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 4, 1998
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes _X_ No ___
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of July 9, 1998.
Common shares, without par value: 2,598,375 shares.
Page 1
<PAGE>
SHOPSMITH, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial information:
Item 1. Financial Statements
Consolidated Balance Sheets-
July 4, 1998 and April 4, 1998 3- 4
Statements of Consolidated Operations and
Retained Earnings - Three Months
Ended July 4, 1998 and July 5, 1997 5
Consolidated Statements of Cash Flows-
Three Months Ended July 4, 1998 and
July 5, 1997 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Item 3. Quantitative and qualitative disclosures
about market risk 9
Part II. Other Information 10
Page 2
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 4, April 4,
1998 1998
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 279,553 $ 316,669
Restricted cash 129,047 264,880
Short-term investments 1,615,738 2,851,355
Accounts receivable:
Trade, less allowance for doubtful accounts:
$322,263 on July 4 and $317,408 on April 4 536,436 518,417
Inventories 2,547,167 2,301,790
Deferred income taxes (Note 2) 373,000 382,000
Prepaid expenses 535,301 310,160
Total current assets 6,016,242 6,945,271
Properties:
Machinery, equipment and tooling 7,084,374 7,006,954
Leasehold improvements 190,835 190,835
Total cost 7,275,209 7,197,789
Less accumulated depreciation and
amortization 6,760,005 6,711,089
Net properties 515,204 486,700
Deferred income taxes (Note 2) 626,000 629,000
Other assets 15,644 15,594
Total assets $ 7,173,090 $ 8,076,585
</TABLE>
Continued
Page 3
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 4, April 4,
1998 1998
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 879,650 $ 1,279,547
Customer advances 37,469 39,854
Accrued liabilities:
Compensation, employee benefits and
payroll taxes 327,261 657,154
Sales taxes payable 101,331 131,071
Accrued recourse liability 304,907 275,841
Accrued expenses 296,704 389,328
Other 148,882 135,343
Total current liabilities 2,096,204 2,908,138
Shareholders' Equity:
Preferred shares-without par value:
authorized 500,000; none issued
Common shares-without par value:
authorized 5,000,000; issued and outstanding
2,598,375 at July 4 and 2,624,375 at April 4 2,801,288 2,869,075
Retained earnings 2,275,598 2,299,352
Total sharehlders'equity 5,076,886 5,168,427
Total Liabilities and Shareholders' Equity $ 7,173,090 $ 8,076,565
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 4
<PAGE>
<TABLE>
SHOPSMITH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
July 4, July 5,
1998 1997
<S> <C> <C>
Net sales $ 3,341,917 $ 3,717,763
Cost of products sold 1,491,907 1,594,165
Gross margin 1,850,010 2,123,598
Selling expenses 1,519,740 1,562,778
Administrative expenses 409,708 466,454
Total operating expenses 1,929,448 2,029,232
Income (loss) from operations (79,438) 94,366
Interest income, net 39,276 25,000
Other income, net 3,784 9,155
Income (loss) before income taxes (36,378) 128,521
Income tax provision (12,624) --
Net income (loss) (23,754) 128,521
Non-owner changes in equity (Note 5) -- --
Comprehensive income (loss) (23,754) 128,521
Retained earnings:
Beginning 2,299,352 627,113
Ending 2,275,598 755,634
Net income (loss) per common share (Note 3)
Basic $ (0.01) $ 0.05
Diluted $ (0.01) $ 0.05
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 5
<PAGE>
<TABLE>
SHOPSMITH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Three Months Ended
July 4 July 5
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (23,754) $ 128,521
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation and amortization 48,916 54,520
Provision for doubtful accounts 34,067 (32,455)
Deferred income taxes 12,000 --
Cash provided from (required for) changes
in assets and liabilities:
Restricted cash 135,833 (15,639)
Accounts receivable (23,020) (100,402)
Inventories (245,377) (92,242)
Other current assets (225,141) (171,092)
Other assets (50) --
Accounts payable and customer advances (402,282) (640,263)
Other current liabilities (438,718) (497,867)
Cash provided from (used in) operating activities (1,127,526) (1,366,919)
Cash flows from investing activities:
Maturity of short-term investments 1,235,617 1,002,011
Property additions (77,420) (81,888)
Cash provided from (used in) investing activities 1,158,197 920,123
Cash flows from financing activities:
Common shares issued -- 1,377
Common shares repurchased (Note 4) (67,787) --
cash provided from (used in) financing activities (67,787) 1,377
Net increase (decrease) in cash (37,116) (445,419)
Cash:
At beginning of period 316,669 1,106,873
At end of period $ 279,553 $ 661,454
<FN>
See notes to consolidated financial statements.
</TABLE>
Page 6
<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 4, 1998 and
July 5, 1997 to present the financial statements fairly. However, the
results of operations for the three months then ended are not necessarily
indicative of results for the fiscal year. The financial statements and
notes are presented as permitted by Form 10-Q, and do not contain certain
information included in the annual financial statements. The financial
statements accompanying this report should be read in conjunction with the
financial statements and notes thereto included in the Annual Report to
Shareholders for the year ended April 4, 1998.
2. The provision for income taxes is as follows:
Three Months Ended
7/4/98 7/5/97
Income (loss) before income taxes $ (36,378) $ 128,521
Provision (12,624) 44,000
Change in valuation allowance -- (44,000)
Net provision $ (12,624) $ --
Provisions for Federal, State and Local income taxes are calculated at
statutory rates. In the previous year, provisions were offset by reductions
in previously established valuation reserves related to the utilization of
net operating loss carryforwards, tax credit carryforwards and other timing
differences.
3. Basic earnings per share are computed by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share reflect per share amounts that would have
resulted if stock options had been converted into common stock. The
following reconciles amounts reported in the financial statements:
Three Months Ended
7/4/98 7/5/97
Net income (loss) $ (23,754) $ 128,521
Weighted average common shares used
to calculate basic earnings per share 2,598,375 2,664,109
Effect of dilutive options 61,312 87,116
Total shares to compute diluted ernings
per share 2,659,687 2,751,225
Basic earnings (loss) per share $ (0.01) $ .05
Diluted earnings (loss) per share $ (0.01) $ .05
Page 7
<PAGE>
4. The Company repurchased 26,000 of its common shares at a cost of $67,787
during the first quarter of the fiscal year. These transactions follow a
1997 announcement 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 on a discretionary and indefinite basis. A total of 62,000
shares were repurchased in the previous fiscal year.
5. Effective this current year, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This Statement establishes standards for reporting
and displaying comprehensive income and its components. Comprehensive
income is defined as net income and all other non-owner changes in equity.
Components of comprehensive income, as it applies to the Company, would
include the write-up or write-down of securities held for sale to market
value. The effect of such adjustments to comprehensive income for the first
quarters ended in 1998 and 1997 is not material and does not affect the
Company's reported results of operations or financial position.
6. The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
This Statement, which is effective beginning with annual financial
statements issued for periods beginning after December 15, 1997 requires
financial and descriptive information about an entity's operating segments
to be included in the financial statements. This standard, when
implemented, is not expected to materially impact the reported financial
position or results of operations.
Page 8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and results of Operations
Results of Operations
Net sales were $3,342,000 in the quarter ended July 4, 1998 down by 10%
from the $3,718,000,reported a year ago. The reduction in volume is due
mostly to declines in demonstration and mail sales beginning in the last
quarter. Because of the reduced sales and production activity, gross
profits declined by $274,000.
The demonstration and mail sales decline, which continues into the second
quarter, is considered the Company's greatest challenge. The Company has
addressed this problem through the hiring of sales professionals assigned
directly to demonstration sales and marketing. The Company is further
examining cost cutting measures and productivity improvements.
Total operating expenses, including start up costs for new marketing
efforts, were reduced by $100,000 from the same period last year. Interest
income improved by $14,000 on investments available for seasonal and
expansion needs.
Provisions for Federal, State and Local income tax and anticipated
recoveries are based upon statutory tax rates. The previous year's provision
for Federal income tax was eliminated as the expense has been offset by
reductions in valuation reserves related to deferred tax amounts, including
tax carryforwards, pursuant to SFAS 109.
As a result of the above, a net loss of $24,000 and $.01 per diluted share
was incurred in the first quarter ended July 4, 1998 compared with net
income of $128,000 and $ .05 per diluted share for the quarter ended
July 5, 1997.
Liquidity and Capital Resources
Cash used from first quarter operating activities totaled $1,128,000
compared with $1,367,000 used in operations for the previous year. The use
of cash resulted from an increase in accounts receivable together with
expanded inventories available for catalog and other new activities. In
addition, $795,000 was disbursed to reduce accounts payable and accrued
expense balances since the first of the fiscal year. In the first quarter
of last year, cash was used to reduce accounts payable and other
current liabilities.
Working capital declined in the first quarter by $117,000 mostly as a result
of capital expenditures of $77,000 (principally tooling and facility
improvements) and common share repurchases totaling $68,000. Since July 5
1997 working capital grew by $1,310,000 or 50%. The current ratio is
presently at 2.87 compared to 2.39 and 2.46 at April 4, 1998 and
July 5, 1997 respectively. The debt to equity ratio has improved to .41
mostly because of current debt reductions. This ratio was .56 at
April 4, 1998 and .48 on July 5, 1997.
Item 3. Quantitative and qualitative disclosures about market risk
Not applicable.
Page 9
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information.
Unless notified prior to May 11, 1999 of any proposal to be raised
at the 1999 Annual Meeting of Shareholders, the Company may exercise
discretionery proxy authority with respect to such proposal without
discussion of such proposal for such annual meeting.
Item 6.
(a) Exhibits:
(27) Financial Data Schedule for the period ended July 5, 1998.
(b) 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: August 12,1998
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-03-1999
<PERIOD-END> JUL-04-1998
<CASH> 408,600
<SECURITIES> 1,615,738
<RECEIVABLES> 858,699
<ALLOWANCES> 322,263
<INVENTORY> 2,547,167
<CURRENT-ASSETS> 6,016,242
<PP&E> 7,275,209
<DEPRECIATION> 6,760,005
<TOTAL-ASSETS> 7,173,090
<CURRENT-LIABILITIES> 2,096,204
<BONDS> 0
<COMMON> 2,801,288
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,173,090
<SALES> 3,341,917
<TOTAL-REVENUES> 3,341,917
<CGS> 1,491,907
<TOTAL-COSTS> 1,929,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (36,378)
<INCOME-TAX> (12,624)
<INCOME-CONTINUING> (23,754)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,754)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
