SHOPSMITH, INC.
10-K REPORT
FOR THE
YEAR ENDED March 30, 1996
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended March 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________________ to ___________________
Commission file number 0-9318
SHOPSMITH, INC.
(Exact name of registrant as specified in its charter)
Ohio 31-0811466
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6530 Poe Avenue, Dayton, Ohio 45414
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (513) 898-6070
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
None which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares
(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 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 by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K 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-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-
affiliates of the registrant as of June 3, 1996 was $3,823,677
Indicate the number of shares outstanding of each of the
registrant's classes of common stock as of June 3, 1996. Common Shares,
without par value: 2,660,875 shares.
Index to Exhibits appears beginning on page 17 of this Report.
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DOCUMENTS INCORPORATED BY REFERENCE
Shopsmith, Inc. Annual Report to Shareholders for the year ended
March 30, 1996 -- Only such portions of the Annual Report as are
specifically incorporated by reference under Part I and II of this
Report shall be deemed filed as part of this Report.
Shopsmith, Inc. Proxy Statement for its Annual Meeting of Share-
holders to be held July 31, 1996 -- Definitive copies of the Proxy
Statement will be filed with the Commission within 120 days after the
end of the Company's fiscal year. Only such portions of the Proxy
Statement as are specifically incorporated by reference under Parts II
and III of this Report shall be deemed filed as part of this Report.
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PART I
ITEM 1. Business
Shopsmith, Inc., an Ohio corporation organized in 1972 (the
"Company"), is engaged in the production and marketing of power
woodworking tools designed primarily for the home workshop. The
principal line of power tools marketed under the name "Shopsmith," a
registered trademark, dates back to 1946 and was purchased by the
Company in 1972.
The line is built around the Shopsmith MARK V, a multi-purpose tool,
and includes separate function special purpose tools which may be
mounted on the MARK V or used independently. The Company distributes
these tools directly to consumers through demonstration programs (at
which orders are solicited by sales representatives) and mail order.
During the fiscal year ended March 30, 1996, Company-produced products
comprised 100% of net sales.
Shopsmith MARK V, Special Purpose Tools and Major Accessories
The Shopsmith MARK V is a compact power woodworking tool which
performs the functions of five separate tools: a table saw, a wood
lathe, a disc sander, a horizontal boring machine, and a vertical drill
press. The engineering of the MARK V is such that special purpose tools
may be mounted on and powered by the MARK V. The special purpose tools,
a jointer, a beltsander, a bandsaw, a planer, a scroll saw, and a strip
sander, may also be operated as free standing tools with a stand and
power system.
Other major accessories include MARK V accessories such as a lathe
duplicator, which allows a woodworker to duplicate original turnings and
a dust collector that, when used with the appropriate fixtures for the
MARK V 510 and other Shopsmith products, provides for virtually dust-
free woodworking.
The Company also offers a line of accessories to its power tool
line. These accessories, only a few of which are manufactured by the
Company, include casters, custom saw blades, and molding attachments.
Shopsmith accessories are sold directly to the consumer through the same
marketing channels used for the Shopsmith power tool line.
Seasonality and Working Capital
The Company's business is seasonal, with the rate of incoming orders
being lowest during the summer months. As a result, working capital
needs are higher during this period of the fiscal year and the Company
generally experiences a tightening of its liquidity position.
Raw Materials and Components
The principal components and materials used by the Company in the
production of its products include aluminum die castings, iron sand
castings, metal stampings, screw machine products, plastics and electric
motors. The Company relies on sole sources of supply for some of its
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components and materials. To reduce costs, the Company uses foreign
producers as sources for some parts and products.
Competition
The power woodworking equipment business is highly competitive and
the MARK V and the Company's other products must compete against the
single purpose tools sold by Delta, Power Matic, Black and Decker,
Sears, and other domestic and foreign corporations.
The Company considers quality, customer service, method of
marketing, price and value to be the principal bases of competition in
the power woodworking equipment industry.
Research and Development
From time to time, the Company engages in limited research and
development programs to improve existing products and current operating
methods. No expenditures were incurred for Company-
sponsored research and development activities in the fiscal years ended
March 30, 1996 and April 1, 1995 while such costs charged to operations
during the fiscal year ended April 2, 1994 were $202,000.
Employees
The total number of persons employed by the Company (both full and
part time) as of June 5, 1996 was 108. The Company considers its
employee relations to be satisfactory, and to date the Company has not
experienced a work stoppage due to a labor dispute. The Company has no
collective bargaining contracts.
Environmental Compliance
The Company believes that it materially complies with all statutory
and administrative requirements related to the environment and pollution
control. For a discussion of certain environmental related
contingencies to which the Company is subject, reference is made to Note
9 to the Consolidated Financial Statements which are incorporated into
this Report pursuant to Item 8 below.
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ITEM 2. Properties
Information concerning the principal facility of the Company, which
is leased, is set forth below.
Approximate Expiration
Square Date of Renewal
Location Use Feet Lease Options
Dayton, Ohio Manufacturing, 115,000 Aug. 1999 None
Headquarters,
Distribution
and Retail Store
The building and the Company's machinery and equipment are well
maintained. The Company's production facility currently operates
one shift per day.
ITEM 3. Legal Proceedings
The Company is not a party to any legal proceedings other than
litigation which, under the instructions to this item, need not be
described. For a discussion of certain environmental related
contingencies to which the Company is subject, reference is made to Note
9 to the Consolidated Financial Statements which are incorporated into
this Report pursuant to Item 8 below.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
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EXECUTIVE OFFICERS OF THE COMPANY
Officers are elected annually by the Board of Directors. The
executive officers of the Company are as follows:
NAME AGE POSITION
John R. Folkerth 63 Chairman of the Board,
President, Chief Executive
Officer and Director
William C. Becker 47 Vice President of Finance,
Treasurer and Chief Financial
Officer
Robert L. Folkerth 39 Vice President of Field Sales
John R. Folkerth is the founder of the Company and has been a
director and the Chief Executive Officer of the Company since 1972.
William C. Becker has been Treasurer since June 1985 and Vice
President of Finance and Chief Financial Officer since October 1982.
Robert L. Folkerth was named Vice President of Field Sales in April
1996. Mr. Folkerth was Vice President of Finance of Digitron since 1991.
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PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The market and shareholder information required by this Item 5 is
set forth under the heading "Shareholders' Information" (p. 27) in the
Company's Annual Report to Shareholders for the year ended March 30, 1996
(which report is included as Exhibit 13.1 to this Report). Such
information is incorporated herein by reference.
There are certain debt covenant requirements described in Note 3 of
the Company's Annual Report for the year ended March 30, 1996. The
Company paid no dividends in the fiscal years ended March 30, 1996 and
April 1, 1995.
ITEM 6. Selected Financial Data
The information required by Item 6 is set forth under the heading
"Selected Financial Data" (p. 26) in the Company's Annual Report to
Shareholders for the year ended March 30, 1996 and is incorporated
herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by Item 7 is set forth under the heading
"Management's Discussion and Analysis" (p. 23) of the Company's Annual
Report to Shareholders for the year ended March 30, 1996 and is
incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The information required by Item 8 is set forth at pages 3 through
11 and under the heading "Selected Financial Data" p. 26) of the
Company's Annual Report to Shareholders for the year ended March 30, 1996
and is incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The information required by item 9 is incorporated by reference from
the Company's Proxy Statement for its Annual Meeting of Shareholders to
be held July 31, 1996.
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PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by Item 10 is incorporated herein by
reference from the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held July 31, 1996, except for certain information
concerning the executive officers of the Company which is set forth in
Part I of this Report.
ITEM 11. Executive Compensation
The information required by Item 11 is incorporated herein by
reference from the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held July 31, 1996.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated herein by
reference from the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held July 31, 1996.
ITEM 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated herein by
reference from the Company's Proxy Statement for its Annual Meeting of
Shareholders to be held July 31, 1996.
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PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 1. Financial Statements
The following consolidated financial statements of
Shopsmith, Inc. and its subsidiaries are incorporated by
reference as part of this Report at Item 8 hereof.
Report of Crowe, Chizek and Company with respect to
certain financial statements of the Company as at and
for the years ended March 30, 1996 and April 1, 1995
Consolidated Balance Sheets as of March 30, 1996 and
April 1, 1995.
Consolidated Statements of Operations for the years
ended March 30, 1996, April 1, 1995, and April 2, 1994.
Consolidated Statements of Changes in Shareholders'
Equity (Deficit) for the years ended March 30, 1996,
April 1, 1995, and April 2, 1994.
Consolidated Statements of Cash Flows for the years
ended March 30, 1996, April 1, 1995, and April 2, 1994.
Notes to Consolidated Financial Statements.
The report of Coopers & Lybrand L.L.P. with respect to
certain financial statements of the Company for the year
ended April 2, 1994.
2. Financial Statement Schedules
The following Financial Statement Schedule for the years
ended March 30, 1996, April 1, 1995, and April 2, 1994 is
included in this report.
Reports of Independent Auditors
Schedule II - Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of
conditions under which they are required or because the
required information is given in the financial statements
or notes thereto.
Individual financial statements of the registrant have been
omitted since the registrant is primarily an operating
company and all consolidated subsidiaries are wholly-owned.
3. Exhibits
The Exhibits which are filed with this Report are listed in
the Exhibit Index. All management contracts or
compensatory plans or arrangements are indicated on the
Exhibit Index.
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(b) Reports on Form 8-K
During the quarter ended March 30, 1996, the Company did not
file any reports on Form 8-K.
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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.
SHOPSMITH, INC.
By/s/ John R. Folkerth
John R. Folkerth
Chairman of the Board
and Chief Executive Officer
June 13, 1996
Date
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.
/s/ John R. Folkerth /s/ Edward A Nicholson
John R. Folkerth Edward A. Nicholson
Chairman of the Board, Director
Chief Executive Officer and June 13, 1996
Director (Principal Executive Date
Officer)
June 13, 1996
Date /s/ John L. Schaefer
John L. Schaefer
Director
/s/ Robert L. Folkerth June 13, 1996
Robert L. Folkerth
Director /s/ Brady L. Skinner
June 13, 1996 Brady L. Skinner
Date Director
June 13, 1996
Date
/s/ William C. Becker
William C. Becker
Vice President of Finance
and Treasurer (Principal
Financial and Accounting /s/ Richard L. Snell
Officer) Richard L. Snell
June 13, 1996 Director
Date June 13, 1996
Date
/s/ J. Michael Herr
J. Michael Herr
Director
June 13, 1996
Date
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REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Shopsmith, Inc.
Dayton, Ohio
We have audited the financial statements of Shopsmith, Inc. and
Subsidiaries as of March 30, 1996 and April 1, 1995, and for the years
then ended, and have issued our report thereon dated May 23, 1996.
The financial statements and report are included in your 1996 Annual
Report to Shareholders and are incorporated herein by reference. Our
audits also included the financial statement schedule of Shopsmith,
Inc. and Subsidiaries listed in Item 14. This financial statement
schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
Crowe, Chizek and Company LLP
Columbus, Ohio
June 3, 1996
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors
Shopsmith, Inc.
Dayton, Ohio
We have audited the accompanying consolidated statements of
operations, changes in shareholders' equity (deficit), and cash flows
and Schedule II-Valuation and Qualifying Accounts of SHOPSMITH, INC.
AND SUBSIDIARIES for the year ended April 2, 1994 that appear in this
Form 10-K. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our
audit.
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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
results of operations and cash flows of Shopsmith, Inc. and
Subsidiaries for the year ended April 2, 1994 in conformity with
generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements
taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
The accompanying consolidated financial statements and financial
statement schedule have been prepared assuming the Company will
continue as a going concern. The Company has
Continued
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suffered losses from operations, has violated its loan covenants and
has a net capital deficiency all of which raise substantial doubt
about its ability to continue as a going concern. The accompanying
consolidated financial statements and financial statement schedule do
not include any adjustments that might results from the outcome of
this uncertainty.
Coopers & Lybrand L.L.P.
Dayton, Ohio
July 7, 1994
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<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED March 30, 1996, April 1, 1995 AND April 2, 1994
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE CHARGED
AT TO COST DEDUCTIONS
BEGINNING AND FROM BALANCE AT
DESCRIPTION OF YEAR EXPENSES RESERVE END OF YEAR
<S> <C> <C> <C> <C>
Reserves deducted
from assets to
which they apply:
YEAR ENDED
March 30, 1996:
Allowance for
doubtful accounts
receivable $ 94,728 $263,445 $123,166 $235,007
YEAR ENDED
April 1, 1995:
Allowance for
doubtful accounts
receivable $241,736 $156,791 $303,799 $ 94,728
Reserve for
excess and obsolete
inventory 555,076 -- 555,076 --
YEAR ENDED
April 2, 1994:
Allowance for
doubtful accounts
receivable $ 91,115 $322,987 $172,366 $241,736
Reserve for
excess and obsolete
inventory -- $555,076 -- $555,076
</TABLE>
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SHOPSMITH, INC.
INDEX TO EXHIBITS
Located at Manually
Exhibit No. and Document Numbered Page
(3) Articles of Incorporation and By-laws
3.1 Amended Articles of Incorporation of
Shopsmith, Inc., filed as Exhibit
4.1 to the Company's Registration
Statement on Form S-8 (Reg. No.
33-26463). *
3.2 Amended Code of Regulations of Shopsmith,
Inc., filed as Exhibit 4.2 to the
Company's Registration Statement on
Form S-8 (Reg. No. 33-26463). *
(4) Instruments Defining the Rights of Security
Holders, Including Indentures
4.1 Loan and Security Agreement, dated as of
September 1, 1989 among Shopsmith, Inc.,
Shopsmith Woodworking Promotions, Inc.,
Shopsmith Canada Inc., and Huntington
National Bank, including the form of the
Revolving Note issued in connection
therewith. Filed as Exhibit 4.1 to the
Company's Annual Report on Form 10-K
for the year ended April 3, 1990. *
4.2 First Amendment to Loan and Security
Agreement, dated July 11, 1990 among
Shopsmith, Inc., Shopsmith Woodworking
Promotions, Inc., Shopsmith Canada, Inc.,
Shopsmith Woodworking Centers Ltd. Co.,
and Huntington National Bank, including
the form of the Revolving Note issued in
connection therewith. Filed as Exhibit 4.2
to the Company's Annual Report on Form 10-K
for the year ended April 3, 1992. *
4.3 Second Amendment to Loan and Security
Agreement, dated April 23, 1992 among
Shopsmith, Inc., Shopsmith Woodworking
Promotions, Inc., Shopsmith Canada Inc.,
Shopsmith Woodworking Centers Ltd. Co.
and Huntington National Bank, including
the form of the Revolving Note issued
in connection therewith. Filed as
Exhibit 4.3 to the Company's Annual
Report on Form 10-K for the year ended
April 1, 1995. *
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4.4 Third Amendment to Loan and Security Agreement,
dated June 21, 1993 among Shopsmith, Inc.,
Shopsmith Woodworking Promotions, Inc.,
Shopsmith Canada Inc., Shopsmith Woodworking
Centers Ltd. Co., and Huntington National Bank,
including the form of the Revolving Note issued
in connection therewith. Filed as exhibit 4.4
to the Company's Annual Report on Form 10-K for
the year ended April 1, 1995. *
4.5 Note Modification Agreement, dated as of
June 21, 1993 among Shopsmith, Inc.,
Shopsmith Woodworking Promotions, Inc.,
Shopsmith Canada Inc., Shopsmith Woodworking
Centers Ltd. Co. and the Huntington
National Bank. Filed as exhibit 4.5 to
the Company's Annual Report on Form 10-
K for the year ended April 1, 1995. *
4.6 Fourth Amendment to Loan and Security Agreement
dated October 5, 1993 among Shopsmith, Inc.,
Shopsmith Woodworking Promotions, Inc.,
Shopsmith Canada Inc., Shopsmith Woodworking
Centers Ltd. Co., and Huntington National
Bank. Filed as Exhibit 4.6 to the Company's
Current Report on Form 8-K dated November 1,
1993. *
4.7 Cognovit Promissory Note dated December 28, 1993
payable to Woodcraft Supply Corp. in the
principal amount of $1,000,000. Filed as
Exhibit 4.7 to the Company's Current Report on
Form 8-K dated January 10, 1994. *
4.8 Business Security Agreement dated December 28,
1993 among Woodcraft Supply Corp., Shopsmith,
Inc., and Shopsmith Woodworking Promotions,
Inc. Filed as Exhibit 4.8 to the Company's
Current Report on Form 8-K dated January 10,
1994. *
4.9 Letter agreement dated April 26, 1994 between
Huntington National Bank and Shopsmith, Inc.,
Shopsmith Woodworking Promotions, Inc.,
Shopsmith Canada Inc., and Shopsmith
Woodworking Centers Ltd. Co. Filed as
exhibit 4.9 to the Company's Annual Report
on Form 10-K for the year ended April 2, 1994. *
4.10 Settlement Agreement and Release dated November
21, 1994 between LDI Corporation and
Shopsmith Inc. Filed as exhibit 4.10 on Form
10-Q for the quarter ended December 31, 1994. *
4.11 Promissory Note dated November 1, 1994 payable
to LDI Corporation in the principal amount of
$510,000. Filed as exhibit 4.11 on Form 10-Q
for the quarter ended December 31, 1994. *
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4.12 Fifth Amendment to Loan and Security Agreement
dated June 30, 1995 between Huntington
National Bank and Shopsmith, Inc. Filed as
exhibit 4.12 on Form 10-Q for the quarter
ended July 1, 1995. *
(10) Material Contracts
Management Contracts and Compensatory Plans or
Arrangements
10.3 Plan for Providing Tax Return Preparation
for Chief Executive Officer, as adopted
by the Company's Board of Directors on
February 14, 1985. Filed as exhibit 10.3 to
the Company's Annual Report on Form 10-
K for the year ended April 1, 1995. *
10.4 1984 Stock Option Plan, as amended on
February 9, 1987 and June 11, 1992.
Filed as Exhibit 10.8 to the Company's
Annual Report on Form 10-K for the
year ended April 3, 1992. *
10.5 Shopsmith, Inc. 1988 Director Option Plan,
effective September 1, 1988, as amended
on July 29, 1989 and June 11, 1992.
Filed as Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the year
ended April 3, 1992. *
10.6 Disability Plan for Executive Officers, as
adopted by the Company's Board of Directors
on November 5, 1992. Filed as Exhibit 10.13
to the Company's Annual Report on Form 10-K
for the year ended April 1, 1995. *
10.7.1 Nonstatutory Stock Option granted by the Company
on June 21, 1993 to John R. Folkerth for the
purchase, for a period of 10 years from the
date of grant of 20,000 Common Shares of the
Company at a purchase price of $3.00 per
share. *
10.7.2 Incentive compensation plan in effect for the
fiscal year ended April 1, 1995 (An identical
plan was adopted for the fiscal year to end
March 30, 1996.). Filed as Exhibit 10.7.2 to
the Company's Annual Report on Form 10-K for
the year ended April 1, 1995. *
10.7.3 1995 Stock Option Plan. Filed as Exhibit 4.3
to the Company's Registration Statement on
Form S-8 (Reg. No. 33-64663). *
Other Material Contracts
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10.8 Agreement of Lease, dated August 15, 1987
between Angeles Partners XIV and the
Company relating to 6530 Poe Avenue,
Dayton, Ohio property, as amended on
September 28, 1990. Filed as Exhibit 10.2
to the Company's Annual Report on Form 10-K
for the year ended April 3, 1992. *
10.10 Shopsmith, Inc. Savings Plan, effective
April 1, 1984. Filed as exhibit 10.10
to the Company's Annual Report on Form
10-K for the year ended April 1, 1995. *
10.11 Shopsmith, Inc. Savings Trust, effective
April 1, 1984. Filed as exhibit 10.11
to the Company's Annual Report on Form
10-K for the year ended April 1, 1995. *
10.12 First Amendment to the Company's Savings
Plan, listed as Exhibit 10.10 above.
Filed as exhibit 10.12 to the Company's
Annual Report on Form 10-K for the year
ended April 1, 1995. *
10.13 Second Amendment to the Company's Savings
Plan, listed as Exhibit 10.10 above.
Filed as Exhibit 10.10 to the Company's
Annual Report on Form 10-K for the
year ended April 1, 1995. *
10.14 Third Amendment to the Company's Savings
Plan, listed as Exhibit 10.10 above.
Filed as Exhibit 10.11 to the Company's
Annual Report on Form 10-K for the
year ended April 1, 1995. *
10.16 Settlement Agreement and Release, dated November
1, 1994, between Shopsmith, Inc., and LDI
Corporation including the form of the
Promissory Note issued in connection
therewith. *
(11) Statement Re Computation of Per Share Earnings
11.1 Computation of Consolidated Earnings Per
Common Share for the Three Years
Ended March 30, 1996, April 1, 1995
and April 2, 1994. __
(13) Annual Report to Security Holders
13.1 Shopsmith, Inc. Annual Report to Shareholders
for the year ended March 30, 1996. Only such
portions of the Annual Report as are
specifically incorporated by reference under
Parts I, II, and IV of this Report shall be
deemed filed as part of this Report. __
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(16) Letter regarding change in certifying accountant
16.1.1 Letter to Coopers & Lybrand L.L.P. directed to
the Commission regarding the change in the
Company's certifying accountant. Filed as
Exhibit 16.1.1 to the Company's Report on
Form 8-K which was filed with the Commission
on February 25, 1995. *
(21) Subsidiaries of the Registrant
21.1 Subsidiaries of the Registrant. __
(23) Consents of Experts and Counsel
23.1 Consent of Crowe, Chizek and Company
Independent Public Accountants
to incorporation by reference. __
23.2 Consent of Coopers and Lybrand L.L.P.
Independent Public Accountants
to incorporation by reference. __
(27) Financial Data Schedule
27.1 Financial Data Schedule __
(99) Additional Exhibits
99.1 Shopsmith, Inc. Employee Stock Purchase Plan.
Filed as Exhibit 99.1 to the Company's
Current Report on Form 8-K dated August 26,
1993. *
99.2 Creditor's Composition Agreement and Disclosure
Document dated May 19, 1994 and approved in
June 1994. *
* Indicates that the exhibit is incorporated by
reference into this Annual Report on Form 10-K
from a previous filing with the Commission.
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EXHIBIT 11.1
<TABLE>
SHOPSMITH, INC. AND SUBSIDIARIES
COMPUTATION OF CONSOLIDATED OPERATIONS PER COMMON SHARE FOR THE
THREE YEARS ENDED March 30, 1996, April 1, 1995, AND April 2, 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net income (loss) applicable
to common shares $ 3,027,714 $ 1,420,747 $(8,656,029)
Weighted average number of
common shares outstanding 2,677,826 2,558,182 2,415,394
Income (loss) per common share $ 1.13 $ .56 $ (3.58)
<FN>
NOTE: The difference between fully diluted and primary earnings is not
material.
</TABLE>
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Exhibit 13.1
SHOPSMITH, INC.
Annual Report to Shareholders
For the Year Ended
March 30, 1996
<PAGE>
SHOPSMITH, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Financial Highlights: ..Fiscal Years Ended..
March 30, April 1, April 2,
1996 1995 1994
<S> <C> <C> <C>
Results of Operations:
Net sales $17,409,832 $17,728,890 $48,039,239
Income (loss) before
income taxes and
extraordinary item 1,513,890 1,420,747 (8,675,029)
Income tax benefit 743,000 -- --
Extraordinary item 770,824
Net income (loss) 3,027,714 1,420,747 (8,656,029)
Per Share of Common Stock:
Income (loss) before
extraordinary item $ .84 $ .56 $ (3.58)
Extraordinary item .29 -- --
Net income (loss) 1.13 .56 (3.58)
Shareholders' equity
(deficit) .68 (.48) (1.16)
Dividends -- -- --
Financial Position:
Working capital $ 634,742 $ (917,834) $(2,133,145)
Total assets 5,024,214 4,415,344 7,032,511
Long-term debt -- 923,024 1,644,051
Shareholders'
(deficit) equity 1,809,480 (1,224,699) (2,802,809)
Current Ratio 1.20 .81 .74
Total Debt to Equity Ratio 1.78 N/A N/A
Common Shares Outstanding 2,659,175 2,654,566 2,398,244
</TABLE>
Contents
Letter to Shareholders.......................... 3
Reporting Responsibility........................ 5
Report of Independent Auditors.................. 6
Consolidated Financial Statements............... 7
Notes to Consolidated Financial Statements...... 12
Management's Discussion and Analysis............ 23
Selected Financial Data......................... 26
Shareholders' Information....................... 27
Directors and Officers.......................... 28
Corporate Profile
Headquartered in Dayton, Ohio, Shopsmith, Inc. is recognized as a
leader in the production and marketing of quality woodworking tools.
The Company distributes these tools and other woodworking products
directly to consumers through demonstration and mail selling channels.
The name "Shopsmith" is a registered trademark which the Company
applies to the majority of the products it produces. The Company's
common shares are traded in the over-the-counter market.
<PAGE>
To Our Shareholders:
Fiscal 1996 profits from ongoing activities and before income taxes,
I am happy to report, were $1,514,000 or $.57 per share. In
addition, we paid the balance of obligations earlier than required
to certain vendors and lessors of products and properties that were
eliminated as a part of our 1994 turnaround/reorganization efforts.
Provisions in the related settlement agreements entitled Shopsmith
to early-payment discounts totaling $771,000 or $.29 per share which
were recorded in our financial statements as extraordinary items.
Finally, with profits in each of the eight quarters since the
implementation of the turnaround plan, we believe that it is more
likely than not that we will generate sufficient future taxable
income to realize a part of the future income tax benefits which had
previously been offset by valuation allowances. Accordingly, a net
income tax benefit of $743,000 was recognized primarily as a result
of deferred tax valuation allowance reductions. Net income was,
therefore, $3,028,000 or $1.13 per share for our fiscal 1996 as
compared to net income of $1,421,000 or $.56 per share in fiscal
1995.
Revenues at $17,410,000 in fiscal 1996 were 2% less than the
$17,729,000 for fiscal 1995 but, due to sales price increases, the
percentage of gross margin to net sales increased from 47% in fiscal
1995 to 52% in 1996. This yielded a $607,000 or 7% increase in
gross margin realized from the earlier year to the current year.
The year was thus successful both because of the profits produced
from operations and the strong positive cash flow that, along with
funding from our bank, allowed us to take advantage of the
attractive discounts for the early payment of our turnaround
obligations. In turn, these successes were the result of a number
of items:
. During the year, we maintained our focus on our core business,
the manufacture and demonstration sales of our Mark V multi-
purpose tools and accessories which are aimed at serving the
needs of the space-constrained home woodworker.
. The demonstration sales effort was made more profitable as we
raised our selling prices and re-invested a portion of the
resulting expanded gross margins in additional advertising aimed
at increasing the number of prospective customers to visit our
demonstration selling events. Improved profits from this
channel offset the decline in sales of accessories to Mark V
owners. Much of this reduction was caused by the decline, which
was anticipated in the 1994 turnaround plan, in the number of
recent Mark V sales.
. We began to channel many of our advertising dollars into an
"infomercial" format. These entertaining 30-minute broadcast
television programs are run in local TV markets to promote
Shopsmith demonstration sales events. They serve to expose the
pleasure and benefits associated with woodworking and
demonstrate how our products enable any home woodworker to
produce woodworking projects of heirloom quality. At the
conclusion of the program, viewers are invited to attend the
Shopsmith demonstration sales event in their area.
<PAGE>
. As the year progressed, we were able to identify opportunities
to improve productivity in a variety of operating processes so
that the staff and other costs necessary to operate the business
were reduced.
. We continued to tighten control over inventory and liquidate
excess or slow-moving stock while improving our customer order
delivery performance. These efforts served to enhance the cash
flow that was fundamental to our success in fiscal 1996.
Fiscal 1996 profits moved the $1,225,000 of negative shareholder's
equity that existed at the beginning of the year to a positive
shareholder's equity of $1,809,000 by the fiscal year end. Coupled
with the asset management efficiencies discussed earlier, these
results have allowed the Company to liquidate virtually all of the
obligations from its turnaround period, eliminate the debt to our
bank which helped to fund the payment of those obligations,
accumulate a cash balance of over $1.3 million at the fiscal year
end and position itself where it can, once again, begin to consider
growth opportunities.
During fiscal 1995 and 1996, our core Mark V business has produced
considerable positive cash flow which, until midway through fiscal
1996, was allocated to turnaround obligations. With those
obligations behind us, Shopsmith has the ability to judiciously
invest that ongoing cash flow. Such investment opportunities will be
considered in fiscal 1997.
During fiscal 1997, we will also begin to assess the condition of
our equipment, tooling and other infrastructure. Cash shortages in
recent years have caused the deferral of some maintenance and
replacement expenditures thus some catch-up efforts may be needed to
maintain and improve our productivity.
We intend that the Company's common stock be quoted on the NASDAQ
system as soon as the Company meets related requirements. As you
may recall, losses from fiscal 1994 caused the Company to fall below
the requirements for continued quotation on the NASDAQ National
Market System. The requirements of the NASDAQ SmallCap market (an
automated system established to serve the needs of smaller firms and
their shareholders) are likely to be met soonest and thus we will
work to become quoted on that system as soon as possible.
We are very pleased that the operation of our current business plan
has produced the second profitable year since the adoption of that
plan. This success has funded the liquidation of the remaining
turnaround obligations and created opportunities for the future. We
are committed to using these opportunities to provide an excellent
return to our owners and to justify the support that has been shown
from our associates, vendors, customers and lenders.
John R. Folkerth
Chairman of the Board
Chief Executive Officer
<PAGE>
REPORTING RESPONSIBILITY
Shopsmith's management is responsible for the preparation and
integrity of the consolidated financial statements presented
in this Annual Report. These statements have been prepared in
conformity with generally accepted accounting principles using
the best estimates and judgments of management.
Management believes that the Company's accounting control systems
provide reasonable assurance that assets are safeguarded and that
financial information is reliable.
Independent public accountants are selected annually by the
Board of Directors, subject to approval by shareholders, to audit
the financial statements. Their audit included a review of the
internal control structure to the extent they considered necessary
and selective tests of transactions to support their report which
follows.
The Audit Committee, comprised of outside directors, meets
regularly with management and the independent public accountants
to review financial reporting, internal accounting controls, and
audit results.
William C. Becker,
Vice President of Finance
Chief Financial Officer
John R. Folkerth,
Chairman of the Board
Chief Executive Officer
<PAGE>
Shareholders and Board of Directors
Shopsmith, Inc.
Dayton, Ohio
We have audited the accompanying consolidated balance sheets of
Shopsmith, Inc. and Subsidiaries as of March 30, 1996 and April 1,
1995 and the related consolidated statements of operations, changes in
shareholders' equity (deficit), and cash flows for the years ended
March 30, 1996 and April 1, 1995. 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.
The financial statements of Shopsmith, Inc. and Subsidiaries for the
year ended April 2, 1994 were audited by other auditors whose report
dated July 7, 1994 included an explanatory paragraph that described
the conditions that raised substantial doubt about the Company's
ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Shopsmith, Inc. and Subsidiaries as of March 30,
1996 and April 1, 1995 and the consolidated results of their
operations and their cash flows for the years ended March 30, 1996 and
April 1, 1995, in conformity with generally accepted accounting
principles.
Crowe, Chizek and Company LLP
Columbus, Ohio
June 3, 1996
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
..Fiscal Years Ended..
March 30, April 1, April 2,
1996 1995 1994
<S> <C> <C> <C>
Net sales....................... $17,409,832 $17,728,890 $48,039,239
Cost of products sold........... 8,426,553 9,352,210 28,360,765
Gross margin.................... 8,983,279 8,376,680 19,678,474
Selling expenses................ 4,770,037 4,415,639 19,182,054
Administrative expenses......... 2,723,534 2,504,835 4,274,272
Loss on discontinued retail
store operations and
corporate restructuring
costs (Note 1)................ -- -- 4,300,774
Total operating expenses...... 7,493,571 6,920,474 27,757,100
Income (loss) from operations... 1,489,708 1,456,206 (8,078,626)
Interest income................. 30,893 18,351 6,394
Interest expense................ (32,678) (118,904) (420,605)
Other income (expense), net .... 25,967 65,094 (182,192)
Income (loss) before income
taxes, extraordinary item
and cumulative effect of a
change in accounting
principal..................... 1,513,890 1,420,747 (8,675,029)
Income tax benefit (Note 8)..... 743,000 -- --
Income before extraordinary
item and cumulative effect
of a change in accounting
principal..................... 2,256,890 1,420,747 (8,675,029)
Extraordinary item- gain from
extinguishment of debt
(Notes 4 and 6)............... 770,824 -- --
Cumulative effect on prior
years of change in accounting
for income taxes (Note 2)..... -- -- 19,000
Net income (loss)............... $ 3,027,714 $ 1,420,747 $(8,656,029)
Income (loss) per common share:
Before extraordinary item..... $ .84 $ .56 $ (3.58)
Extraordinary item............ .29 -- --
Net income (loss)............. $ 1.13 $ .56 $ (3.58)
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
SHOPSMITH INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 30, April 1,
1996 1995
<S> <C> <C>
ASSETS (Notes 1 and 3)
Current Assets:
Cash (Note 2)...................... $ 560,201 $ 360,915
Restricted cash (Note 2)........... 314,635 350,249
Short-term investments (Note 2).... 740,871 741,959
Accounts receivable:
Trade, less allowance for
doubtful accounts: $235,007
in 1996 and $94,728 in 1995.... 292,694 451,662
Inventories (Note 2):
Finished products................ 594,487 596,723
Raw materials and
work in process............... 916,472 1,137,444
Total inventories......... 1,510,959 1,734,167
Deferred taxes (Note 8)............ 253,000 --
Prepaid expenses................... 177,116 160,233
Total current assets...... 3,849,476 3,799,185
Properties (Notes 2 and 6):
Machinery, equipment and tooling... 6,762,942 6,676,156
Leasehold improvements............. 190,835 189,265
Total cost................ 6,953,777 6,865,421
Less accumulated depreciation
and amortization................. 6,345,197 6,252,420
Net properties............ 608,580 613,001
Deferred income taxes (Note 8) 563,000 --
Other assets......................... 3,158 3,158
Total Assets......................... $ 5,024,214 $ 4,415,344
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 30, April 1,
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
<S> <C> <C>
Current Liabilities:
Accounts payable (Note 4)........... $ 847,750 $ 2,423,643
Capital lease obligations -
current (Note 6).................. 4,881 13,443
Customer advances................... 53,921 88,448
Term note - current (Note 6)........ -- 60,027
Accrued liabilities:
Compensation, employee benefits
and payroll taxes............... 812,299 775,355
Sales tax payable................. 152,632 138,975
Reserve for restructuring (Note 1) -- 294,229
Accrued recourse liability 352,872 218,830
Accrued expenses 806,036 474,942
Other............................. 184,343 229,127
Total current liabilities.... 3,214,734 4,717,019
Long-Term Liabilities:
Accounts payable, less current
portion (Note 4) -- 496,649
Term note, less current portion
(Note 6)......................... -- 421,494
Capital lease obligations, less
current portion (Note 6)......... -- 4,881
Total liabilities............ 3,214,734 5,640,043
Contingencies (Note 9)
Shareholders' Equity: (Notes 1 and 7)
Preferred shares - without par
value; authorized 500,000,
none issued....................... -- --
Common shares - without par value;
authorized 5,000,000; issued and
outstanding 2,659,175 in 1996
and 2,654,566 in 1995............. 2,984,925 2,978,460
Retained earnings (deficit)......... (1,175,445) (4,203,159)
Total shareholders' equity
(deficit).................. 1,809,480 (1,224,699)
Total Liabilities and Shareholders'
Equity.............................. $ 5,024,214 $ 4,415,344
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<CAPTION>
Retained
Common Shares Translation Earnings
Number Amount Adjustment (Deficit) Total
<S> <C> <C> <C> <C> <C>
Balance, April 3, 1993 2,362,293 $2,750,105 $(38,942) $3,032,123 $5,743,286
Net loss for fiscal 1994 (8,656,029) (8,656,029)
Translation adjustment 59,921 59,921
Recognition of trans-
lation gains resulting
from discontinued
retail operations
(Note 1) (20,979) (20,979)
Common shares issued
under employee stock
purchase plan
(Note 7) 700 1,409 1,409
Common shares issued
to employee benefit
plans 35,251 69,583 69,583
Balance, April 2, 1994 2,398,244 2,821,097 -- (5,623,906) (2,802,809)
Net income for
fiscal 1995 1,420,747 1,420,747
Common shares issued
under employee stock
purchase plan
(Note 7) 205,600 129,184 129,184
Common shares issued
to employee benefit
plans 50,722 28,179 28,179
Balance, April 1, 1995 2,654,566 2,978,460 -- (4,203,159) (1,224,699)
Net income for
fiscal 1996 3,027,714 3,027,714
Common shares issued
under employee stock
purchase plan
(Note 7) 3,800 6,465 6,465
Stock options
exercised 809 -- --
Balance, March 30, 1996 2,659,175 $2,984,925 -- $(1,175,445)$ 1,809,480
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Fiscal Years Ended
March 30, April 1, April 2,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ 3,027,714 $ 1,420,747 $(8,656,029)
Adjustments to reconcile net income
(loss) to cash provided by
(required for) operating activities:
(Gain) loss on disposal
of properties................... -- 29,353 (584,993)
Depreciation and amortization..... 212,663 309,490 3,220,738
Provision for doubtful accounts... 263,445 156,791 150,621
Increase (decrease) in reserve
for excess inventory............ -- (555,076) 555,076
Increase (decrease)in
restructuring reserve........... (294,229) (1,471,227) 1,765,456
Deferred income taxes............. (816,000) -- --
Gain on extinguishment of debt.... (770,824) -- --
Cash provided by (required for)
changes in assets and liabilities:
Restricted cash............... 35,614 (350,249) --
Accounts receivable........... 138,964 13,886 362,317
Inventories................... 223,208 2,951,232 4,935,617
Other current assets.......... (16,883) 395,976 511,486
Other assets.................. -- 38,410 150,111
Accounts payable and
customer advances........... (997,807) (263,922) (1,025,967)
Other current liabilities..... 227,512 (634,249) (460,814)
Cash provided by operating activities... 1,233,377 2,041,162 923,619
Cash flows from investing activities:
Sale of short-term investments........ 750,000 -- --
Purchase of short-term investments.... (748,912) (741,959) --
Property additions.................... (208,242) (287,935) (548,969)
Proceeds from sale of property........ -- 3,500 1,142,000
Cash provided by (used in)
investing activities............ (207,154) (1,026,394) 593,031
Cash flows from financing activities:
Common shares issued.................. 6,465 157,363 70,992
Increase (decrease) in revolving loan. -- -- (1,474,626)
Decrease in term-loan................. (323,310) (354,404) (1,081,482)
Increase (decrease) in accounts
payable long-term................... (496,649) (1,147,402) 1,644,051
Decrease in capital lease obligations. (13,443) (58,663) (168,162)
Cash (used in) financing
activities...................... (826,937) (1,403,106) (1,009,227)
Effect of exchange rate changes on cash. -- -- 38,942
Net increase (decrease) in cash......... 199,286 (388,338) 546,365
Cash:
At beginning of year.................. 360,915 749,253 202,888
At end of year........................ $ 560,201 $ 360,915 $ 749,253
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
SHOPSMITH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS DESCRIPTION
The Company's sole business activity is the manufacturing and
selling of its own quality woodworking products in the United
States through demonstration and mail-order selling channels and,
to a limited degree, through dealers in the United States, Canada
and the United Kingdom.
Through most of fiscal 1994, the Company's business activities
also included the retailing of its own and others quality
woodworking products through Company-owned stores in the United
States, Canada and the United Kingdom.
During fiscal 1994 as an element of a restructuring plan, the
Company sold 12 and closed the remainder of its 44 retail stores
in order to generate cash for operations. A small catalog
showroom remains open in the building housing the Company's
manufacturing operation in a portion of the space occupied by the
former Dayton, Ohio store.
In connection with the discontinuance of its retail stores, the
Company recognized a loss of $4,300,774 or $1.78 per share in
fiscal 1994. The loss included $1,653,000 relating to the write
down of assets, principally inventory and property and equipment,
to net realizable values, $1,309,000 for store losses during the
close down period and $869,000 for estimated lease settlements.
The charge also included other costs which were estimated to be
incurred in connection with the disposition including severance
payments and facilities consolidation cost. The loss on the
discontinuance of the Company's retail stores was partially
offset by a gain of approximately $703,000 on the sale of 12
stores to a competing woodworking retailer.
The following unaudited pro-forma consolidated statement of
operations for the year ended April 2, 1994 presents the pro-
forma results of operations of the Company assuming the
discontinuance of the retail operations as of April 4, 1993.
This unaudited pro-forma data may not be indicative of the
results that would actually have been achieved if the retail
operations would have been discontinued at the beginning of
fiscal 1994, or which may be achieved in the future.
Continuing
Combined Retail Operations
Net sales $48,039,239 $33,366,218 $14,673,021
Loss from operations (8,078,626) (7,357,031) (721,595)
Net loss $(8,656,029) $(7,611,836) $(1,044,193)
Loss per common share $ (3.58) $ (3.15) $ (.43)
<PAGE>
2. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
parent company and its subsidiaries, after elimination of
significant intercompany balances and transactions.
FOREIGN CURRENCY TRANSLATION
The local currency had been used as the functional currency for
Canadian and UK operations which were discontinued in fiscal 1994
(See Note 1). Foreign currency transaction gains and losses were
reflected in income currently. Translation gains and losses of
those operations that used local currencies as the functional
currency were included as a separate component of shareholders'
equity. The Company recorded a transaction gain of $59,921 in
fiscal 1994.
STATEMENT OF CASH FLOWS
Following is supplementary information relating to the consolidated
statement of cash flows:
Cash paid for the following items: 1996 1995 1994
Interest $ 32,678 $ 149,627 $ 428,596
Income taxes (net of refunds) 50,000 (98,230) (208,812)
Following is supplementary information of non-cash investing and
finance activities:
Capital lease obligations of $36,266 were incurred in fiscal
1995 when the Company entered into leases for new computer
equipment and software.
CASH
Depository transactions and disbursements are handled primarily
by one local financial institution. At March 30, 1996,
approximately $315,000 was maintained in an account restricted
for use in funding the Company's recourse obligations should the
Company be unable to do so itself through its normal operations.
Cash and cash equivalents include highly liquid debt instruments
purchased with a maturity of three months or less.
SHORT-TERM INVESTMENTS
The Company determines the appropriate classification for its
short-term investments, which, by policy of the Board of
Directors, consist only of U.S. Government backed debt
securities, at the time of purchase and reevaluates this
determination at each balance sheet date. The Company's
investments, which have maturities of less than six months, are
classified as held to maturity and valued at the amortized cost.
At March 30, 1996 the fair value of the Company's investments
approximates their amortized cost.
<PAGE>
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
PROPERTIES
Properties are stated at cost. Depreciation and amortization are
provided primarily using the straight line method over estimated
useful lives which range as follows:
Machinery, equipment and tooling 3 to 12 years
Leasehold improvements 3 to 10 years
Maintenance and repairs are charged to expense, unless they
significantly lengthen useful economic lives of the property.
When an asset is retired or sold, its cost and related
accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized.
INCOME TAXES
Effective April 4, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS 109). SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The effect of
adopting SFAS 109 was a tax credit of approximately $19,000,
which represents the deferred tax asset as of April 4, 1993.
Such amount has been reflected in the consolidated statement of
operations as the cumulative effect of an accounting change.
INSTALLMENT CONTRACTS
Retail installment contracts sold to financial institutions were
$9.7 million in fiscal 1996, $8.5 million in fiscal 1995 and
$15.0 million in fiscal 1994. Of these contracts, $7.5 million,
$7.1 million and $13.2 million were sold without recourse in
fiscal 1996, 1995 and 1994, respectively. At March 30, 1996
approximately $2.5 million of installment contracts sold to a
financial institution with a recourse provision were still
outstanding.
PRODUCT WARRANTIES
Products are warranted against defects in material and workmanship
for one year. Estimated costs are accrued for warranties presently
in force.
<PAGE>
RESEARCH AND DEVELOPMENT COSTS
No research and development costs were incurred during fiscal
1996 and 1995. Such costs charged to operations were
approximately $202,000 in fiscal 1994.
INCOME PER COMMON SHARE
Income per common share is computed using the weighted average
number of common and common equivalent shares outstanding during
the year, amounting to 2,677,826 shares in fiscal 1996, 2,558,182
shares in fiscal 1995 and 2,415,394 shares in fiscal 1994.
ENVIRONMENTAL REMEDIATION COSTS
Costs incurred to investigate and remediate contaminated sites
are expensed. Liabilities for these expenditures are recorded
when it is probable that obligations have been incurred and the
amounts can be reasonably estimated.
ESTIMATES
In preparing financial statements, management must make estimates
and assumptions. These estimates and assumptions affect the
amounts reported for assets, liabilities, revenue and expenses,
as well as affecting the disclosures provided. Future results
could differ from the current estimates. Areas involving the use
of management's estimates and assumptions include the allowance
for doubtful accounts, inventory cost, depreciation of property
and equipment, deferred income tax valuation allowances, product
warranty accruals and other contingency reserves.
3. BANK LINE OF CREDIT
As of March 30, 1996, a revolving credit agreement provided for
maximum short-term borrowing of $1 million or 40% of eligible
inventory, whichever is less. Interest is charged at the bank's
prime rate plus 2 percent. No amounts were outstanding under
this arrangement at March 30, 1996. The agreement requires
compliance with certain minimum net worth, working capital,
financial leverage and other miscellaneous covenants and expires
June 30, 1996. Substantially all tangible assets are pledged as
collateral.
4. ACCOUNTS PAYABLE RESTRUCTURING
In May 1994, the Company proposed to a group of approximately 120
creditors a voluntary payment plan allowing the Company to extend
payment of approximately $2,500,000 of trade debt over a two-year
period. The affected creditors were primarily those who were
previously suppliers to the Company's discontinued retail
operations. Other creditors were unaffected.
This plan was accepted in June 1994 by the holders of more than
95% of the affected trade debt. The balance owing to affected
creditors was scheduled to be paid, without interest, in a series
of installments ending in May 1996.
<PAGE>
The plan also provided for a discount from the face amount of the
obligation, by making payments to affected creditors in advance
of the agreed schedule. Thus, in June 1995, the Company paid
about $860,000 in satisfaction of about $1,473,000 in debt. The
resultant $613,000 gain was recorded as an extraordinary item.
5. EMPLOYEE BENEFIT PLANS
Shopsmith maintains a defined contribution employee benefit plan
covering substantially all employees. Until April 1994, the
Company matched employee contributions of up to four percent at
rates of 25 or 50 percent, depending on amounts contributed by
employees. The Company discontinued the matching contributions
in April 1994 and resumed matching contributions at the above-
mentioned rates on January 1, 1995. The Company contributed
$26,400, $8,100 and $60,668 to this plan in fiscal 1996, 1995 and
1994, respectively.
The Company provides certain health care and life insurance
benefits to substantially all employees. These benefits are
provided through a combination of insurance and self-insurance
deductibles.
6. LEASES
Leases on real estate (manufacturing, storage, office and retail
store premises) and equipment expire through fiscal 2000.
In December 1994, an early lease cancellation agreement was
reached with the lessor of the equipment and software for the
central computer system used to control the Company's
discontinued retail operations. The equipment was returned to
the lessor and the fair value of that equipment was deducted from
the Company's remaining obligation to the lessor.
A $100,000 initial payment was made on the $610,000 obligation
resulting from this settlement with the remainder payable in
equal monthly installments through December 1996 with the
remaining balance due to be paid at that time.
The agreement also provided for a discount from the face amount
of the obligation, by making a payment to the lessor in advance
of the agreed schedule. Thus, in October 1995, the Company paid
about $294,000 in satisfaction of about $452,000 in debt. The
resultant $158,000 gain was recorded as an extraordinary item.
The lease on the Company's manufacturing and headquarters
building expires during fiscal 2000. Approximately 30% of the
space in this building is currently excess. The Company is
attempting to sublet this excess space. A reserve was provided
at March 30, 1996 and April 1, 1995 as an estimate to provide for
rental costs expected to be incurred by the Company until the
excess space is rented.
The total cost of assets held under capital leases was $36,266 at
both March 30, 1996 and April 1, 1995. The related accumulated
amortization was $11,679 and $4,303 as of March 30, 1996 and,
April 1, 1995, respectively.
<PAGE>
Lease obligations for listed Capital Operating
future fiscal years are: Leases Leases
1997 $ 5,033 $ 542,270
1998 498,015
1999 460,762
2000 _______ 199,844
Total minimum lease obligations 5,033 $1,700,891
Less amount representing interest 152
Present value of minimum payments
and current portion $ 4,881
Rent expense was $379,100 in fiscal 1996, $399,400 in fiscal
1995 and $3,580,700 in fiscal 1994.
7. STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLAN
In July, 1988, the shareholders approved the 1988 Director Option
Plan which provides for granting options for up to 52,500 shares.
Under the plan, an outside director of the Company may choose
individually to be compensated for services by payment of a cash
retainer or by being awarded stock options with values at time of
issuance approximately equal to the cash retainer. Options include
stock appreciation rights and are exercisable over ten years
beginning one year from the date of grant. Compensation resulting
from stock options is initially measured at the grant date based on
the market value of the common stock, with adjustments made
quarterly for market price fluctuations. The Company recognized
Director Option Plan compensation expense of $16,300 in fiscal
1996, $15,000 in fiscal 1995 and $4,100 in fiscal 1994.
The Company also has a stock option plan approved in 1984 that
permits the granting of options to employees to purchase stock at
the market value on the date of grant. Options are for a term of
either five or ten years and become exercisable in annual
installments beginning one year from the date of grant. The 1984
Option Plan provides for granting options for up to 112,500
shares. No remaining stock option under the 1984 plan has stock
appreciation rights.
In June 1993, the Company granted a non-qualified stock option,
outside the 1988 and 1984 plans, for 20,000 shares to an employee
to purchase stock at $3.00 per share ($.875 above the market
value on the date of grant). The option becomes exercisable in
annual installments beginning one year from the date of grant and
expires on June 20, 2003.
In August 1993, the Company adopted an employee stock purchase
plan which permits eligible employees and directors of Shopsmith
to purchase from time to time up to 250,000 Shopsmith common
shares directly from the Company without payment of brokerage
fees. The purchase price of the shares purchased under the plan
is the market price of the shares (based upon a five-day average
closing price at the time of purchase). During fiscal 1996,
3,800 Shopsmith common shares were purchased under the plan.
<PAGE>
In March 1994, the Company granted an option for 35,000 shares at
the then-current market price of $1.92 per share to the lessor of
its headquarters and manufacturing buildings in exchange for an
agreement to reduce the space leased. The option expires five
years from the date of grant.
In July 1995, the shareholders approved the 1995 option plan
which provides for granting options for up to 250,000 shares.
Also in July 1995, the shareholders ratified the grant of
options, which are contingent upon the achievement of certain
pre-tax income thresholds in fiscal 1995, 1996 and 1997, for
220,000 shares at $1.91 per share to a group of employees under
this plan. In any of those years in which the Company's pre-tax
income equals or exceeds the threshold, one third of the options
will become exercisable 75 days after that year's end. In any of
those years where the Company's pre-tax income is less than the
established thresholds, one third of the options will terminate.
Fiscal 1995 and 1996 pre-tax income exceeded the applicable
thresholds and thus two thirds of the options granted will become
exercisable in accordance with the plan. An additional option
for 10,000 shares which is not contingent upon the Company's
performance, was also granted to an employee in February 1995.
Additional information relating to the option plans is as
follows:
<TABLE>
<CAPTION>
1988 Directors'
1995 Plan Option Plan 1984 Plan
1996 1995 1996 1995 1994 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Granted -- 230,000 -- -- 18,818 -- -- 3,500
Cancelled 51,191 -- -- 1,557 -- 10,500 38,000 9,750
Expired -- -- -- -- -- -- -- --
Available 71,191 20,000 1,557 1,557 -- -- -- 7,750
Exercised 809 -- -- -- -- -- -- --
Average
exercise
price 1.91 -- -- -- -- -- -- --
Exercisable
at year end 59,333 -- 47,514 47,514 30,253 22,500 23,500 29,000
Outstanding
at year end 178,000 230,000 47,514 47,514 49,071 22,500 33,000 71,000
Average
opt. price $1.91 $1.91 $.93 $.93 $.93 $4.17 $4.04 $3.82
</TABLE>
Except for outstanding options, the plans terminate in ten years.
The Financial Accounting Standards Board issued a statement in
October 1995 entitled Accounting for Stock-Based Compensation
which will be effective for the Company in 1997. This
statement establishes an accounting method based on the fair
value of equity instruments awarded to employees as
compensation, however, companies are permitted to continue
applying previous accounting standards in the determination of
net income with disclosure in the notes to the financial
statements of the differences between previous accounting
measurements and those formulated by the new accounting
standard. Beginning in 1997, the Company intends to determine
net income using previous accounting standards and to
<PAGE>
make the appropriate disclosures in the notes to the financial
statements as permitted by the standard.
8. INCOME TAXES
The income tax provision (benefit) reflected in the consolidated
statements of operations is comprised of the following:
1996 1995 1994
Current
Federal $ 50,000 $ -- $(98,000)
State and local 23,000 -- --
Deferred 517,000 403,000 98,000
Provision for income
taxes before effect of
adjustment of valuation
allowance 590,000 403,000 --
Effect of adjustment of
valuation allowance (1,333,000) (403,000) --
Income tax benefit $ (743,000) -- --
The income tax provision attributable to the extraordinary item
is $262,000 and is completely offset by the change in the
valuation adjustment.
The change in the valuation allowance in 1996 and 1995 represents
the realization of tax benefits of temporary differences and net
operating loss carryforwards which reversed during the respective
periods. In 1996, $816,000 of the change also represents the
Company's reevaluation of the realizability of future tax
benefits because of its continued profitability. Specifically
the Company has been profitable from continuing operations for
the past eight quarters and has exceeded budget estimates during
this period. It estimates that this profit trend will continue
through the near future. Therefore it believes that it is now
more likely than not that it will realize approximately the
$816,000 of tax benefits previously part of the valuation
allowance. If the Company is unable to generate sufficient
taxable income in the future through operating results, increases
in the valuation allowance will be required through a charge to
income. However, if it achieves sufficient profitability to
utilize a greater portion of the deferred tax asset, the
valuation allowance will be reduced through a credit to income.
Deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities recorded for
financial reporting purposes and such amounts as measured by tax
laws and regulations.
<PAGE>
The components of deferred tax assets and liabilities included in
the balance sheet are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expense accruals not
currently deductible $ 565,000 $ 507,000 $1,785,000
Inventory valuation 14,000 37,000 --
Allowance for doubtful
accounts 80,000 32,000 71,000
Less valuation allowance (406,000) (576,000) (1,856,000)
Current 253,000 -- --
Tax loss carryforwards 1,201,000 1,847,000 1,091,000
Tax credit carryforwards 237,000 237,000 237,000
Accumulated depreciation (16,000) (12,000) (133,000)
Alternative minimum tax
payments 50,000 -- --
Less valuation allowance (909,000) (2,072,000) (1,195,000)
Noncurrent 563,000 -- --
Total $ 816,000 $ -- $ --
</TABLE>
The Company's effective tax rate differs from the U.S. statutory
federal tax rate as follows:
1996 1995 1994
Federal statutory rate 34.0% 34.0% (34.0%)
Nondeductible expenses,
principally meals and
entertainment 0.9 0.5 --
Valuation allowance (88.1) (28.4) 34.0
Other, net 4.1 (6.1) --
(49.1) -- --
The Company's net operating losses and tax credits expire as
follows:
Net operating Tax
Losses Credits
1999 $ 34,000
2000 148,000
2004 4,000
2005 23,000
2006 18,000
2007 10,000
2009 $1,516,000 --
2010 2,008,000 --
$3,524,000 $ 237,000
<PAGE>
9. CONTINGENCIES
The Company is involved in various legal proceedings incidental
to its business. Certain claims, suits and complaints arising in
the ordinary course of business have been filed or are pending
against the Company. Many of these matters are covered in whole
or in part by insurance. Management believes that any liability
which may result would not have a material effect on the
consolidated financial position or results of operations of the
Company.
Additionally, the Company is involved with certain environmental
issues:
The Company was identified by the Illinois Environmental
Protection Agency (IEPA) as one of approximately 300
potentially responsible parties (PRP's) for the clean up of
an abandoned hazardous waste treatment, storage and disposal
facility in East St. Louis, Illinois. A Company subsidiary,
sent about 15,000 gallons of solvent waste to this site in
the early 1980's. The PRP's formed a joint steering
committee to perform the government-mandated removal action
which is expected to cost $11,250,000. The Company's share
of these costs, which approximates its $25,000 to date
payments to the steering committee, is based on its alleged
volumetric contribution of waste to the site. It is not
possible at this time to judge the accuracy of cost estimates
relative to this situation nor, therefore, the Company's
exposure to this issue.
The Company and over 500 other PRPs were ordered by the
Environmental Protection Agency (EPA), under the federal
"Superfund" legislation, to take action to secure a landfill
in Huber Heights, Ohio. The extent and nature of the
contamination, insurance coverage available to the Company,
and the participation by additional PRPs in the clean up of
this site are not fully known at this time. The EPA has been
focusing on the top 104 PRPs which sent over 1,000 yards of
waste to the site. The Company is number 62 in the
volumetric list of generators. However, there is no evidence
that the Company sent hazardous substances to the site and no
allocation of responsibility has been made. It has been
preliminarily estimated that the clean-up of the site will
cost approximately $20 million.
The Company received notice of a potential claim for
environmental liabilities associated with soil and
groundwater contamination at a Jefferson City, Missouri
facility previously operated by a Company subsidiary. The
current owner of the property has notified previous owners
and operators of the site that they are liable for the costs
of its investigation and cleanup of volatile organic
compound contamination to soil and groundwater at the site.
The current owner estimates the cost of cleanup to exceed one
million dollars. Company records indicate that all its
hazardous waste shipments from this facility were sent to the
East St. Louis site discussed above. The Company, therefore,
<PAGE>
believes that the contamination was caused by previous owners
of the site and that it is not responsible for clean-up
costs. In a related matter, the Company's predecessor at the
site claims that the Company is contractually obligated to
indemnify the predecessor with respect to any cleanup costs
imposed upon the predecessor. The Company denies any such
obligation and has notified the predecessor that it is the
Company's position that the predecessor is contractually
obligated to indemnify the Company with respect to any such
cleanup costs. At this point, the ultimate allocation of
responsibility with respect to this site is unknown
Based on available information, the Company believes its share of
the estimated costs associated with the ultimate resolution of
these matters will not be material to the results of operations
or the financial position of the Company.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Profits from ongoing activities and before income taxes of
$1,514,000 or $.57 per share were earned on net sales of $17,410,000
in the year ended March 30, 1996. Additionally, extraordinary
gains of $771,000 or $.29 per share were recognized from debt
forgiveness in accordance with early-payment-discount provisions of
agreements negotiated in relation to the Company's fiscal 1994
restructuring. Lastly, as mentioned in the discussion of income
taxes in a later paragraph, a $743,000 tax benefit was recognized
primarily due to the reduction of deferred tax valuation reserves.
These elements combined to produce net income of $3,028,000 or $1.13
per share compared to net income of $1,421,000 or $.56 per share on
net sales of $17,729,000 in fiscal 1995 and a net loss of $8,656,000
or $3.58 per share on net sales of $48,039,000 in fiscal 1994.
Fiscal 1994 results included a $4,301,000 charge for the loss on
discontinued retail operations and corporate restructuring costs
necessary to close down the Company's retail operations and related
support functions. Sales reductions in fiscal 1996 and 1995 as
compared to fiscal 1994 were caused by the elimination, as a
component of the recovery plan, of the retail sales channel and the
downsizing of the demonstration and mail sales efforts.
The Shopsmith MARK V is the Company's core product and most of the
Company's other current products serve as accessories to the MARK V.
For several years the number of MARK V units sold had been
declining. The 1995 recovery plan specified that only the most
productive demonstration selling events be conducted. Thus, the
numbers of such events conducted in fiscal 1996 and 1995 were less
than half the number conducted in fiscal 1994. While the number of
Shopsmith MARK V units sold in fiscal 1996 was 6.1% lower than in
fiscal 1995, sales price increases in the Mark V and its accessories
produced a 7.2% increase in gross margin dollars generated in fiscal
1996 as compared to fiscal 1995. Mark V unit sales in fiscal 1995
were 36% lower than in fiscal 1994. Products manufactured by
Shopsmith, including the MARK V, comprised 100% of net sales in
fiscal 1996 and 1995 and 62.0% of net sales in fiscal 1994.
Both in fiscal 1995 and 1996, the Company's sales focus was on its
high-margin core Shopsmith product line and, coupled with sales
price increases effected during those years, the overall gross
margin percentage increased from 41.0% of net sales in fiscal 1994
to 47.2% in fiscal 1995 and 51.6% in fiscal 1996. Fiscal 1996
selling and administrative costs increased to $7,494,000 or 43.0% of
net sales from $6,920,000 or 39.0% of net sales in fiscal 1995
mainly because of the decision to invest part of the margin dollars
yielded by sales price increases in more extensive advertising.
Selling and administrative costs were $23,456,000 or 48.8% of net
sales in fiscal 1994.
A reserve for restructuring of $1,765,000 was established at the end
of fiscal 1994 to provide for anticipated losses involved in
discontinuing retail store operations and for corporate
restructuring costs. See Note 1 to the Consolidated Financial
<PAGE>
Statements included elsewhere in this Report for information
concerning this discontinuation and restructuring. In fiscal 1995,
expenditures were made and assets written off in the amount of
$1,471,000. No amount remained in this reserve at March 30, 1996.
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes, which was adopted by the Company as of April 4, 1993. See
Note 8 to the consolidated financial statements.
In 1994 a deferred income tax valuation allowance of $3,051,000 was
established because of the uncertainty that the Company's net
deferred tax assets including its net operating loss and tax credit
carryforwards would be able to generate future tax benefits. The
changes (see Note 8) to the deferred income tax valuation allowance
for fiscal 1996 and 1995 represent the realization of tax benefits
of temporary differences which reversed during the respective
periods except for $816,000 of the change in fiscal 1996. This
decrease in the valuation allowance resulted from the Company's
reevaluation of the realizability of future income tax benefits
because of its continued profitability.
Specifically, the Company has been profitable for each of the eight
fiscal quarters since the implementation of the turnaround plan and
has exceeded budget estimates during this period. It estimates that
this profit trend will continue through the near future. Therefore
it believes that it is now more likely than not that it will realize
approximately the $816,000 of the tax benefits previously part of
the valuation allowance.
If the Company is unable to generate sufficient taxable income in
the future through operating results, increases in the valuation
allowance will be required through a charge to expense. However if
it achieves sufficient profitability to utilize a greater portion of
the deferred tax asset, the valuation allowance will be reduced
through a credit to income.
Due to the operating losses in fiscal 1994 and for several years
prior, no previously taxed income was available in that year against
which the Company could carry back 1994 operating losses. See Note
8 to the consolidated financial statements.
As discussed in Notes 4 and 6 to the Consolidated Financial
Statements included herein, the Company availed itself during fiscal
1996 of early-payment discount features of both a voluntary payment
plan that was approved by affected creditors in June 1994 and an
early lease cancellation agreement that was reached in December
1994. The discounts amounted to $613,000 or $.23 per share and
$158,000 or $.06 per share, respectively, and were recorded as
extraordinary items.
For a discussion of certain environmental related contingencies to
which the Company is subject, reference is made to Note 9 included
elsewhere in this report.
<PAGE>
Liquidity and Capital
Cash of $1,233,000 and $2,041,000 was provided by operations in
fiscal 1996 and 1995, respectively, primarily from net income
adjusted for non-cash items and asset liquidations somewhat offset
by reductions in current liabilities. Asset liquidations, partly
offset by the net loss adjusted for non-cash charges, provided
$924,000 of cash in fiscal 1994.
Shareholder's equity, because of the fiscal 1996 net income,
increased to a positive $1,809,000 at March 30, 1996 from a negative
$1,225,000 at April 1, 1995. The ratio of debt to equity at March
30, 1996 was 1.78. Because of the Company's negative net worth at
the ends of fiscal 1995 and 1994, measurements of the debt to equity
ratio at those dates are not relevant. This ratio does not reflect
operating leases, which are not included in balance sheet
liabilities but do represent fixed commitments to future payments
and which are discussed in Note 6 to the consolidated financial
statements.
Net income was primarily responsible for causing working capital to
improve from a negative $918,000 at April 1, 1995 to a positive
$635,000 at March 30, 1996. Fiscal 1995 net income and the
liquidation of inventory and other assets caused working capital to
improve from a negative $2,133,000 at April 2, 1994. For the same
reasons, the current ratio improved to 1.20 at March 30, 1996 from
0.81 at April 1, 1995 and 0.74 at April 2, 1994.
A revolving credit agreement provides for maximum short-term
borrowing of $1,000,000 or 40% of eligible inventory, whichever is
less. Interest is charged at the bank's prime rate plus 2% percent.
No amounts were outstanding under this arrangement at March 30,
1996. The agreement requires compliance with certain minimum net
worth, working capital, financial leverage and other miscellaneous
covenants and expires June 30, 1996. Substantially all tangible
assets are pledged as collateral.
Management believes financial resources to be sufficient to meet
operating needs.
Capital Expenditures
In fiscal 1996, capital additions were focused on the development of
promotional video programs and on tooling and die replacement.
Fiscal 1995 capital additions consisted mainly of computer equipment
acquired to service the Company's direct mail and direct sales
operations and replacement tooling. Furniture, fixtures and
leasehold improvements necessary to effect the Woodworking Unlimited
conversions were the primary components of capital additions in
1994. These assets were abandoned and written off as part of the
1994 loss on discontinued operations.
Inflation
Prices of materials decreased about 1% while the overhead component
of product costs decreased about 3% primarily due to higher volume
as some processes previously subcontracted were brought in house.
<PAGE>
SHOPSMITH INC. AND SUBSIDIARIES
Selected Financial Data
<TABLE>
Five-Year Review of Performance
(Dollars in thousands,
except per share)
<CAPTION>
1996 1995 1994(A) 1993 1992
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net sales $17,410 $17,728 $48,039 $51,041 $53,033
Interest (income) expense 2 101 414 223 350
Income (loss) before
income taxes and
extraordinary item 1,514 1,421 (8,675) (1,574) (1,224)
Extraordinary item 771 -- -- -- --
Income taxes (743) -- -- (185) (407)
Net income (loss) 3,028 1,421 (8,675) (1,389) (817)
Financial Position:
Working capital $ 635 $ (918) $(2,133) $ 3,132 $ 5,150
Property - net 609 613 933 4,162 3,678
Total assets 5,024 4,415 7,033 16,380 16,215
Long-term debt -- 923 1,644 1,742 2,128
Shareholders' equity 1,809 (1,225) (2,803) 5,743 7,025
Per Share Information:
Income (loss) per share:
Before extraordinary
item $ .84 $ .56 $(3.58) $ (.59) $ (.35)
Extraordinary item .29 -- -- -- --
Net income 1.13 .56 (3.58) (.59) $ (.35)
Shareholders' equity
per share .68 (.46) (1.16) 2.43 3.05
Performance Indicators:
Return on sales (%) 17.4 8.0 (18.0) (2.7) (1.5)
Return on average
shareholders' equity (%) 1035.5 N/A (588.7) (21.8) (11.0)
Return on average
total assets (%) 64.1 24.8 (73.9) (8.5) (5.2)
Current ratio 1.20 0.81 0.74 1.35 1.73
Ratio of total debt
to equity 1.78 N/A N/A 1.83 1.31
Other Information:
Number of employees:
Full time 93 103 169 326 309
Part time 14 19 120 211 151
107 122 289 537 460
Average shares
outstanding (000's) 2,678 2,558 2,415 2,356 2,307
<FN>
(A) See Note 1 to the Consolidated Financial Statements included elsewhere
in this Report for information concerning the discontinuation, during
late fiscal 1994 and early fiscal 1995, of the Company's retail store
operations.
</TABLE>
<PAGE>
SHOPSMITH INC. AND SUBSIDIARIES
Shareholders' Information
<TABLE>
Stock Quotations (Bid Prices)
<CAPTION>
Quarter Ended: High Low
<S> <C> <C>
July 2, 1994 $1.75 $ .50
October 1, 1994 .75 .43
December 31, 1994 .94 .50
April 1, 1995 1.88 .50
July 1, 1995 $1.94 $1.00
September 30, 1995 1.75 1.44
December 30, 1995 2.13 1.50
March 30, 1996 2.13 1.50
</TABLE>
The common shares of the Company are traded in the over-the-counter
market. The above stock quotations were obtained from daily broker
quotation ("Pink") sheets and reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent actual
transactions. The Transfer Agent's records showed 2,703 shareholders
of record of the Company's common shares on June 3, 1996.
Per Share Information
Shareholders'
Income (loss) Dividends Equity (Deficit)
1996 $ 1.13 -- $ .68
1995 .56 -- (.48)
1994 (3.58) -- (1.16)
1993 (.59) -- 2.43
1992 (.35) -- 3.05
Shopsmith Market Makers
Troster Singer Corporation
Fahnestock & Co.
Wedbush Morgan Securities Inc.
Share Capital, Inc.
Annual Meeting
Shopsmith's Annual Shareholders' Meeting will be held at 9:30 a.m.
on Wednesday, July 31, 1996 at the Company's office and
manufacturing facility located at 6530 Poe Avenue, Dayton, Ohio.
Corporate Contact
Shareholders desiring a copy of the Shopsmith Inc., annual report
on Form 10-K or other information on the Company should direct a
request to:
William C. Becker, Vice President of Finance
Shopsmith Inc.
6530 Poe Avenue
Dayton, Ohio 45414
513-898-6070
<PAGE>
SHOPSMITH, INC. AND SUBSIDIARIES
Directors and Officers
Board of Directors
John R. Folkerth, Chairman of the Board, President and Chief
Executive Officer, Shopsmith, Inc., Dayton, Ohio
Robert L. Folkerth, Vice President of Field Sales, Shopsmith, Inc.,
Dayton , Ohio
J. Michael Herr, Thompson, Hine and Flory, Attorneys-at-Law,
Dayton, Ohio
Edward A. Nicholson, President, Robert Morris College,
Coraopolis, Pennsylvania
John L. Schaefer, Vice President (retired), The James River Corporation,
Dayton, Ohio
Brady L. Skinner, Audit Partner, Flagel, Huber, Flagel & Co.,
Dayton, Ohio
Richard L. Snell, Chief Executive Officer, Tipp Machine and Tool, Inc.,
Tipp City, Ohio
Audit Committee of the Board of Directors
John L. Schaefer, Brady L. Skinner and Richard L. Snell
Corporate Vice Presidents
William C. Becker, Vice President of Finance, and Chief Financial
Officer
Robert L. Folkerth, Vice President of Field Sales
General Information
Transfer Agent and Registrar:
The Huntington National Bank, Columbus, Ohio
Independent Accountants:
Crowe, Chizek and Company LLP, Columbus, Ohio
General Counsel:
Thompson, Hine and Flory, Dayton, Ohio
Equal Employment Opportunity Statement: It is the policy of Shopsmith,
Inc. to give equal opportunity to all qualified persons without regard to
race, color, sex, age, marital status, handicap, religion or national
origin.
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES
OF
SHOPSMITH, INC.
Name of Subsidiary
and Name Under Which
Subsidiary Does State of
Business Incorporation
1. Shopsmith Woodworking
Promotions, Inc. Ohio
2. Jefferson City Tool
Company Ohio
3. Shopsmith Canada, Inc. Ontario, Canada
4. Shopsmith Woodworking Centers
Ltd. Co. Ohio
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the
registration statements of Shopsmith, Inc. and Subsidiaries
on Form S-8 (Registration No. 2-71494, 33-26463, 33-67898 and
33-64663) of our report on our audits of the consolidated
financial statements and financial statement schedule of
Shopsmith, Inc. and Subsidiaries as of March 30, 1996 and
April 1, 1995 and for the years ended March 30, 1996 and
April 1, 1995, which report is included in this Annual Report
on Form 10-K.
Crowe, Chizek and Company LLP
Columbus, Ohio
June 3, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Shopsmith, Inc. and Subsidiaries on Form S-8
(Registration No. 2-71494, 33-26463 and 33-67898) of our report on our
audit of the consolidate finaical statements and financial statement
schedule of Shopsmith, Inc. and Subsidiaries for the year ended April
2, 1994, which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Dayton, Ohio
June 19, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-30-1996
<PERIOD-END> MAR-30-1996
<CASH> 874,836
<SECURITIES> 740,871
<RECEIVABLES> 527,701
<ALLOWANCES> 235,007
<INVENTORY> 1,510,959
<CURRENT-ASSETS> 3,849,476
<PP&E> 6,953,777
<DEPRECIATION> 6,345,197
<TOTAL-ASSETS> 5,024,214
<CURRENT-LIABILITIES> 3,214,734
<BONDS> 0
<COMMON> 2,984,925
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,024,214
<SALES> 17,409,832
<TOTAL-REVENUES> 17,409,832
<CGS> 8,426,553
<TOTAL-COSTS> 8,426,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 263,445
<INTEREST-EXPENSE> 32,678
<INCOME-PRETAX> 1,513,890
<INCOME-TAX> (743,000)
<INCOME-CONTINUING> 2,256,890
<DISCONTINUED> 0
<EXTRAORDINARY> 770,824
<CHANGES> 0
<NET-INCOME> 3,027,714
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
