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
July 5, 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 July 23, 1997.
Common shares, without par value: 2,664,075 shares.
<PAGE>
SHOPSMITH, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial information:
Item 1. Financial Statements
Consolidated Balance Sheets-
July 5, 1997 and June 29, 1996 3-4
Statements of Consolidated Operations and
Retained Earnings (Deficit)- Three Months
Ended July 5, 1997 and June 29, 1996 5
Consolidated Statements of Cash Flows
Three Months Ended July 5, 1997 and
June 29, 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 9
Part II. Other Information 10
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 5, April 5,
1997 1997
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 661,454 $ 1,106,873
Restricted cash 129,790 114,151
Short-term investments 511,386 1,513,397
Accounts receivable:
Trade, less allowance for doubtful accounts:
$250,571 at July 5 and $342,617 at April 5 551,958 419,101
Inventories 1,760,300 1,668,058
Deferred income taxes (Note 2) 284,000 284,000
Prepaid expenses 500,994 329,902
Total current assets 4,399,882 5,435,482
Properties:
Machinery, equipment and tooling 6,923,014 6,841,126
Leasehold improvements 190,835 190,835
Total cost 7,113,849 7,031,961
Less accumulated depreciation and
amortization 6,562,300 6,507,780
Net properties 551,549 524,181
Deferred income taxes (Note 2) 587,000 587,000
Other assets 2,158 2,158
Total assets $ 5,540,589 $ 6,548,821
</TABLE>
Continued
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 5, April 5,
1997 1997
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 537,918 $ 1,179,261
Customer advances 60,020 58,940
Accrued liabilities:
Compensation, employee benefits and
payroll taxes 350,837 860,994
Sales tax payable 110,464 148,703
Accrued recourse liability 184,054 145,511
Accrued expenses 419,324 413,648
Other 127,328 121,018
Total current liabilities 1,789,945 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 2,664,275 at July 5 and
2,663,675 at April 5 2,995,010 2,993,633
Retained earnings 755,634 627,113
Total shareholders' equity 3,750,644 3,620,746
Total Liabilities and Shareholders' Equity $ 5,540,589 $ 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
July 5, June 29,
1997 1996
<S> <C> <C>
Net sales $ 3,717,763 $ 3,376,214
Cost of products sold 1,594,165 1,497,141
Gross margin 2,123,598 1,879,073
Selling expenses 1,562,778 1,181,415
Administrative expenses 466,454 591,889
Total operating expenses 2,029,232 1,773,304
Income from operations 94,366 105,769
Interest income, net 25,000 15,831
Other income, net 9,155 5,747
Income before income taxes 128,521 127,347
Income tax provision - -
Net income 128,521 127,347
Retained earnings:
Beginning of period 627,113 (1,175,445)
End of period $ 755,634 $ (1,048,098)
Weighted avg. common shs outstanding 2,788,818 2,677,826
Net income per common share $ 0.05 $ 0.05
<FN>
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Three Months Ended
July 5, June 29,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 128,521 $ 127,347
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation and amortization 54,520 51,172
Provision for doubtful accounts (32,455) 41,307
Cash provided from (required for) changes
in assets and liabilities
Restricted cash (15,639) (32,547)
Accounts receivable (100,402) (44,042)
Inventories (92,242) (86,088)
Other current assets (171,092) (227,902)
Other assets - 1,000
Accounts payable and customer advances (640,263) (207,364)
Other current liabilities (497,867) (610,561)
Cash used in operating activities (1,366,919) (987,678)
Cash flows from investing activities:
Short-term investments 1,002,011 491,915
Property additions (81,888) (36,000)
Cash provided by investing activities 920,123 455,915
Cash flows from financing activities:
Common shares issued 1,377 3,968
Decrease in capital leases - (3,270)
Cash provided by financing activities 1,377 698
Net increase (decrease) in cash (445,419) (531,065)
Cash:
At beginning of period 1,106,873 560,201
At end of period $ 661,454 $ 29,136
<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 July 5, 1997 and June 29, 1996
to present the financial statements fairly. However, the results of
operations for the three months then ended are not necessarily indicative of
results for the fiscal year. The financial statements and notes are
presented as permitted by Form 10-Q, and do not contain certain informa-
tion 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
July 5, 1997 June 29, 1996
Income Before income taxes $ 128,521 $ 127,345
Provision at statutory rate
of 34% 44,000 44,000
Change in valuation allowance (44,000) (44,000)
Net - -
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's commercial lending bank has orally committed to renew the
revolving credit facility through 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
July 5, 1997.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales in the quarter ended July 5, 1997 were $3,718,000, up 10.1% from the
$3,376,000 realized in the same quarter last year. Increases in advertising
and other promotion efforts in the Company's demonstration sales channel were
responsible for the increased net sales. This increased effort also caused
selling and administrative costs to rise by 14.4% from $1,773,000 or 52.5% of
net sales in the first quarter last year to $2,029,000 or 54.6% of net sales in
the same period this year.
The increased selling efforts shifted a larger proportion of net sales
toward the demonstration sales channel which produces higher gross margins
than some of the Company's other selling channels. Gross margins, as a result
of this and some sales price adjustments, increased to 57.1% of net sales in
the first quarter of the current year compared to 55.7% in the same period last
year. Costs of the increased selling efforts discussed above, however, exceeded
the effect of the sales and margin rate increases. Favorable adjustments for
insurance recoveries and litigation reserves partly offset the selling cost
increases.
No provision for income taxes was reflected on the Company's pre-tax income as
the expense at the statutory rate has been offset by the reduction in
previously established valuation reserves related to deferred income tax
amounts, including tax loss carryforwards, pursuant to SFAS 109.
Net income of $129,000 or $.05 per share was recognized in the quarter ended
July 5, 1997 as compared to $127,000, also $.05 per share, in the same period
last year.
Liquidity and Capital Resources
Operations used $1,367,000 of cash in the three months ended July 5, 1997
primarily to finance the normal spring/summer seasonal reduction of accounts
payable and other liabilities. Cash was also needed to finance certain costs,
some of which are paid in advance, of promotions to support the upcoming state
fair selling season and for increases in other current assets. $988,000 of
cash was used in the first quarter of last year for similar purposes.
Property additions, principally for a more cost effective and capable telephone
system, were $82,000 for the first quarter of the current fiscal year compared
to $36,000 in the same period last year. The normal seasonal liquidation of
short-term investments provided $492,000 of cash in the first quarter this year
and $742,000 in the first quarter last year.
Shopsmith's debt to equity ratio improved to 0.48 at July 5, 1997 from 0.81 at
April 5, 1997 and 1.26 at June 29, 1996. The current ratio was also enhanced
during the current first quarter to 2.46 at July 5, 1997 from 1.86 at April 5,
1997 and 1.30 at June 29, 1996. The Company had $2,610,000 in working capital
at July 5, 1997 compared to $2,507,000 at April 5, 1997 and $729,000 at June
29, 1996. The improvements in these leverage and liquidity metrics were the
result of profitability in recent fiscal periods and of the use of current
assets to liquidate current liabilities.
<PAGE>
The Company's bank has orally committed to provide a revolving credit agreement
to expire on June 30, 1999 which makes available borrowings of up to $500,000
or 40% of eligible inventory, whichever is less. For a discussion of this
facility, reference is made to Note 3 to the Consolidated Financial Statements
included herein. No amounts were outstanding under the agreement at July 5,
1997. Management believes financial resources will be adequate 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)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-04-1998
<PERIOD-END> JUL-05-1997
<CASH> 791,244
<SECURITIES> 511,386
<RECEIVABLES> 802,529
<ALLOWANCES> 250,571
<INVENTORY> 1,760,300
<CURRENT-ASSETS> 4,399,882
<PP&E> 7,113,849
<DEPRECIATION> 6,562,300
<TOTAL-ASSETS> 5,540,589
<CURRENT-LIABILITIES> 1,789,945
<BONDS> 0
<COMMON> 2,995,010
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,540,589
<SALES> 3,717,763
<TOTAL-REVENUES> 3,717,763
<CGS> 1,594,165
<TOTAL-COSTS> 1,594,165
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 128,521
<INCOME-TAX> 0
<INCOME-CONTINUING> 128,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128,521
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
