FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended-- Commission File Number 0-9318
June 29, 1996
SHOPSMITH, INC.
(Name of Registrant)
Ohio 31-0811466
(State of Incorporation) (IRS Employer
Identification Number)
6530 Poe Avenue
Dayton, Ohio 45414
(Address of Principal (Zip Code)
Executive Offices)
Registrant's Telephone 513-898-6070
Not applicable
Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of July 22, 1996.
Common shares, without par value: 2,661,675 shares.
Page 1
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SHOPSMITH, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information:
Item 1. Financial Statements
Consolidated Balance Sheets -
June 29, 1996 and March 30, 1996 3-4
Statements of Consolidated Operations and
Retained Earnings (Deficit) - Three Months
Ended June 29, 1996 and July 1, 1995 5
Consolidated Statements of Cash Flows
Three Months Ended June 29, 1996 and
July 1, 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II. Other Information 11
Page 2
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<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
SHOPSMITH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 29, March 30,
ASSETS 1996 1996
<S> <C> <C>
Current assets:
Cash............................. $ 29,136 $ 560,201
Restricted cash.................. 347,182 314,635
Short-term investments........... 248,956 740,871
Notes and accounts receivable:
Trade - less allowance for
doubtful accounts; $242,918
at June 29 and $237,007 at
March 30..................... 327,769 292,694
Inventories...................... 1,597,047 1,510,959
Deferred income taxes (Note 2)... 210,000 253,000
Prepaid expenses................. 405,018 177,116
Total current assets...... 3,165,108 3,849,476
Property:
Machinery, equipment & tooling... 6,753,762 6,762,942
Leasehold improvements........... 190,835 190,835
Total..................... 6,944,597 6,953,777
Less accumulated depreciation
and amortization............... 6,351,189 6,345,197
Property - net............ 593,408 608,580
Deferred income taxes (Note 2)..... 616,000 563,000
Other assets....................... 2,158 3,158
Total..................... $ 4,376,674 $ 5,024,214
<FN>
See notes to financial statements.
</TABLE>
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<TABLE>
SHOPSMITH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 29, March 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1996
<S> <C> <C>
Current liabilities:
Accounts payable.................... $ 644,537 $ 847,750
Capital lease obligations -
current........................... 1,611 4,881
Customer advances................... 49,770 53,921
Accrued liabilities:
Compensation and related
accounts........................ 343,857 812,299
Sales tax payable................. 78,561 152,632
Accrued recourse liability........ 385,212 352,872
Other............................. 932,331 990,379
Total current liabilities....... 2,435,879 3,214,734
Shareholders' equity:
Preferred shares - without par
value; authorized 500,000......... -- --
Common shares - without par value;
authorized 5,000,000; outstanding
2,661,675 at June 29 and
2,659,175 at March 30............. 2,988,893 2,984,925
Retained deficit.................... (1,048,098) (1,175,445)
Total shareholders' equity...... 1,940,795 1,809,480
Total........................... $ 4,376,674 $ 5,024,214
<FN>
See notes to financial statements.
</TABLE>
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<TABLE>
SHOPSMITH, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<CAPTION>
Three Months Ended
June 29, July 1,
1996 1995
<S> <C> <C>
Net sales.......................... $ 3,376,214 $ 3,149,726
Cost of products sold.............. 1,497,141 1,642,620
Gross profit....................... 1,879,073 1,507,106
Selling expenses................... 1,181,415 789,292
Administrative expenses............ 591,889 540,161
Total selling and administrative
expenses...................... 1,773,304 1,329,453
Income from operations............. 105,769 177,653
Interest income, net............... 15,831 --
Other income, net.................. 5,747 4,634
Income before income taxes
and extraordinary item........... 127,347 182,287
Income tax provision............... -- --__
Income before extraordinary item... 127,347 182,287
Extraordinary item- gain from
extinguishment of debt (Note 3).. -- 612,612
Net income ........................ 127,347 794,899
Retained deficit
Beginning of period.............. (1,175,445) (4,203,159)
End of period.................... $(1,048,098) $(3,408,260)
Weighted average number of common
shares outstanding............... 2,699,315 2,686,603
Income per common share:
Before extraordinary item........ $ .05 $ .07
Extraordinary item............... $ -- $ .23
Net income....................... $ .05 $ .30
<FN>
See notes to financial statements.
</TABLE>
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<TABLE>
SHOPSMITH, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
June 29, July 1,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income............................ $ 127,347 $ 794,899
Adjustments to reconcile net
income to cash provided by
(required for) operating activities:
Depreciation & amortization....... 51,172 52,968
Provision for doubtful accounts... 41,307 33,422
Gain on extinguishment of debt.... -- (612,612)
Cash provided by (required for)
changes in assets & liabilities:
Restricted cash............... (32,547) 87,652
Accounts receivable........... (44,042) 2,647
Inventories................... (86,088) 114,814
Other current assets.......... (227,902) (85,139)
Other assets.................. 1,000 --
Accounts payable & customer
advances.................... (207,364) (758,268)
Other current liabilities..... (610,561) (206,367)
Cash (used in)
operating activities.................. (987,678) (575,984)
Cash flows from investing activities:
Short-term investments................ 491,915 741,959
Property additions.................... (36,000) (12,235)
Cash provided by
investing activities............ 455,915 729,724
Cash flows from financing activities:
Common shares issued.................. 3,968 917
Increase in revolving loan............ -- 60,000
Decrease in term loan................. -- (14,615)
Decrease in accounts payable long-term -- (496,649)
Decrease in capital leases............ (3,270) (2,989)
Cash provided by (used in)
financing activities............ 698 (453,336)
Net decrease in cash.................... (531,065) (299,596)
Cash at beginning of period............. 560,201 360,915
Cash at end of period................... $ 29,136 $ 61,319
<FN>
See notes to financial statements.
</TABLE>
Page 6
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SHOPSMITH, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. In the opinion of management, all adjustments (consisting
of only normal and recurring adjustments) have been made
as of June 29, 1996 and July 1, 1995 to present the
financial statements fairly. However, the results of
operations for the three months then ended are not
necessarily indicative of results for the fiscal year.
The financial statements and notes are presented as
permitted by Form 10-Q, and do not contain certain
information included in the annual financial statements.
The financial statements accompanying this report should
be read in conjunction with the financial statements and
notes thereto included in the Annual Report to
Shareholders for the year ended March 30, 1996.
2. The provision for income taxes is as follows:
Three Months Ended
June 29, 1996 July 1, 1995
Income before extra-
ordinary item $ 127,347 $ 182,287
Provision at stat-
utory rate of 34% 44,000 62,000
Change in valuation
allowance (44,000) (62,000)
Net -- --
Extraordinary item 612,612
Provision at stat-
utory rate of 34% 209,000
Change in valuation
allowance (209,000)
Net -- --
The change to the valuation allowance for all the periods
presented represents the realization of tax benefits of
temporary differences which reversed during the respective
periods.
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3. The bank has committed to renew the revolving credit
facility through June 30, 1997. At the Company's request
the maximum available borrowing will be $500,000 or 40% of
eligible inventory, whichever is less. Interest will be
charged at the bank's prime rate plus 0.75 percent. The
outstanding principal will be due upon demand. The
agreement will require compliance with certain minimum net
worth, working capital, financial leverage and other
miscellaneous covenants. Substantially all tangible
assets will be pledged as collateral. No amounts were
outstanding under this arrangement at June 29, 1996.
Page 8
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
In the quarter ended June 29, 1996, net sales were $3,376,000,
up 7.2% from $3,150,000 in the same period a year ago. This
was caused by increases in sales made through the Company's
demonstration sales channel in response to a material increase
in advertising efforts. The demonstration sales increases
were partly offset by reductions in the Company's mail, store
and dealer sales.
Increased sales from the higher-margin demonstration sales
channel and sales price increases caused gross margins to
increase from 47.8% of net sales in the first quarter last
year to 55.7% in the same period in the current year.
Principally due to increased advertising and other costs
expended in the demonstration sales effort, selling and
administrative costs increased by 33.4% from $1,329,000 in the
quarter ended July 1, 1995 to $1,773,000 in the same period in
the current year. As a percent of net sales, these costs
increased from 42.2% in the first three months of last year to
52.5% in the first quarter of this year.
Investment of idle funds and minimal borrowing during the
current first quarter caused interest income, net of interest
expense, to rise to $16,000 in the first quarter of the
current year from near zero for the same period last year.
For the three months ended June 29, 1996, the Company
reflected no provision for income taxes on its pre-tax income.
The expense at statutory rates has been offset by the
reduction in previously established valuation reserves related
to deferred income tax amounts, including tax loss
carryforwards, pursuant to SFAS 109.
Net income of $127,000 or $.05 per share was realized in the
quarter ended June 29, 1996 because of the above. In the same
period last year a $613,000 or $.23 per share gain from
extinguishment of debt was recorded as an extraordinary item.
Operations in that same period produced income before the
extraordinary item of $182,000 or $.07 per share and, when
combined with the extraordinary item, net income of $795,000
or $.30 per share.
Page 9
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Liquidity and Capital Resources
Operations used $988,000 of cash in the quarter ended June 29,
1996. In that quarter, net income, adjusted for non-cash
items, provided cash of $220,000 while $818,000 of cash was
used to reduce accounts payable and other current liabilities
and $228,000 was invested in advance payments for promotional
activities to take place during the state fair season which
occurs during the Company's quarter ending September 28, 1996.
Operations used $576,000 of cash in the quarter ended July 1,
1995. In that quarter, net income, adjusted for non-cash
items, provided cash of $237,000 while $758,000 of cash was
used to reduce accounts payable, primarily in connection with
the early payment discount provision of a voluntary vendor
payment plan which was discussed earlier. Property additions
were $36,000 for the first quarter of the current year as
compared to $12,000 in the first quarter of the prior year.
In the first quarter of the current year, $492,000 was
provided by the liquidation of short-term investments as
compared to $742,000 from the same source in the first quarter
last year while $497,000 was used to reduce long-term accounts
payable in that same period.
The Company's ratio of total debt to equity was 1.26 at June
29, 1996 compared to 1.78 at March 30, 1996. Since the
Company's net worth was negative at July 1, 1995, measurement
of the debt to equity ratio at that date is not relevant. The
current ratio was 1.30 at June 29, 1996 compared to 1.20 at
March 30, 1996 and 0.81 at July 1, 1995. The improvement
during the last 12 months stemmed from profitability and to
the use of current assets to liquidate current liabilities.
Profitability caused working capital to improve to a positive
$729,000 at June 29, 1996 from a positive $635,000 at March
30, 1996 and a negative $629,000 at July 1, 1995.
A revolving credit agreement, which expires on June 30, 1997,
was signed in July 1996 which provides for maximum short-term
borrowing of $500,000 or 40% of eligible inventory, whichever
is less. For a discussion of this agreement, reference is
made to Note 3 to the Consolidated Financial statements
included herein. No amounts were outstanding under the
revolving credit portion of the agreement at June 29, 1996.
Page 10
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
-NONE-
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto
duly authorized.
SHOPSMITH, INC.
By /s/William C. Becker
William C. Becker
Vice President of Finance
(Principal Financial
and Accounting Officer)
Date: August 1, 1996
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-05-1997
<PERIOD-END> JUN-29-1996
<CASH> 376,318
<SECURITIES> 248,956
<RECEIVABLES> 570,687
<ALLOWANCES> 242,918
<INVENTORY> 1,597,047
<CURRENT-ASSETS> 3,165,108
<PP&E> 6,944,597
<DEPRECIATION> 6,351,189
<TOTAL-ASSETS> 4,376,674
<CURRENT-LIABILITIES> 2,435,879
<BONDS> 0
<COMMON> 2,988,893
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,376,674
<SALES> 3,376,214
<TOTAL-REVENUES> 3,376,214
<CGS> 1,497,141
<TOTAL-COSTS> 1,497,141
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 41,307
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 127,347
<INCOME-TAX> 0
<INCOME-CONTINUING> 127,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,347
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
