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 3, 1999
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 20,1999.
Common shares, without par value: 2,605,233 shares.
<PAGE>
SHOPSMITH, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial information:
Item 1. Financial Statements
Consolidated Balance Sheets-
July 3, 1999 and April 3, 1999 3- 4
Statements of Consolidated Operations and
Retained Earnings - Three Months
Ended July 3, 1999 and July 4, 1998 5
Consolidated Statements of Cash Flows-
Three Months Ended July 3, 1999 and
July 4, 1998 6
Notes to Financial Statements 7-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-10
Item 3. Quantitative and qualitative disclosures
about market risk 10
Part II. Other Information 11
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 3, April 3,
1999 1999
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 165,263 $ 1,005,371
Restricted cash 102,790 101,249
Short-term investments 497,328 989,122
Accounts receivable:
Trade, less allowance for doubtful accounts:
$455,226 on July 3 and $450,677 on April 3 482,517 758,548
Inventories 2,760,472 2,410,908
Deferred income taxes (Note 2) 498,000 475,000
Prepaid expenses 403,254 225,157
Total current assets 4,909,624 5,965,355
Properties:
Land, building and improvements 3,154,996 3,151,407
Machinery, equipment and tooling 6,533,365 6,505,258
Total cost 9,688,361 9,656,665
Less accumulated depreciation and
amortization 6,267,960 6,200,696
Net properties 3,420,401 3,455,969
Deferred income taxes (Note 2) 757,000 584,000
Other assets 19,311 19,308
Total assets $ 9,106,336 $ 10,024,632
</TABLE>
Continued
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 3, April 3,
1999 1999
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 946,633 $ 1,342,957
Current portion of long-term debt and
capital lease obligation 81,219 81,219
Customer advances 17,754 25,788
Accrued liabilities:
Compensation, employee benefits and
payroll taxes 310,715 377,453
Sales taxes payable 62,047 187,020
Accrued recourse liability 367,656 333,265
Accrued expenses 357,392 309,000
Other 155,573 158,356
Total current liabilities 2,298,989 2,815,058
Long-term debt and capital lease obligation 2,798,631 2,816,809
Total liabilities 5,097,620 5,631,867
Shareholders' Equity
Preferred shares- without par value;
authorized 500,000; none issued
Common shares- without par value;
authorized 5,000,000; issued and outstanding
2,605,233 shares on July 3 and on April 3 2,806,482 2,806,482
Retained earnings 1,202,234 1,586,283
Total shareholders' equity 4,008,716 4,392,765
Total Liabilities and Shareholders' Equity $ 9,106,336 $ 10,024,632
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended
July 3, July 4,
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $ 3,727,046 $ 3,341,917
Cost of products sold 1,696,669 1,491,907
Gross margin 2,030,377 1,850,010
Selling expenses 2,020,180 1,519,740
Administrative expenses 548,055 409,708
Total operating expenses 2,568,235 1,929,448
Income (loss) from operations (537,858) (79,438)
Interest income 20,155 39,276
Interest expense (66,620) -
Other income, net 4,274 3,784
Income (loss) before income taxes (580,049) (36,378)
Income tax benefit 196,000 12,624
Net income (loss) (384,049) (23,754)
Retained earnings:
Beginning 1,586,283 2,299,352
Ending $ 1,202,234 $ 2,275,598
Net income (loss) per common share (Note 3):
Basic $ (0.15) $ (0.01)
Diluted $ (0.15) $ (0.01)
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
SHOPSMITH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Three Months Ended
July 3, July 4,
1999 1998
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (384,049) $ (23,754)
Adjustments to reconcile net income (loss) to
cash provided from operating activities:
Depreciation and amortization 67,264 48,916
Provision for doubtful accounts 39,392 34,067
Deferred income taxes (196,000) 12,000
Cash provided from (required for) changes
in assets and liabilities:
Restricted cash (1,541) 135,833
Accounts receivable 271,029 (23,020)
Inventories (349,564) (245,377)
Other assets (178,100) (225,191)
Accounts payable and customer advances (404,358) (402,282)
Other current liabilities (146,101) (438,718)
Cash provided from (used in) operating activities (1,282,028) (1,127,526)
Cash flows from investing activities:
Maturity of short-term investments 491,794 1,235,617
Property additions (31,696) (77,420)
Cash provided from (used in) investing activities 460,098 1,158,197
Cash flows from financing activities:
Common shares repurchased - (67,787)
Payments on long-term debt and capital lease ob-
ligation (18,178) -
Cash provided from (used in) financing activities (18,178) (67,787)
Net increase (decrease) in cash (840,108) (37,116)
Cash:
At beginning of year 1,005,371 316,669
At end of year $ 165,263 $ 279,553
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
SHOPSMITH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of management, all adjustments (consisting of only normal
and recurring adjustments) have been made as of July 3, 1999 and
July 4, 1998 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 3, 1999.
2. The provision for income taxes is as follows:
July 3, July 4,
1999 1998
Loss before income taxes $ (384,049) $ (23,754)
Provision for (recoverable) income taxes:
Current $ - $ (24,624)
Deferred (196,000) 12,000
Change in valuation allowance - -
Net provision for (recoverable) income taxes $ (196,000) $ (12,624)
Provisions for recoverable income taxes have been computed at statutory rates.
Resulting deferred tax assets amounting to $1,255,000 at July 3, 1999 and
$1,059,000 at April 3, 1999 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.
The Company believes that it is more likely than not that these assets are
realizable and represent its best estimate based on the available evidence
as prescribed in SFAS 109. If the Company is unable to generate sufficient
income in the future through operating results, an increase in the valuation
allowance will be required through a charge to expense.
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
July 3,1999 July 4, 1998
Net income (loss) $ (384,049) $ (23,754)
Weighted average shares 2,605,233 2,658,475
Additional dilutive shares - -
Total dilutive shares 2,605,233 2,658,475
Basic earnings (loss) per share $ (0.15) $ (0.01)
Diluted earnings (loss) per share $ (0.15) $ (0.01)
There were no additional dilutive shares included in the computation at
July 3, 1999 and July 4, 1998 because the stock options were anti-dilutive.
<PAGE>
4. The Company is utilizing SFAS No. 130, "Reporting Comprehensive Income."
This Statement establishes standards for reporting and displaying
comprehensive income and its components. 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 effects of such adjustments to
comprehensive income for the first quarters ended in 1999 and 1998 are not
material and do not affect the Company's reported results of operations or
financial position.
5. A revolving credit agreement has been renewed to expire on
July 31, 2000. The agreement provides for maximum short-term borrowing of
$500,000 with interest charged at one-half of one percent over the Bank's
prime rate. The agreement requires compliance with certain minimum
net worth, working capital and other miscellaneous covenants. Substantially
all tangible assets except for land and building are pledged as collateral.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
First quarter sales increased to $3,727,000 or 11.5% from $3,342,000
generated a year ago. This increase in volume, continuing from the fourth
quarter of fiscal 1999, is mostly due to favorable customer responses in
our demonstration sales channel.
Gross margin rates improved by one percentage point over last year. In
addition, total margins improved to $2,030,000 on the additional volume for
the three months ended July 3, 1999 from $1,850,000 experienced in the first
quarter of last year. Operating expenses expanded to $2,568,000 in the
current fiscal year from $1,929,000 last year mostly reflecting the
Company's decision to expand selling and promotional efforts aimed at
increasing sales volumes.
Provisions for recoverable Federal income taxes ($196,000 in FY 2000 and
$12,000 in FY 1999) are based on estimated annual effective rates.
Because of the factors above, a net loss of $384,000 or $.15 per diluted
share was experienced in the quarter ended July 3, 1999 compared to a net
loss of $24,000 or $.01 per diluted share for the same period of last year.
Liquidity and Financial Position
Cash used in operations totaled $1,282,000 in the current year compared with
$1,128,000 for the first quarter of the preceding year. The net loss of
$384,000 together with expansion of current assets (prepaid items $178,000;
inventories $350,000) and liquidation of current liabilities were the main
reasons for the cash usage in the current quarter. Maturing short-term
investments of $492,000 and $1,236,000 in fiscal 2000 and 1999 respectively,
were utilized to fund operating cash requirements.
The Company's assets include $1,255,000 of deferred income tax assets at
July 3, 1999. Presently, the Company believes that these assets are
realizable and represent management's best estimate based on the weight of
available evidence as prescribed in SFAS 109. Management will continue to
evaluate these assets and the need for additional valuation allowances based
on near-term operating results and longer-term projections. If the Company
is unable to generate sufficient operating income in the future, the
valuation allowance will have to be increased by means of a charge against
operating results.
The current ratio was 2.14 to 1 at July 3, 1999 compared to 2.12 to 1 at
the beginning of the current fiscal year. The debt to equity ratio improved
slightly to 1.27 to 1 from 1.28 to 1 at April 3, 1999.
The Company has now experienced operating losses for five consecutive
quarters. Continuation of operating losses will negatively affect the
Company's liquidity both (a) as a result of negative cash flow caused by
the losses, and (b) by putting the Company in the position of failing to
satisfy the conditions applicable to drawing under the Company's line of
credit.
<PAGE>
Year 2000 Impact
The year 2000 issue is related to computer software utilizing two digits
rather than four to define the year. As a result, any of the Company's
computer programs or any of the Company's suppliers that have date
sensitive software may cause system failures or generate incorrect data.
The Company has identified information technology applications requiring
modification to ensure year 2000 compliance. Evaluation and testing of
on-going programs is underway. Replacement of certain of these systems has
been identified and related software has been acquired. Non-information
technology systems have been evaluated. While no formal contingency plan
has been adopted, the Company believes that it will be able to address
Year 2000 issues as they arise without material disruption of its business.
The Company has communicated with its major suppliers and financial
institutions to assess the impact on the Company's operations should they
fail to achieve Year 2000 compliance. Based on responses to date, many of
these third parties indicate programs in place without specific confirmation
of year 2000 compliance.
Costs incurred to date for year 2000 activities have not been material to
the Company. Also, the Company believes that, based on current estimates,
the total costs of compliance will not have a material adverse impact on
results of operations or financial condition.
Achievement of year 2000 compliance is subject to a variety of risks beyond
the Company's control, including continued availability of personnel and
preparedness of third parties. The failure of the Company, its customers,
vendors, taxing and governmental authorities to achieve Year 2000 readiness
could adversely affect the Company's operations and/or financial condition.
Year 2000 failures could adversely affect aspects of the business such as
procurement of materials, scheduling of selling events, processing of sales
orders and functioning of the Company's Internet web pages.
Forward Looking Statements
The foregoing discussion and the Company's consolidated financial statements
contain certain forward-looking statements that involve risks and
uncertainties, including but not limited to the following: (a) the adequacy
of operating cash flows together with currently available working capital to
finance the operating needs of the Company, (b) generation of future taxable
income to utilize existing deferred tax assets, (c) successful
implementation of Year 2000 compliance by the Company and its suppliers,
(d) the absence of unanticipated costs and delays in achieving Year 2000
compliance and (e) the Company's ability to effectively address any other
Year 2000 issues
Item 3. Quantitative and qualitative disclosures about market risk.
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 6.
(a) Exhibits:
(4.11) Eighth Amendment to Loan and Security Agreement dated July 31, 1999
between Huntington National Bank and Shopsmith, Inc.
(27) Financial Data Schedule for the period ended July 3, 1999
(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 10,1999
<PAGE>
EX 4.11
EIGHTH AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS EIGHTH AMENDMENT (this "Amendment") to the Loan and Security Agreement
is entered into as of the 31st day of July, 1999, by, between and among
Shopsmith, Inc., Shopsmith Woodworking Promotions, Inc., and Shopsmith
Woodworking Centers Ltd. Co. (hereinafter collectively and/or separately
referred to as the "Company") and The Huntington National Bank (hereinafter
the "Bank").
RECITALS:
A. As of September 1, 1989, the Company (with the exception of Shopsmith
Woodworking Centers Ltd. Co.) and the Bank executed a certain Loan and
Security Agreement, that was subsequently amended by a First Amendment to
Loan and Security Agreement dated July 11, 1990, a Second Amendment to Loan
and Security Agreement dated April 23, 1991, a Third Amendment to Loan and
Security Agreement dated as of June 21, 1993, a Fourth Amendment to Loan and
Security Agreement dated as of October 5, 1993, a Fifth Amendment to Loan
and Security Agreement dated as of July 1, 1995, a Sixth Amendment to Loan
and Security Agreement dated as of July 1, 1996, and a Seventh Amendment to
Loan and Security Agreement dated as of August 28, 1997 (hereinafter
collectively the "Loan Agreement"), setting forth the terms of certain loans
to the Company; and
B. As of August 28, 1997, the Company executed and delivered to the Bank,
inter alia, a revolving note in the original principal sum of Five Hundred
Thousand Dollars ($500,000.00) (hereinafter the "Revolving Note"); and
C. In connection with the Loan Agreement and the Revolving Note, at vari-
ous times, the Company executed and delivered to the Bank certain other loan
documents, promissory notes, consents, assignments, security agreements,
agreements, instruments and financing statements in connection with the
indebtedness referred to in the Loan Agreement (all of the foregoing,
together with the Revolving Note and the Loan Agreement, are hereinafter
collectively referred to as the "Loan Documents"); and
D. The Company and the Bank desire to amend and modify certain terms in
the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements and
promises contained herein, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, the Company and the Bank,
for themselves and their successors and assigns do hereby agree, recite,
represent and warrant as follows:
<PAGE>
1. Section 4.1, "Interest Rates, Fees, Terms and Costs," of the Loan
Agreement is hereby amended to recite in its entirety that:
4.1 Interest Rates, Fees, Terms and Costs. The Company agrees to pay the
Bank monthly interest on the unpaid balance of the Loan at the rates of
interest set forth in the promissory note or notes and/or commercial letter
of credit reimbursement agreements evidencing the Loan. The Company further
agrees to pay upon issuance of each Letter of Credit an issuance fee equal
to one-quarter of one percentage point of the stated amount of such Letter of
Credit; provided, however, that each issuance fee shall be not less than
$50.00, plus fees for service and handling as established from time to time
by the Bank. The Loan shall be evidenced by (i) promissory notes or by one
or more promissory notes subsequently executed in substitution therefor,
each in substantially the form set forth in Exhibit A-1 attached to that
certain Eighth Amendment to Loan and Security Agreement between the Company
and the Bank dated as of July 31, 1999, and (ii) a commercial letter of
credit reimbursement agreement substantially in the form of Exhibit A-3 to
the Third Amendment to Loan and Security Agreement, or by a commercial
letter of credit reimbursement agreement subsequently executed in substitu-
tion therefor. Repayment of the Loan shall be made in accordance with the
terms of the promissory note or notes and/or commercial letter of credit
reimbursement agreements then outstanding pursuant to this Agreement. Each
advance request of the Company shall be accompanied by a borrowing
certificate or such other documents or communications as may be acceptable
to the Bank in its sole and absolute discretion. The Company further agrees
to pay analysis fees, audit fees in the amount of $500.00 per day per
auditor for each audit (which audits shall be conducted at the discretion
of the Bank, but no more frequently than twice a year in the absence of an
Event of Default hereunder), plus out-of-pocket expenses, and all costs and
expenses incidental to or in connection with the Loan or any service
provided by the Bank, the enforcement of the Bank's rights in connection
therewith, any amendment or modification of this Agreement or any other loan
documents, any litigation, contest, dispute, proceeding or action in any way
relating to the Collateral or to this Agreement, whether any of the
foregoing are incurred prior to or after maturity, the occurrence of an
Event of Default, or the rendering of a judgment. Such costs shall include,
but not be limited to, fees and out-of-pocket expenses of the Bank's
counsel, recording fees, inspections fees, revenue stamps and note and
mortgage taxes.
2. Section 7.5, "Other Borrowings and Contingent Liabilities," of the Loan
Agreement is hereby amended to recite in its entirety that:
7.5 Other Borrowings and Contingent Liabilities. Except for the Loan, the
land contract with Miller/Ballantyne for the Company's headquarters located
at 6530 Poe Avenue, Dayton, Ohio 45413, and lease agreements and/or purchase
money financing transactions secured by the item or items being purchased
in an amount not to exceed the purchase price of such item or items that, in
the aggregate, do not exceed the sum of $300,000.00 in any one fiscal year,
the Company will not (a) create or incur extensions of credit or
indebtedness, including without limitation, any indebtedness for borrowed
money or advances, letters of credit, or capitalized lease agreements,
or (b) guarantee, endorse or otherwise become security for or upon the
obligations of others, except by endorsement of negotiable instruments
for deposit or collection in the ordinary course of business.
<PAGE>
3. Section 7.11, "Tangible Net Worth," of the Loan Agreement is hereby
amended to recite in its entirety that:
7.11 Tangible Net Worth. The Company shall maintain at all times a Tangible
Net Worth of not less than $3,000,000.00. For the purposes of this
Agreement, "Tangible Net Worth" means the Company's equity, minus the sum
of all of the following: (i) the excess of cost over the value of net
assets of purchased businesses, rights and other similar intangibles,
(ii) organizational expenses, (iii) intangible assets (to the extent not
reflected in the foregoing), (iv) goodwill, (v) deferred charges or deferred
financing costs, (vi) loans or advances to affiliates, (vii) accounts or
notes receivable from affiliates, and (viii) non-compete agreements.
4. Section 7.12, "Working Capital," of the Loan Agreement is hereby
amended to recite in its entirety that:
7.12 Working Capital. The Company shall maintain at all times a Working
Capital of not less than $750,000.00. For the purposes of this Agreement,
"Working Capital" means the excess of current assets over current
liabilities, and the obligations owing pursuant to the Loan shall be con-
sidered a current liability.
5. Section 7.16, "Operating Lease Rentals," of the Loan Agreement is
hereby amended to recite in its entirety that:
7.16 Operating Lease Rentals. The Company will not without the prior
written approval of the Bank enter into operating leases providing in the
aggregate for annual rentals which exceed $500,000.00.
6. Concurrently with the execution of this Amendment, the Company shall
execute and deliver to the Bank a promissory note in the form of Exhibit A-1
attached to this Amendment to evidence the Revolving Loan. After receipt of
the new promissory note, the Bank will mark the old promissory note being
replaced hereby, "Replaced."
7. Each reference to the Loan Agreement, whether by use of the phrase
"Loan and Security Agreement," "Loan Agreement," "Agreement," the prefix
"herein" or any other term, and whether contained in the Loan Agreement
itself, in this Amendment or any document executed concurrently herewith or
in any loan documents executed hereafter, shall be construed as a reference
to the Loan Agreement as amended by this Amendment.
8. The Company hereby reaffirms each and every warranty and representation
made in the Loan Documents as if the same were made as of the date this
Amendment becomes effective, except to the extent that such warranties and
representations relate to an earlier date.
<PAGE>
9. Except as modified herein, the Loan Agreement, Loan Documents and all
other agreements as to payment, guarantee of payment or security executed in
connection therewith shall remain as written originally and in full force
and effect in all respects, and nothing herein shall affect, modify, limit
or impair any of the rights and powers which the Bank may have thereunder.
Any modification or waiver of any of the agreements, covenants, or terms of
the Loan Agreement or the Loan Documents shall not be construed as the
Bank's agreement or intention to agree to any further modifications or
waivers.
10. The Company agrees to perform and observe all of the covenants, agree-
ments, stipulations, and conditions to be performed under the Loan
Agreement,Loan Documents, and all other related agreements, as amended hereby.
11. The Company represents and warrants that no "Event of Default," as de-
fined in the Loan Agreement, has occurred and is continuing, nor will any
occur immediately after the execution and delivery of this Amendment by the
performance or observance of any provision hereof.
12. The Company hereby represents and warrants to the Bank that as to each
such Company (a) such Company has legal power and authority to execute and
deliver the within Amendment; (b) the officer executing the within Amendment
on behalf of such Company has been duly authorized to execute and deliver
the same and bind such Company with respect to the provisions provided for
herein; (c) the execution and delivery hereof by such Company and the
performance and observance by such Company of the provisions hereof do not
violate or conflict with the articles of incorporation, regulations or
by-laws of such Company or any law applicable to such Company or result in
the breach of any provision of or constitute a default under any agreement,
instrument or document binding upon or enforceable against such Company; and
(d) this Amendment constitutes a valid and legally binding obligation upon
such Company in every respect.
13. THIS AMENDMENT shall become effective only upon its execution by all
parties hereto.
14. The capitalized terms herein shall have the same meanings as the capi-
talized terms in the Loan Agreement as amended hereby.
IN WITNESS WHEREOF, the Company and the Bank have hereunto set their hands at
Columbus, Ohio, as of the date first set forth above.
<PAGE>
COMPANY:
SHOPSMITH, INC.
By:
Its:
SHOPSMITH WOODWORKING PROMOTIONS, INC.
By:
Its:
SHOPSMITH WOODWORKING CENTERS LTD. CO.
By:
Its:
BANK:
THE HUNTINGTON NATIONAL BANK
By:
Its:
COLUMBUS/732426 v.03
<PAGE>
EXHIBIT A-1 TO AGREEMENT
THE HUNTINGTON NATIONAL BANK
Revolving Note
City Office Division Branch [X] Secured
Account No. Note No. [ ] Unsecured
Account Name SHOPSMITH, INC., SHOPSMITH WOODWORKING PROMOTIONS, INC.,
SHOPSMITH WOODWORKING CENTERS LTD. CO.
[X] Corporations [ ] Partnerships [ ] Individuals/Proprietorships
[ ] Other
$500,000.00 Columbus, Ohio
As of July 31, 1999
FOR VALUE RECEIVED, the undersigned jointly and severally promise to pay to
the order of THE HUNTINGTON NATIONAL BANK (hereinafter called the "Bank,"
which term shall include any holder hereof) at the Bank's offices located
at Columbus, Ohio or such other place as the Bank may designate in writing,
the sum of Five Hundred Thousand Dollars ($500,000.00) or so much thereof
as shall have been advanced by the Bank at any time and not hereafter repaid
pursuant to the terms of the "Loan Agreement" (as defined below), which sum
shall hereinafter be referred to as "Principal Sum," together with interest
as hereinafter provided and payable as hereinafter provided. The proceeds
of the loan evidenced hereby may be advanced, repaid and readvanced in
partial amounts during the term of this revolving note (this "Note") and
prior to maturity. Each such advance shall be made to the undersigned upon
receipt by the Bank of the undersigned's application therefor and disbursement
instructions, which shall be in such form as the Bank shall from time to
time prescribe. The Bank shall be entitled to rely on any oral or
telephonic communication requesting an advance and/or providing disbursement
instructions hereunder, which shall be received by it in good faith from
anyone reasonably believed by the Bank to be the undersigned, or the
undersigned's authorized agent. The undersigned agree that all advances
made by the Bank will be evidenced by entries made by the Bank into its
electronic data processing system and/or internal memoranda maintained by
the Bank. The undersigned further agree that the sum or sums shown on
the most recent printout from the Bank's electronic data processing system
and/or on such memoranda shall be rebuttably presumptive evidence of the
amount of the Principal Sum and of the amount of any accrued interest.
<PAGE>
This Note is executed and the advances contemplated hereunder are to be made
pursuant to a Loan and Security Agreement between the undersigned and the
Bank dated as of September 1, 1989, and all amendments and modifications
thereto, including but not limited to a First Amendment to Loan and Security
Agreement dated July 11, 1990, a Second Amendment to Loan and Security
Agreement dated April 23, 1991, a Third Amendment to Loan and Security
Agreement dated June 21, 1993, a Fourth Amendment to Loan and Security
Agreement dated October 5, 1994, a Fifth Amendment to Loan and Security
Agreement dated as of July 1, 1995, a Sixth Amendment to Loan and Security
Agreement dated as of July 1, 1996, a Seventh Amendment to Loan and Security
Agreement dated as of August 28, 1997, and a certain Eighth Amendment to
Loan and Security Agreement dated as of July 31, 1999 (collectively
the "Loan Agreement"), and all the covenants, representations, agreements,
terms, and conditions contained therein, including but not limited to
additional conditions of default, are incorporated herein as if fully
rewritten.
This Note is substitute evidence of the obligations originally evidenced by a
certain Revolving Note dated as of August 28, 1997, in the original
principal sums of $500,000.00.
INTEREST
Interest will accrue on the unpaid balance of the Principal Sum until paid
at a variable rate of interest per annum, which shall change in the manner
set forth below, equal to one half of one percentage point in excess of the
Prime Commercial Rate.
Upon default, whether by acceleration or otherwise, interest will accrue on
the unpaid balance of the Principal Sum and unpaid interest, if any, until
paid at a variable rate of interest per annum, which shall change in the
manner set forth below, equal to four and three-quarter percentage points
(4-3/4%) in excess of the Prime Commercial Rate.
All interest shall be calculated on the basis of a 360 day year for the
actual number of days the Principal Sum or any part thereof remains unpaid.
There shall be no penalty for prepayment, except that any discounted
interest shall only be rebated in the event of prepayment in full, based on
the actual number of days elapsed, but no rebate shall be made for any
amount less than $1.00.
As used herein, "Prime Commercial Rate" shall mean the rate established by
the Bank from time to time based on its consideration of economic,
money market, business and competitive factors. The Prime Commercial Rate
is not necessarily the Bank's most favored rate. Subject to any maximum or
minimum interest rate limitation specified herein or by applicable law, any
variable rate of interest on the obligation evidenced hereby shall change
automatically without notice to the undersigned immediately with each change
in the Prime Commercial Rate.
<PAGE>
MANNER OF PAYMENT
The Principal Sum shall be due and payable on July 31, 2000, and at maturity,
whether by demand, acceleration or otherwise. Accrued interest shall be due
and payable monthly beginning on August 1, 1999, and continuing on the first
day of each month thereafter, and at maturity, whether by acceleration or
otherwise.
LATE CHARGE
Any installment or other payment not made within 10 days of the date such
payment or installment is due shall be subject to a late charge equal to
5% of the amount of the installment or payment, provided, however, that the
Bank provides written notice to the undersigned of such nonpayment.
SECURITY
This Note is secured by the security interests and assignments granted or re-
ferred to in the Loan Agreement.
DEFAULT
Upon the occurrence of any of the following events:
(1) the undersigned fail to make any payment of principal or interest
on or before the date such payment is due; or
(2) an Event of Default (as defined in the Loan Agreement) shall have
occurred;
then the Bank may, at its option, without notice or demand, accelerate
the maturity of the obligations evidenced hereby, which obligations shall
become immediately due and payable and the Bank shall have all other rights
of a secured party or creditor under Ohio law. In the event the Bank shall
institute any action for the enforcement or collection of the obligations
evidenced hereby, the undersigned agree to pay all costs and expenses of
such action, including reasonable attorneys' fees, to the extent permitted
by law.
<PAGE>
GENERAL PROVISIONS
All of the parties hereto, including the undersigned, and any indorser,
surety, or guarantor, hereby jointly and severally waive presentment, notice
of dishonor, protest, notice of protest, and diligence in bringing suit
against any party hereto, waive the defenses of impairment of collateral for
the obligation evidenced hereby, impairment of a person against whom the
Bank has any right of recourse, and any defenses of any accommodation maker
and consent that, without discharging any of them, the time of payment and
any other provision of this promissory note may be extended or modified an
unlimited number of times before or after maturity without notice to the
undersigned. The undersigned jointly and severally agree that they will pay
the obligations evidenced hereby, irrespective of any action or lack of
action on Bank's part in connection with the acquisition, perfection,
possession, enforcement, disposition, or modification of all the obligations
evidenced hereby or any and all security therefor, and no omission or delay
on Bank's part in exercising any right against, or taking any action to
collect from or pursue Bank's remedies against any party hereto will
release, discharge, or modify the duties of the undersigned to make payments
hereunder. The undersigned agree that Bank will not be required to pursue
or exhaust any of its rights or remedies against the undersigned or any
guarantors of the obligations evidenced hereby with respect to the payment
of any said obligations, or to pursue, exhaust or preserve any of Bank's
rights or remedies with respect to any collateral, security or other
guaranties given to secure said obligations.
The obligations evidenced hereby may from time to time be evidenced by an-
other note or notes given in substitution, renewal or extension hereof. Any
security interest or mortgage which secures the obligations evidenced hereby
shall remain in full force and effect notwithstanding any such substitution,
renewal, or extension.
The captions used herein are for references only and shall not be deemed a
part of this Note. If any of the terms or provisions of this Note shall be
deemed unenforceable, the enforceability of the remaining terms and
provisions shall not be affected. This Note shall be governed by and
construed in accordance with the law of the State of Ohio.
WAIVER OF RIGHT TO TRIAL BY JURY
EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH, OR (2) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH
PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT
ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF
THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
<PAGE>
WARRANT OF ATTORNEY
Each of the undersigned authorizes any attorney at law to appear in any
Court of Record in the State of Ohio or in any state or territory of the
United States after the above indebtedness becomes due, whether by
acceleration or otherwise, to waive the issuing and service of process, and
to confess judgment against any one or more of the undersigned in favor of
the Bank for the amount then appearing due together with costs of suit, and
thereupon to waive all errors and all rights of appeal and stays of
execution. No such judgment or judgments against less than all of the
undersigned shall be a bar to a subsequent judgment or judgments against any
one or more of the undersigned against whom judgment has not been obtained
hereon, this being a joint and several warrant of attorney to confess
judgment.
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY
WITH THE AGREEMENT, OR ANY OTHER CAUSE.
SHOPSMITH, INC. SHOPSMITH WOODWORKING
PROMOTIONS, INC.
By: By:
Its: Its:
WARNING--BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH
THE AGREEMENT, OR ANY OTHER CAUSE.
SHOPSMITH WOODWORKING
CENTERS LTD. CO.
By:
Its:
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-01-2000
<PERIOD-END> JUL-03-1999
<CASH> 268,053
<SECURITIES> 497,328
<RECEIVABLES> 933,194
<ALLOWANCES> 450,677
<INVENTORY> 2,760,472
<CURRENT-ASSETS> 4,909,624
<PP&E> 9,688,361
<DEPRECIATION> 6,267,960
<TOTAL-ASSETS> 9,106,336
<CURRENT-LIABILITIES> 2,298,989
<BONDS> 2,798,631
<COMMON> 2,806,482
-
-
<OTHER-SE> 1,202,234
<TOTAL-LIABILITY-AND-EQUITY> 9,106,336
<SALES> 3,727,046
<TOTAL-REVENUES> 3,727,046
<CGS> 1,696,669
<TOTAL-COSTS> 2,568,235
<OTHER-EXPENSES> -
<LOSS-PROVISION> -
<INTEREST-EXPENSE> 66,620
<INCOME-PRETAX> (580,049)
<INCOME-TAX> (196,000)
<INCOME-CONTINUING> (384,049)
<DISCONTINUED> -
<EXTRAORDINARY> -
<CHANGES> -
<NET-INCOME> (384,049)
<EPS-BASIC> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
