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
January 3, 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 January 26, 1998.
Common shares, without par value: 2,654,375 shares.
<PAGE>
SHOPSMITH, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial information:
Item 1. Financial Statements
Consolidated Balance Sheets-
January 3, 1998 and April 5, 1997 3-4
Statements of Consolidated Operations and
Retained Earnings (Deficit) Three and Nine
Months Ended January 3, 1998 and December 28, 1996 5
Consolidated Statements of Cash Flows
Three and Nine Months Ended January 3,1998 and
December 28, 1996 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>
<TABLE>
SHOPSMITH,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 3, April 5,
1998 1997
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 416,971 $ 1,106,873
Restricted cash 222,824 114,151
Short-term investments 1,727,301 1,513,397
Accounts receivable:
Trade, less allowance for doubtful accounts:
$235,131 at January 3 and $342,617 at April 5 515,046 419,101
Inventories 2,096,413 1,668,058
Deferred income taxes (Note 2) 305,000 284,000
Prepaid expenses 417,585 329,902
Total current assets 5,701,140 5,435,482
Properties:
Machinery, equipment and tooling 6,953,361 6,841,126
Leasehold improvements 190,835 190,835
Total cost 7,144,196 7,031,961
Less accumulated depreciation and
amortization 6,662,054 6,507,780
Net properties 482,142 524,181
Deferred income taxes (Note 2) 586,000 587,000
Other assets 2,158 2,158
Total assets $ 6,771,440 $ 6,548,821
</TABLE>
Continued
<PAGE>
<TABLE>
SHOPSMITH,INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 3 April 5,
1998 1997
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 665,745 $ 1,179,261
Customer advances 62,722 58,940
Accrued liabilities:
Compensation, employee benefits and
payroll taxes 496,641 860,994
Sales tax payable 102,619 148,703
Accrued recourse liability 270,463 145,511
Accrued expenses 483,647 413,648
Other 145,972 121,018
Total current liabilities 2,227,809 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 January 3 and
2,663,675 at April 5 (Note 4) 2,974,075 2,993,633
Retained earnings 1,569,556 627,113
Total shareholders' equity 4,543,631 3,620,746
Total Liabilities and Shareholders' Equity $ 6,771,440 $ 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 Nine months ended
January 3 December 28 January 3 December 28
1998 1996 1998 1996
<S> <C> <C> <C> <C>
Net sales $ 4,637,747 $ 4,594,688 $ 12,804,680 $11,907,964
Cost of products sold 2,137,422 2,182,427 5,696,306 5,491,544
Gross margin 2,500,325 2,412,261 7,108,374 6,416,420
Selling expenses 1,566,010 1,343,760 4,542,047 3,631,122
Administrative expenses 579,852 605,750 1,719,872 1,770,626
Total operating expenses 2,145,862 1,949,510 6,261,919 5,401,748
Income from operations 354,463 462,751 846,455 1,014,672
Interest income, net 32,537 19,047 81,747 44,028
Other income, net 8,258 4,459 20,886 19,917
Income before income taxes 395,258 486,257 949,088 1,078,617
Income tax provision 2,767 - 6,645 -
Net income 392,491 486,257 942,443 1,078,617
Retained earnings:
Beginning of period 1,177,065 (583,085) 627,113 (1,175,445)
End of period $ 1,569,556 $ (96,828) $ 1,569,556 $ (96,828)
Earnings per share (Note 3):
Basic $ 0.14 $ 0.18 $ 0.34 $ 0.39
Diluted $ 0.14 $ 0.17 $ 0.33 $ 0.38
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH,INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Nine Months Ended
January 3 December 28
1998 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 942,443 $ 1,078,617
Adjustments to reconcile net income to
cash provided from operating activities:
Depreciation and amortization 157,400 157,521
Provision for doubtful accounts 139,955 177,559
Deferred income taxes (20,000) (10,000)
Gain from disposal of properties (6,700)
Cash provided from (required for) changes
in assets and liabilities
Restricted cash (108,673) 260,804
Accounts receivable (235,900) (130,850)
Inventories (428,355) (311,228)
Other current assets (87,683) (68,249)
Other assets 1,000
Accounts payable and customer advances (509,734) (59,892)
Other current liabilities (190,532) (1,241,861)
Cash used in operating activities (341,079) (153,279)
Cash flows from investing activities:
Short- term investments (213,904) 226,731
Proceeds from sale of properties - 6,700
Property additions (115,361) (101,691)
Cash provided by (used in) investing activities (329,265) 131,740
Cash flows from financing activities:
Common shares issued 1,672 7,221
Options exercised and redeemed (Note 4) (21,230)
Decreases in capital leases - (4,881)
Cash provided by (used in) financing activities (19,558) 2,340
Net increase (decrease) in cash (689,902) (19,199)
Cash:
At beginning of period 1,106,873 560,201
At end of period $ 416,971 $ 541,002
<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 January 3, 1998 and
December 28, 1996 to present the financial statements fairly. However, the
results of operations for the three months and nine 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 Nine Months Ended
1/3/98 12/28/96 1/3/98 12/28/96
Income before income taxes $392,491 $486,257 $942,443 $1,078,617
Provision at statutory rate 147,000 166,000 335,000 367,000
Local 2,767 - 6,645 -
Change in valuation allowance (147,000) (166,000) (335,000) (367,000)
Net Provision $ 2,767 $ - $ 6,645 $ -
All provisions for Federal and State income taxes, calculated at statutory
rates, have been offset by reductions in previously established valuation
reserves related to the utilization of net operating loss carryforwards, tax
credit carryforwards and other timing differences. For the three months and
nine months ended January 3, 1998 the Company has utilized $147,000 and
$335,000 of the $673,000 valuation reserve outstanding at the beginning of
the year.
3. Dual presentation of basic and diluted earnings per share is required by
SFAS No. 128 and is effective for financial statements with periods ending
after December 15, 1997. 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 dilutive potential common stock had been converted
into common stock. The following reconciles amounts reported in the
financial statements:
Three Months Ended Nine Months Ended
1/3/98 12/28/96 1/3/98 12/28/96
Net income $392,491 $486,257 $942,443 $1,078,617
Weighted average common shares used
to compute basic earnings per share 2,751,132 2,754,091 2,751,043 2,753,324
Effect of dilutive options 91,176 77,852 94,135 58,173
Total shares to compute diluted
earnings per share 2,842,308 2,831,943 2,845,178 2,811,497
Basic earnings per share $ 0.14 $ 0.18 $ 0.34 $ 0.39
Diluted earnings per share $ 0.14 $ 0.17 $ 0.33 $ 0.38
<PAGE>
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. The
Company repurchased 22,000 shares issued upon the exercise of a
stock option in the third quarter. The cost of these shares amounting
to $63,250 exceeded proceeds by $21,230. An additional 10,000 shares
were purchased subsequent to the balance sheet date. This subsequent
transaction had no significant effect on reported earnings per common
share for the periods ending January 3, 1998.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and results of Operations
Results of Operations
Net sales improved in the third quarter ended January 3, 1998 to $4,638,000
-up slightly from the $4,595,000 reported a year ago. Resulting gross
margins rose by $88,000 in the third quarter as the overall gross margin
rate improved to 53.9% from 52.5% reported for the quarter ended
December 28, 1996. For the year to date, net sales are $12,805,000-up by
$897,000 or 7.5% from the $11,908,000 reported for the nine months ended
December 28, 1996. Gross margins for the nine months ended January
3, 1998 improved by $692,000 to $7,108,000 based on favorable volume and
profitability variances over that reported a year ago.
Selling and administrative expenses increased to $2,146,000 in the third
quarter ended January 3, 1998 or 10% above last year's total of $1,950,000.
The increase relates to additional advertising and promotional effort in
the current year and to a favorable re-evaluation of loss exposures
(resulting in a reduction in reserves) in the preceding year. For these same
reasons, year to date selling and administrative costs increased to
$6,262,000 from $5,402,000 experienced for the nine months ended December
28, 1996. Interest and other income improved by $17,000 and $39,000 for the
quarter and year to date over last year's result on the basis of continued
overall positive cash flows and the investment of net proceeds.
Provisions for Federal and State income taxes have been substantially
reduced as the expense computed at statutory rates was 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 basic earnings per share for the
three months and nine months ended January 3, 1998 amounted to $392,000
and $.14 per share and $942,000 and $.34 per share. Net income was
$486,000 and $.18 per share and $1,079,000 and $.39 per share for the
three and nine months ended December 28, 1996.
Liquidity and Capital Resources
Operating activities consumed $341,000 of cash for the nine months ended
January 3, 1998. A total of $1,240,000 was generated through profitable
operations adjusted for non-cash expenses. Of that amount, $664,000 was
used to expand volume- sensitive accounts receivable and inventory levels.
Current liabilities were reduced by $700,000 since the first of the year.
While cash declined in the nine months, working capital grew to $3,473,000
up from $2,507,000 or 38% since the beginning of the fiscal year and more
than double from the $1,681,000 reported a year ago. Liquidity and
debt/equity measures improved as a result with the current ratio improving
to 2.56 from 1.86 at the beginning of the year and 1.82 at
December 28, 1996. The debt/equity ratio improved to .49 from .81 since
the first of the fiscal year and .70 at December 28, 1996.
Item 3. Quantitative and qualitative disclosures about market risk.
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 6.
(a) Exhibits:
(27) Financial Data Schedule for the period ended January 3, 1998.
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K on October 16, 1997, which
included a press release announcing the approval of a share repurchase
program.
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: February 11, 1998
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-04-1998
<PERIOD-END> JAN-03-1998
<CASH> 639,795
<SECURITIES> 1,727,301
<RECEIVABLES> 750,177
<ALLOWANCES> 235,131
<INVENTORY> 2,096,413
<CURRENT-ASSETS> 5,701,140
<PP&E> 7,144,196
<DEPRECIATION> 6,662,054
<TOTAL-ASSETS> 6,771,440
<CURRENT-LIABILITIES> 2,227,809
<BONDS> 0
<COMMON> 2,974,075
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,771,440
<SALES> 12,804,680
<TOTAL-REVENUES> 12,804,680
<CGS> 5,696,306
<TOTAL-COSTS> 5,696,306
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 949,088
<INCOME-TAX> 6,645
<INCOME-CONTINUING> 942,443
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 942,443
<EPS-BASIC> .34
<EPS-DILUTED> .33
</TABLE>
