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
October 4, 1997
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 937-898-6070
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 re-
ports required to be filed by Section 13 or 15 (d) of the Securi-
ties 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 regis-
trant's classes of common stock as of October 23, 1997.
Common shares, without par value: 2,664,375 shares.
<PAGE>
SHOPSMITH, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial information:
Item 1. Financial Statements
Consolidated Balance Sheets-
October 4, 1997 and April 5, 1997 3-4
Statements of Consolidated Operations and
Retained Earnings (Deficit)- Three and Six Months
Ended October 4, 1997 and September 28, 1996 5
Consolidated Statements of Cash Flows
Three and Six Months Ended October 4, 1997 and
September 28, 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Item 3. Quantitative and qualitative disclosures
about market risk 8
Part II. Other Information 9
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
October 4, April 5,
1997 1997
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 351,629 $ 1,106,873
Restricted cash 169,608 114,151
Short-term investments 1,709,355 1,513,397
Accounts receivable:
Trade, less allowance for doubtful accounts:
$231,907 at October 4 and $342,617 at April 5 533,288 419,101
Inventories 1,952,600 1,668,058
Deferred income taxes (Note 2) 252,000 284,000
Prepaid expenses 476,947 329,902
Total current assets 5,445,427 5,435,482
Properties:
Machinery, equipment and tooling 6,942,842 6,841,126
Leasehold improvements 190,835 190,835
Total cost 7,133,677 7,031,961
Less accumulated depreciation
and amortization 6,611,749 6,507,780
Net properties 521,928 524,181
Deferred income taxes (Note 2) 639,000 587,000
Other assets 2,158 2,158
Total assets $ 6,608,513 $ 6,548,821
</TABLE>
Continued
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
October 4, April 5,
1997 1997
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,021,026 $ 1,179,261
Customer advances 57,092 58,940
Accrued liabilities:
Compensation, employee benefits
and payroll taxes 405,704 860,994
Sales tax payable 132,710 148,703
Accrued recourse liability 210,744 145,511
Accrued expenses 471,661 413,648
Other 137,206 121,018
Total current liabilities 2,436,143 2,928,075
Shareholders' Equity:
Preferred shares- without par value;
authorized 500,000, none issued - -
Common shares- without par value;
authorized 5,000,000; issued and
outstanding 2,664,375 at October 4 and
2,663,675 at April 5 2,995,305 2,993,633
Retained earnings 1,177,065 627,113
Total shareholders' equity 4,172,370 3,620,746
Total Liabilities and Shareholders' Equity $ 6,608,513 $ 6,548,821
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Six Months Ended
October 4, September 28, October 4, September 28,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 4,449,170 $ 3,937,062 $ 8,166,933 $ 7,313,276
Cost of products sold 1,964,719 1,811,976 3,558,884 3,309,117
Gross margin 2,484,451 2,125,086 4,608,049 4,004,159
Selling expenses 1,413,259 1,105,947 2,976,037 2,287,362
Administrative expenses 673,566 572,987 1,140,020 1,164,876
Total operating expenses 2,086,825 1,678,934 4,116,057 3,452,238
Income from operations 397,626 446,152 491,992 551,921
Interest income, net 24,210 9,150 49,210 24,981
Other income, net 3,473 9,711 12,628 15,458
Income before income taxes 425,309 465,013 553,830 592,360
Income tax provision 3,878 - 3,878 -
Net income 421,431 465,013 549,952 592,360
Retained earnings:
Beginning of period 755,634 (1,048,098) 627,113 (1,175,445)
End of period $ 1,177,065 $ (583,085) $ 1,177,065 $ (583,085)
Weighted avg. common shs 2,756,324 2,731,917 2,756,191 2,731,034
Net income per common sh $ 0.15 $ 0.17 $ 0.20 $ 0.22
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Six Months Ended
October 4, September 28,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 549,952 $ 592,360
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation and amortization 107,095 104,861
Provision for doubtful accounts 93,788 125,055
Deferred income taxes (20,000)
Cash provided from (required for) changes
in assets and liabilities
Restricted cash (55,457) 303,278
Accounts receivable (207,975) (263,141)
Inventories (284,542) (209,046)
Other current assets (147,045) (139,575)
Other assets - 1,000
Accounts payable and customer advances (160,083) 86,565
Other current liabilities (331,849) (1,054,571)
Cash used in operating activities (456,116) (453,214)
Cash flows from investing activities:
Short-term investments (195,958) 487,035
Property additions (104,842) (41,794)
Cash provided by investing activities (300,800) 445,241
Cash flows from financing activities:
Common shares issued 1,672 5,824
Decrease in capital leases - (4,881)
Cash provided by financing activities 1,672 943
Net increase (decrease) in cash (755,244) (7,030
Cash:
At beginning of period 1,106,873 560,201
At end of period $ 351,629 $ 553,171
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE
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 October 4, 1997 and
September 28, 1996 to present the financial statements fairly. However,
the results of operations for the three months and six 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 April 5, 1997.
2. The provision for income taxes is as follows:
Three Months Ended Six Months Ended
10/4/97 9/26/96 10/4/97 9/26/96
Income before income tax $425,309 $465,013 $553,830 $592,360
Provision at statutory rate 145,000 158,000 188,000 201,000
Local 3,878 - 3,878 -
Valuation allowance (145,000) (158,000) (188,000) (201,000)
Net Provision $ 3,878 - $ 3,878 -
The change in the valuation allowance for all the periods presented
represents the realization of tax benefits of temporary differences
which reversed during the respective periods.
3. The Company and its commercial lending bank have signed a renewal of
a revolving credit facility expiring June 30, 1999. 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. 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 October 4, 1997.
4. On October 16, 1997, the Company announced that its Board of
Directors had approved a plan to repurchase up to 200,000 Common Shares
in market and other transactions from time to time. Such transactions
will be at the discretion of the Company and the plan will
continue indefinitely.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condi-
tion and results of Operations
Results of Operations
Net sales were $4,450,000 in the quarter ended October 4, 1997, up from
$3,937,000 or 13% from the same period of the preceding year. The
improvement in volume is primarily the result of additional advertising and
promotional effort in the Company's demonstration sales channel. As a
result, gross margins improved to $2,484,000 in the second quarter - up
from $2,125,000 reflected in the second quarter of 1996. Margin rates
expanded as well-from 54.0% of sales in 1996 to 55.8% in 1997. For these
same reasons net sales and gross margins for the first six months were
11.7% and 15.1% above that reported in the previous year.
The expanded selling and promotional effort, combined with refinements in
the procedures for determining interim incentive compensation accruals,
increased selling and administrative expenses to $2,087,000 at 46.9% of
sales in the second quarter from 1996 amounts totaling $1,679,000 at 42.6%
of sales. For the six months, these expenses rose by $664,000 to $4,116,000
at 50.4% of sales up from $3,452,000 and 47.2% of sales a year ago.
Interest and other income improved by $13,000 and $24,000 over the second
quarter and first half of 1996 respectively as a result of continued
positive cash flows and investment of net proceeds.
Provisions for income taxes have been substantially reduced as the expense
computed at statutory rates has been offset by reductions in valuation
reserves related to deferred tax amounts, including tax loss carryforwards,
pursuant to SFAS 109.
As a result of the above, net income and per share earnings of $421,000
and $.15 per share were realized in the second quarter compared with
$465,000 and $.17 per share for the same period last year. On a year
to date basis net income and per share amounts total $550,000 at $.20
per share compared with $592,000 and $.22 per share in 1996.
Liquidity and Capital Resources
1997 operating activities used $456,000 of cash in 1997 largely due to
expansion of all other current assets and a pay down of accounts payable
and other current liabilities. Cash of $105,000 was expended to purchase
fixed assets while $196,000 was added to short-term investments, thereby
bringing short-term investments to a balance of $1,709,000 by
the end of the second quarter. While cash declined by $755,000 in the
first six months, overall working capital grew to $3,009,000 - up by
$502,000. Working capital was $1,192,000 at September 28, 1996. Liquidity
and debt/equity measures improved as a result with the current ratio
improving to 2.23 from 1.86 at the beginning of the year and 1.51 at the
end of the second quarter last year. The debt/equity ratio declined to .58
from .81 on April 5, 1997 and .97 at September 28, 1996.
On October 16, 1997, the Company announced that its Board of Directors had
approved a plan to repurchase up to 200,000 Common Shares in market and
other transactions from time to time. Such transactions will be at the
discretion of the Company and the plan will continue in effect
indefinitely. Management believes that financial resources will be
adequate to sustain these repurchases and to meet operating needs.
Item 3. Quantitative and qualitative disclosures about market risk.
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
-NONE-
SIGNATURES
Pursuant to the requirements of the Securities and 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: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-04-1998
<PERIOD-END> OCT-04-1997
<CASH> 521,237
<SECURITIES> 1,709,355
<RECEIVABLES> 765,195
<ALLOWANCES> 231,907
<INVENTORY> 1,952,600
<CURRENT-ASSETS> 5,445,427
<PP&E> 7,133,677
<DEPRECIATION> 6,611,749
<TOTAL-ASSETS> 6,608,513
<CURRENT-LIABILITIES> 2,436,143
<BONDS> 0
<COMMON> 2,995,305
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,608,513
<SALES> 8,166,933
<TOTAL-REVENUES> 8,166,933
<CGS> 3,558,884
<TOTAL-COSTS> 3,558,884
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 553,830
<INCOME-TAX> 3,878
<INCOME-CONTINUING> 549,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 549,952
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
