.
Balance Sheets
June 30, 1999 1998
Assets
Current assets:
Cash $ 16,313 $ 1,797
Short-term investments 24,571 23,266
Receivable - affiliate, net (Note 8) 176,440 123,745
Prepaid expenses 5,810 4,422
_________ __________
223,134 153,230
Investments in affiliates, at equity
(Note 2) 1,712,828 1,517,311
Property and equipment, net (Note 3) 7,715 11,281
Other:
Patents, net 126,503 131,089
Cash value of life insurance, net
(Note 4) 66,098 56,780
__________ __________
192,601 187,869
__________ __________
$2,136,278 $1,869,691
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt
(Note 5) $ 14,411 $ 33,437
Accrued expenses 22,896 17,375
Accrued income taxes 6,768 4,543
__________ __________
44,075 55,355
Deferred income taxes (Note 6) 2,400 3,100
Long-term debt (Note 5) - 14,411
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 1,375,131 1,082,153
__________ __________
2,095,432 1,802,454
Treasury stock - 3,709 shares at cost (5,629) (5,629)
__________ __________
2,089,803 1,796,825
__________ __________
$2,136,278 $1,869,691
========== ==========
See accompanying notes.
TAYCO DEVELOPMENTS, INC.
Statements of Income
For the years ended June 30, 1999 1998
Revenues (Note 8)
Royalties $181,810 $136,394
Research and development 252,173 296,116 ________ ________
Total revenues 433,983 432,510
Operating expenses
Research and development 131,064 117,467
Selling, general and administrative 142,406 164,861
Depreciation 3,565 3,469
Amortization, patents 12,474 12,890 ________ ________
Total operating expenses 289,509 298,687
________ ________
Operating income 144,474 133,823
Interest, net 3,513 7,467
________ ________
Income before income taxes and equity
in net income of affiliates 140,961 126,356
Provision for income taxes (Note 6) 43,500 36,750
________ ________
Income before equity in net income
of affiliates 97,461 89,606
Equity in net income of affiliates (Note 2) 195,517 127,340
________ ________
Net income $292,978 $216,946
======== ========
Basic earnings per common share (Note 7) $ .30 $ .22 ======== ========
See accompanying notes.
TAYCO DEVELOPMENTS, INC.
Statements of Changes in Stockholders' Equity
For the years ended June 30, 1999 and 1998
Common Paid-in Retained Treasury
Stock Capital Earnings Stock
Balance, July 1, 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)
Net income for the year ended
June 30, 1999 - - 292,978 -
_______ ________ __________ ________
Balance, June 30, 1999 $49,696 $670,605 $1,375,131 $(5,629)
======= ======== ========== ========
See accompanying notes.
TAYCO DEVELOPMENTS, INC.
Statements of Cash Flows
For the years ended June 30, 1999 1998
Cash flows from operating activities:
Net income $ 292,978 $216,946
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 16,039 16,359
Equity in net income of affiliates (195,517) (127,340) Deferred income taxes (700) (250)
Changes in other current assets and current
liabilities:
Receivable - affiliate, net (52,695) (60,442) Prepaid expenses (1,388) 15,686 Accrued income taxes 2,225 4,543 Accrued expenses 5,521 6,306 _________ ________
Net cash flows from operating activities 66,463 71,808
_________ ________
Cash flows from investing activities:
Increase in short-term investments (1,305) (1,141)
Acquisition of property and equipment - (1,618)
Acquisition of patents (7,887) (29,579)
Increase in cash value of life insurance, net (9,318) (7,676)
_________ ________
Net cash flows for investing activities (18,510) (40,014)
_________ ________
Cash flows for financing activities:
Repayment of long-term debt (33,437) (31,878)
_________ ________
Net increase (decrease) in cash 14,516 (84)
Cash - beginning 1,797 1,881 _________ ________ Cash - ending $ 16,313 $ 1,797
========= ========
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).
Short-term Investments:
Short-term investments consist of certificates of deposit with an original maturity of over three months.
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. Temporary differences arise from using different methods of accounting for depreciation.
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:
1999 1998
Investment, at cost
Devices (25% ownership) $ 375,866 $ 375,866 Tayco Realty (Realty) (42% ownership) 102,400 102,400
___________ ___________
478,266 478,266
Cumulative equity in net income of the
Affiliates 1,234,562 1,039,045
___________ ___________
$ 1,712,828 $ 1,517,311
=========== ===========
Equity in net income of affiliates consisted of the following:
1999 1998
Devices $ 165,981 $ 106,337 Realty 29,536 21,003
___________ ___________
$ 195,517 $ 127,340
=========== ===========
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 ($63,383 balance at June 30, 1999) 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 $4,481 for the years ended June 30, 1999 and 1998. 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 consolidated financial position and results of operations of these affiliates:
1999 1998
Balance sheet:
Current assets $ 7,035,494 $ 6,631,733 Property and equipment, net 2,705,563 2,917,808 Other 609,668 570,134
___________ ___________
$10,350,725 $10,119,675
=========== ===========
Current liabilities $ 2,792,071 $ 3,069,688 Noncurrent liabilities 1,682,722 1,973,624 Stockholders' equity 5,875,932 5,076,363
___________ ___________
$10,350,725 $10,119,675
=========== ===========
Income statement:
Sales, net $11,145,309 $10,234,022
=========== ===========
Net income $ 711,672 $ 462,223
=========== ===========
3. Property and Equipment:
1999 1998
Laboratory equipment $ 24,511 $ 24,511
Shop equipment 34,249 34,249 Furniture and fixtures 14,629 14,629
___________ ___________
73,389 73,389
Less accumulated depreciation 65,674 62,108
___________ ___________
$ 7,715 $ 11,281
=========== ===========
Depreciation expense was $3,566 and $3,469 for the years ended June 30, 1999 and 1998.
4. Cash Value of Life Insurance:
1999 1998
Cash values $ 139,793 $ 130,424 Less policy loans 73,695 73,644
___________ ___________
$ 66,098 $ 56,780
=========== ===========
Interest on outstanding policy loans is payable at 6% per annum.
Long-Term Debt:
1999 1998
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. $ 14,411 $ 47,848
Less current portion 14,411 33,437
__________ ___________
$ - $ 14,411
========== ===========
Provision for Income Taxes:
1999 1998
Current tax provision:
Federal $ 33,100 $ 27,200 State 11,100 9,800
__________ ___________
44,200 37,000
Deferred tax provision:
Federal (600) (170) State (100) (80)
__________ ___________
(250)
__________ ___________
$ 43,500 $ 36,750
========== ===========
A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows:
1999 1998
Computed tax at the expected statutory rate $ 47,927 $ 42,961
State tax (c) net of Federal tax benefit 7,260 6,415
Effect of graduated Federal rates (11,687) (12,626)
__________ ___________
$ 43,500 $ 36,750
========== ===========
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, 1999 and 1998.
8. Related Party Transactions:
Royalty revenues were earned from Devices for the use of Company patents in its manufacturing operations.
Research and development revenues were earned from services performed by Company 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 for the years ended June 30, 1999 and 1998.
9. Fair Value of Financial Instruments:
The carrying amounts of cash, receivables, other accrued expenses and long-term debt approximate fair value because of the short maturity of these instruments.
10. Cash Flows Information:
Net cash flows from operating activities reflect cash payments for interest and income taxes for the years ended June 30, 1999 and 1998 as follows:
1999 1998
Interest $ 5,318 $ 8,608
========== ===========
Income taxes $ 41,975 $ 19,386
========== ===========
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