SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission file number 0-3498
ended May 31, 1996
TAYLOR DEVICES, INC.
(Exact name of small business issuer as specified in its charter)
New York 16-0797789
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 Taylor Drive, North Tonawanda, New York 14120-0748
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (716) 694-0800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (2-1/2 cents par value)
(Title of class)
Indicate by check mark whether the issuer (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 twelve 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
1O-KSB or any amendment to Form 10-KSB [ X ]
Issuer's revenues for its most recent fiscal year are $8,916,836.
The aggregate market value of the Common Stock held by non-affiliates
(as defined in Rule 405 of the Securities Act of 1933) of the issuer,
computed by reference to the average of the bid and asked price on August 22,
1996, the latest practicable date, was: $7,485,538.
The number of shares outstanding of each of the registrant's classes of
Common Stock, as of the latest practicable date.
Class Outstanding at August 22, 1996
Common Stock, $.025 par value 2,687,424
TAYLOR DEVICES, INC.
DOCUMENTS INCORPORATED BY REFERENCE
Documents Form 10-KSB Reference
Form 10-KSB Part I, Items 1-4
Part II, Items 5-8 and
Part III, Item 13
Proxy Statement Part III, Items 9-12
FORM 10-KSB INDEX
PAGE
PART I. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
ITEM 1. DESCRIPTION OF BUSINESS . . . . . . . . . . . . .3
ITEM 2. DESCRIPTION OF PROPERTY . . . . . . . . . . . . .7
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS . . . . . . . . . . . . . . . . . . . . 11
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . 11
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION. . . . . . . . . . . . . . . . . . 12
ITEM 7. FINANCIAL STATEMENTS. . . . . . . . . . . . . . 14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . 14
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a)
OF THE EXCHANGE ACT . . . . . . . . . . . . . . 14
ITEM 10. EXECUTIVE COMPENSATION. . . . . . . . . . . . . 14
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT. . . . . . . . . . . . . . . . . 14
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. 14
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . 14
PART I
ITEM 1. DESCRIPTION OF BUSINESS
BUSINESS DEVELOPMENT
The Company was incorporated in the State of New York on July 22, 1955
and is engaged in the design, development, manufacture and marketing of
tension control, energy storage and shock absorption devices for use in
various types of machinery, equipment and structures.
The Company maintains its offices at 90 Taylor Drive, North Tonawanda,
New York 14120-0748.
The Company owns 58% of the equity securities of Tayco Realty
Corporation ("Tayco Realty"), a corporation organized in the State of
New York on September 7, 1977, with its affiliate, Tayco Developments, Inc.
("Developments"), owning 42%. Tayco Realty owns and leases to the Company
certain portions of the premises
which it occupies for its offices and manufacturing facilities. Other
portions of the premises have been leased to the
Company by the Niagara County Industrial Development Agency ("NCIDA")
pursuant to certain tax-exempt bond financing arrangements. See Item 2.
Description of Property.
Both the Company and Developments were guarantors of the indebtedness of a
former affiliate, Tayco Technology, Incorporated ("Tech"), which had its
loans called by certain of Tech's lenders in 1991. Because Developments was
unable to pay its 60% portion of the guaranteed indebtedness of Tech, and in
order to stabilize the deteriorating financial situation, the Company assumed
Tech's obligations, including Developments' portion of the indebtedness.
As consideration, the Company required that Developments execute an
irrevocable proxy to the Company to vote the Company's stock owned by
Developments. As of August 1, 1994, the irrevocable proxy and related
documents were renewed for a period of three years, or until Developments is
able to reimburse the Company for payments made on Developments' behalf under
the guarantee, whichever event is the earlier to occur. The Company also
took an assignment of certain of Developments' patents in consideration of
its assumption of these obligations. See Item 1. Description of Business,
"Patents, Trademarks and Licenses". In 1994, Tech was merged into the
Company, and in so doing the Company formally assumed all rights and
obligations of Tech, including its credit
obligations to lenders.
The Company subcontracts a portion of its operations to unrelated third
parties partly to reduce the impact of late delivery on defense contracts,
but does not anticipate subcontracting a substantial portion of its business.
Normally, the Company does not subcontract any of its business to its
affiliates.
In addition to manufacturing and selling existing product lines, the
Company continues to develop new and advanced technology products (i.e.,
products which are produced from existing products by applying proven designs
or manufacturing processes). The development of such products is ordinarily
at the Company's expense.
Principal Products
The Company has six major product lines, namely (1) Fluidicshoks,
(2) Crane and Industrial Buffers, (3) Self Adjusting Shock Absorbers,
(4) Liquid Die Springs (5) Power Plant Snubbers and (6) Seismic Energy
Absorbers. Seismic Energy Absorbers are designed to ameliorate the effects
of earthquake tremors on structures, and are a source resulting in
substantial business for the Company.
A summary of the capabilities and applications for these product lines
is as follows:
Fluidicshoks are small, extremely compact shock absorbers with up to
19,200 inch-pound capacities, which are produced in 15 standard sizes for
primary use in the defense, aerospace and commercial industry. Crane and
Industrial Buffers are larger versions of the Fluidicshoks with up to
60,000,000 inch-pound capacities, produced in more than 60 standard sizes
for industrial application on cranes, container ships, ships, railroad cars,
truck docks, ladle and ingot cars, ore trolleys and car stops. Self-
Adjusting Shock Absorbers, which include versions of Fluidicshoks and Crane
and Industrial Buffers, automatically adjust to different impact conditions,
and are designed for high cycle application primarily in heavy industry.
Liquid Die Springs are used as component parts of machinery and equipment
used in the manufacture of tools and dies.
In the past, substantial sales revenue resulted from sales of
Fluidicshoks, Crane and Industrial Buffers and Liquid Die Springs. Power
Plant Snubbers are used in nuclear and fossil fuel power plants for
arresting motion and shock on large piping systems, and are available in
force ranges of up to 2 million pounds and strokes up to 30 inches.
Presently this market is relatively quiet due to the lack of new power plant
construction in North America. Seismic Energy Absorbers are sophisticated
derivatives of existing Company technology and account for a significant
expansion of the Company's business.
Distribution
The Company utilized the services of more than 50 sales representatives
and distributors in the United States and Canada. Specialized technical
sales in aerospace and custom marketing activities are serviced by three sales
agents, with the assistance and under the direction of Douglas P. Taylor, the
Company's President. Sales representatives have non-exclusive, yearly
agreements with the Company, which, in most instances, provide for payment of
commissions on sales at 10% of the product's net aggregate selling price.
Distributors also have non-exclusive, yearly agreements with the Company.
Cost of products to distributors is the price listed on a published
distributors' discount sheet, and ranges from 10% to 40% under the product's
suggested list price.
Competition
The Company faces no significant competition with respect to its
patented products; however, on mature weapons systems, competitors have
qualified conventional products where government specifications have been
reduced. Two other competitors are foreign companies, both of which produce
crane buffers.
In connection with specification products produced for the aerospace and
commercial aerospace industries, the Company's principal competitors are
Cleveland Pneumatic Tool Company in Cleveland, Ohio, Menasco Manufacturing
Company in Burbank, California, and Pacific Scientific of Anaheim,
California. While the Company is competitive with these companies in the
areas of pricing, warranty and product performance, it cannot compete with
Cleveland Pneumatic and Menasco in the area of volume production due to the
Company's limited financing and facilities.
Raw Materials and Supplies
The principal raw materials and supplies used by the Company in the
manufacture of its products are provided by numerous suppliers, the loss of
any one of which would not be considered to materially affect the Company's
operations.
Patents, Trademarks and Licenses
Under a License Agreement ("License Agreement") dated November 1, 1959,
between the Company and Developments, the Company was granted preferential
rights to market, in the United States and Canada, all existing and future
inventions and patents developed by Developments. Certain of these patents
were assigned to the Company in partial consideration of the Company's
assumption of Developments' portion of the indebtedness of Tech under certain
guarantees to Tech's lenders. See Item 1. Description of Business, "Business
Development".
The term of this License Agreement is the life of the last-to-expire
patent on which the Company is paying royalties, which is the year 2014.
During the life of the patent, the Company pays Developments a 5% royalty on
sales of items sold and shipped. During fiscal 1996, the Company incurred
royalties to Developments of $118,140. Payments are required to be made
quarterly without interest; payments are current.
The License Agreement also provides for Developments to pay the Company
10% of the gross royalties received from third parties who are permitted to
make, use and sell machinery and equipment under patents not subject to the
License Agreement, as well as on apparatus and equipment subject to the
License Agreement but modified by the Company, with rights to such
modification having been assigned to Developments. No royalties were
received in fiscal 1996; royalties, if any, are paid quarterly.
Although the Company and Developments share common management and a
close business relationship, as separate corporations responsible to their
own shareholders, interests may diverge regarding development and licensing
of future inventions and patents. In that case, Developments would be
permitted to license future inventions and patents to parties other than the
Company, rendering the Company's option on future inventions and patents
under its License Agreement only minimally beneficial.
Terms of Sale
The Company does not carry significant inventory for rapid delivery to
customers, and goods are not normally sold with return rights such as are
available for consignment sales. No extended payment terms are offered.
During fiscal 1996, delivery time after receipt of orders averaged 12 to 14
weeks for the Company's standard products.
Dependence Upon Customers\Government Contracts
The Company's business is not dependent upon any single customer or a few
customers. In fiscal 1996, aggregate shipments to two customers equaled 10%
or more. The contract with the San Bernardino County Medical Center (SBCMC)
was for a specific project only and the nature of the project precludes SBCMC
itself from being a continuing customer. With the receipt of four medium to
large seismic orders in early FY97, the Company believes it has replaced the
SBCMC revenues for FY97.
Sales to a major government defense contractor also exceeded 10% of the
Company's net sales. The sales were for two distinct products delivered to
two different locations. Neither product by itself, exceeded 10% of the
Company's net sales. At this time, management believes that these defense
related revenues will continue at a high level to the customer through FY97.
See Item 6. Managements Discussion and Analysis or Plan of Operation.
Contracts between the Company and the federal government or its independent
contractors, are subject to termination at the election of the federal
government. Contracts are generally entered into on a fixed price basis.
From time to time, the Company has also entered into a cost plus defense
contract. If the federal government should further limit defense spending,
these contracts could be reduced or terminated, which could have a materially
adverse effect on the Company.
Research and Development
The Company does not normally engage in any major product research and
development activities in connection with the design of its products, except
when funded by aerospace customers or the government. See Item 1. Business,
"Patents, Trademarks and Licenses". The Company, however, engages in
research testing of its products. For the fiscal years ended May 31, 1996
and May 31, 1995, the Company expended $166,283 and $82,840 respectively, on
manufacturing research through its affiliate, Developments. The Company
spent $292,322 and $304,378 on research and development in fiscal years 1996
and 1995, respectively. For fiscal 1996 and 1995, defense sponsored research
and development totaled $90,681 and $184,969, respectively.
Government Regulation
Compliance with federal, state and local laws and regulations which have
been enacted or adopted regulating the discharge of materials into the
environment has had no material effect on the Company, and the Company
believes that it is in substantial compliance with such provisions.
The Company is subject to the Occupational Safety and Health Act, ("OSHA")
and the rules and regulations promulgated thereunder, which establishes
strict standards for the protection of employees, and imposes fines for
violations of such standards. The Company believes that it is in substantial
compliance with OSHA provisions and does not anticipate any material
corrective expenditures in the near future.
The Company is also subject to regulations relating to production of
products for the federal government. These regulations allow for frequent
governmental audits of the Company's operations and fairly extensive testing
of Company products. The Company believes that it is in substantial
compliance with these regulations and does not anticipate corrective
expenditures in the future. The Company is currently incurring only moderate
costs with respect to disposal of hazardous waste and compliance with OSHA
regulations.
Employees
Exclusive of Company sales representatives and distributors, as of
May 31, 1996, the Company had 78 full time and 8 part time employees, not
including 3 executive officers. The Company has good relations with its
employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's production facilities are comprised of four interconnected
buildings located on approximately six acres on Tonawanda Island, New York.
Production facilities consist of a small parts plant (approximately 4400
square feet), large parts plant (approximately 10,000 square feet), including
a facility of approximately 7,000 square feet constructed in 1995 (see
below), a testing facility, storage area, pumping area and the Company's
general offices. Total square footage of these facilities is more than
25,000 square feet. A separate remote testing facility of 800 square feet is
used for heavy shock testing. A new testing facility of 1,225 square feet
has been completed.
In November 1994, as part of certain tax-exempt bond financing
arrangements, the Company and the NCIDA entered into a 15 year Series Lease
by the Company of approximately 7,000 square feet of manufacturing space
adjacent to the Company's existing large machine shop. The expansion
accommodated the Company's increased need for additional manufacturing space
for its seismic damper devices.
Rental payments, equivalent to payments of principal and interest due,
are made quarterly by the Company over the term of the Lease, and are
sufficient to amortize the $1,250,000 tax-exempt industrial development revenue
Series A Bonds (the "Bond") issued by the NCIDA. The payments reimburse
Marine Midland Bank ("Marine"), as issuer of the five (5) year direct-pay
irrevocable letter of credit, which is drawn upon by Bankers Trust Company,
as Trustee, for the benefit of the bondholders. The Bond bears interest at the
Marine Midland Adjustable Rate Service ("MMARS") rate, plus an incremental
amount designated by Marine Midland Securities, Inc. (the "Remarketing
Agent"). The MMARS rate reflects the current bid-side yield of the highest
rate short-term, federally tax exempt obligations currently being traded,
announced weekly by the Remarketing Agent, not to exceed 15% per annum, and
is the minimum rate of interest necessary to enable the Remarketing Agent to
remarket the Bond at par. Annual principal payments by the Company in June
of each year range from $25,000 to $150,000, including a final principal
payment of $45,000 upon maturity on June 1, 2009. The Bond may be redeemed in
whole, or in part, on any quarterly interest payment date, without penalty or
premium. The principal amount outstanding on the Bond as of May 31, 1996 is
$1,180,000. All payments are current.
Rental payments are secured by the liens of the Master Indenture between
the NCIDA and the Trustee, the Series Supplemental Indenture between the
NCIDA and the Trustee, and the Series Mortgage from the NCIDA, the Company,
and Tayco Realty, to Marine, as well as by other collateral security
arrangements. When the Bond matures on June 1, 2009, the Company must
purchase the Facility from the NCIDA for $1.00.
A mortgage note is also held by Marine Midland Bank, N.A., Buffalo,
New York, on property located at 90 Taylor Drive, N. Tonawanda, New York
14120, with an interest rate equal to the bank's prime interest rate plus 1%.
A monthly payment of $1,444.44 plus interest is due on the first of each month,
and a balloon payment of $176,222.48 is due at the maturity date of June 1,
1998. The principal balance at May 31, 1996 is $209,445. All payments are
current.
The small parts plant consists of a complete small machine shop and tool
room and produces all of the Company's product items which are less than two
inches in diameter. The large parts plant consists of a complete large
machine shop and tool room. Both plants contain custom built machinery for
boring, deep hole drilling and turning of parts.
Except for the premises leased from the NCIDA, Company leases portions of
both the building and the property on which it is located from Tayco Realty,
an affiliate. See Item 1. Description of Business.
Pursuant to the Lease Agreement between the Company and Tayco Realty,
rental payments from June 1, 1995 to May 31, 1996 totaled $125,600, with
standard terms and conditions, renewed on November 1, 1995 for a term of ten
years. The annual rental amount is renegotiated by management of the two
companies. The total rent paid by the Company is determined by a base rate
and is subject to adjustment for increases in taxes, maintenance costs and
for utilization of additional space by the Company. The Company also pays for
certain expenses incurred for the operation of the facilities. In addition,
the Company leases a separate warehouse for storage from an unrelated third-
party, consisting of approximately 3,600 square feet at $600 per month. The
warehouse is located approximately one-half mile from the above-referenced
production facilities and office space. The actual rental expense incurred
by the Company for fiscal 1996 was $7,200.
The following tables provide information regarding the properties discussed
in this Item 2. Description of Property.
TAYLOR DEVICES, INC.
Reg. 228.102(c)-Real Estate
ACCUM. NET
DEPREC. BOOK
5/31/96 VALUE
PROPERTY LOCATION COST (BOOK) 5/31/96
90 & 100 Taylor Drive
(see below)
N. Tonawanda, NY 14120
Land $ 141,483 N/A $ 141,483
Buildings $ 743,640 $444,239 $ 299,401
Building
Improvements $1,408,517 $183,034 $1,225,483
$2,293,640 $627,273 $1,666,367
ACCUM. NET
DEPREC. BOOK PERCENTAGE
5/31/96 VALUE OF TOTAL
PROPERTY LOCATION COST (BOOK) 5/31/96 ASSETS
90 Taylor Dr.
N. Tonawanda, NY 14120
Land $ 107,363 N/A $ 107,363
Building $ 428,506 $338,160 $ 90,346
Building Improve-Realty $ 33,863 $ 1,487 $ 22,376
Building Improve-Devices $1,374,654 $171,547 $1,203,107
TOTAL $1,944,386 $521,194 $1,423,192 18.3%
100 Taylor Dr.
N. Tonawanda, NY 14120
Land $ 34,120 N/A $ 34,120
Building $315,134 $106,079 $ 209,055
TOTAL $349,254 $106,079 $ 243,175 3.1%
Taylor Devices, Inc. & Subsidiary
Total Assets as of May 31, 1996 $7,775,577
Reg. 228.102(c)(7)(vi)(A-D)
FEDERAL FEDERAL FEDERAL FEDERAL NET TAX
DEPREC. LIFE TAX ACCUM. BASIS
PROPERTY LOCATION METHODS CLAIM COST DEPREC. 5/31/96
90 & 100 Taylor Dr.
(see below)
N. Tonawanda, NY 14120
STR. LINE,
ACRS & 15-40
Building MACRS Years $ 743,640 $478,100 $ 265,540
STR. LINE,
Building ACRS & 7-40
Improvements MACRS Years $1,408,517 $115,603 $1,292,914
$2,152,157 $593,703 $1,558,454
Supporting Schedule
Reg. 228.102(c)(7)(vi)(A-D)
FEDERAL FEDERAL FEDERAL FEDERAL NET TAX
DEPREC. LIFE TAX ACCUM. BASIS
PROPERTY LOCATION METHODS CLAIMED COST DEPREC. 5/31/96
90 Taylor Dr.
N. Tonawanda, NY 14120
STR. LINE, 15-25
Building ACRS,MACRS Yrs. $ 428,506 $338,160 $ 90,346
Building STR. LINE, 7-31.5
Improve-Realty ACRS,MACRS Yrs $ 33,863 $ 11,487 $ 22,376
Building STR. LINE, 15-40
Improve-Devices ACRS,MACRS Yrs. $1,374,654 $104,116 $1,270,538
Total $1,837,023 $453,763 $1,383,260
100 Taylor Drive
N. Tonawanda, NY 14120
Building STR. LINE, 19-40
ACRS,MACRS Yrs. $ 315,134 $139,940 $ 175,194
Reg. 228.102(c)(2)
Reg. 228.102(c)(3)
The Company leases approximately 800 square feet of office and research and
development space to Developments, Inc., pursuant to a one year lease
agreement between the Company and Developments, Inc. Rental payments
for fiscal 1996 totaled $11,852. The lease is automatically renewed each year,
unless canceled by notice to the other party sixty (60) days prior to year's
end. The lease agreement has been renewed for fiscal 1997 at a base rental
of $10,000. The total rent paid by Developments is determined in accordance
with the base rental, and is subject to adjustment for increases in taxes,
maintenance costs and for utilization of additional space by Developments.
The real property utilized by Developments is in good condition and adequate for
its present operations. Management believes that transportation to and from
production facilities is adequate, and that all of the Company's properties
are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The Company's Common Stock is traded over the counter and is listed with
the National Association of Securities Dealers Automated Quotation System
("NASDAQ").
The market prices noted below for fiscal years 1995 and 1996 obtained from
NASDAQ, reflect estimated prices between dealers, without retail mark-up,
mark-down or commission. Prices do not necessarily represent actual
transactions, because trades in the Company's shares are sporadic.
Fiscal 1995 Fiscal 1996
High Bid Low Bid High Bid Low Bid
First Quarter 3 5/8 2 3/8 4 3 3/8
Second Quarter 4 2 3/8 5 4 5/16
Third Quarter 4 3/4 3 4 3/6 3 5/8
Fourth Quarter 4 3/4 3 3/8 4 3 1/2
Holders
As of August 22, 1996, the approximate number of holders of record of
Common Stock of the Company was 2,394. Due to a substantial number of shares
of the Company's Common Stock held in street name, the Company believes that
the total number of beneficial owners of its Common Stock exceeds 3,000.
Dividends
No cash or stock dividends have been declared during the last two fiscal
years. Under the terms of the Company's credit arrangement with its major
lender, the Company is prohibited from issuing cash dividends.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Company experienced its third consecutive year of record Revenues and
second consecutive year of record Net Income in Fiscal Year 1996 (FY96).
Revenues of $8,916,836 were 10.5% higher than the previous year's figure.
Net income of $612,321 increased by 10.1% over FY95, increasing Earnings per
Share from $.20 to $.22. FY96 is the final year of a three year period in which
the Company has enjoyed the advantages of substantial tax refunds from
previous periods and the use of Net Operating Loss carryforward credits. The
Company's management has used this period to upgrade the Company's facilities
and equipment and strengthen the Company's competitive position in all of its
markets.
FY96 shipments of $8,916,836 contained $245,299 of "pass through" billings
related to a joint development defense/aerospace project. FY95's shipments
included "pass through" billings of $590,884 on this same project. Removing
this "pass through" figure from both years' shipments results in shipments of
$8,671,537 for FY96 and $7,478,270 for FY95. These figures more accurately
depict the shipments of the Company's own goods and services and indicate a
16% increase in shipments in FY96. Increased defense product shipments of
$1,560,000 more than offset a decrease in seismic product shipments of
$1,323,000, as the Company completed its deliveries against the $4,100,000
San Bernardino County Medical Center Replacement Project (SBCMC). Increases in
crane buffer shipments ($700,000), non-seismic dampers ($135,000) and non-
hydraulic shocks ($123,000) also significantly contributed to the improved
shipment level.
FY96's reported gross margin was $3,222,372, or 36.1% of net sales, as
compared to FY95's reported figures of $2,459,913 and 30.5%. For a more
meaningful comparison, these figures must be adjusted for the "pass through"
sales referenced earlier, which produced no gross margin dollars in FY96 and
negligible gross margin dollars FY95. In addition, FY95's figure must be
adjusted for the $375,000 write-down of obsolete inventory. On an adjusted
basis, FY96's gross margin % was 37.2% and FY95's was 33.9%. Management
believes this improvement in gross percentage accurately reflects the net impact
of a number of factors. The positive factors were improved productivity from
the new facilities and equipment and favorable adjustments upon the close-out of
two extended delivery orders. Primary among those factors negatively impacting
the gross margin % was an increase in the manufacturing overhead rate driven
by the depreciation expense from the new facility and equipment and increased
absorption of the affiliate's development expenses.
Selling, General and Administrative (SGA) expenses increased to $2,361,943
(26.5%) from $2,072,919 (25.7%) in FY95. On an adjusted basis (removing "pass-
through" sales), the percentages are 27.2% and 27.7% respectively, which
shows an improvement in FY96. As predicted, commission expenses were lower
in FY96 as seismic sales constituted a lower portion of net sales. Travel and
advertising expenses increased in FY96 as the Company continued its
aggressive marketing efforts. The depreciation expense related to SGA's share
of the facility upgrade rose over FY95's levels, too. FY96 also experienced a
substantial increase in consulting fees related to the implementation of its
new EDP system. This expense is expected to continue at an elevated level until
the second quarter of FY97 when the implementation should be complete.
In FY96, Other Income/Expense went from Income of $8,079 in FY95 to Expense
of $96,550. This increase in expense is largely attributable to the interest
income on tax refunds in the amount of $110,000, which the Company received
in FY95, but not in FY96. True interest expense increased from $140,00 in FY95
to $151,000 in FY96. This increase represented the net of a decrease in
interest expense on the decreasing balances in the Company's term loan and
mortgage and the impact of the first full year of interest expense on the NCIDA
Bond.
Taxes for FY96 were computed to be $169,257, 22.1% of taxable income.
This low rate reflects the use of the last of the NOL credits and some existing
R&D credits. In FY95, with full use of the NOL and the "write down" of
obsolete inventory, the taxes were computed to be a credit of $144,514. For
FY97 and beyond, barring any unforeseen circumstances, it appears the Company
will return to tax rates in the 35% range.
Equity in the Earnings of Affiliates increased from $18,861 in FY95 to
$26,808 in FY96 as Developments' results showed the impact of lower rental
charges. Additionally, Developments' Royalties increased due largely to some
newly granted patents on aerospace products. The increase in the Minority
Stockholder's Interest, from $2,334 in FY95 to $9,109 in FY96 represents
Developments' share of the earnings of Tayco Realty. In FY96, the Company
and Tayco Realty adjusted the monthly rent payment to a correct fair market
rate.
Net income for FY96 was $612,231 compared to $556,114 for FY95. Reported
Earnings per Share for FY96 were $.22, up from $.20 in FY95. The increase of
approximately 10% in each of these figures is consistent with the increase in
net sales.
The Company's cash balance at 5/31/96 was almost identical to that of a
year ago. About half of the $913,284 cash balance was attributable to
customer deposits/prepayments on large seismic orders. An increase in
inventory of $295,208 was due to early quantity purchases made by the Company
for fulfillment of two large defense/aerospace orders with extended delivery
terms. Net Property and Equipment increased by $446,058 as the new testing
facility came onto the books. With respect to the Liability side of the balance
sheet, the increase in Accrued Expenses is due primarily to permanent
accruals established to bring the Company into compliance with accounting
regulations.
The Company remains in a strong position at the beginning of FY97.
Management has used the three years of low taxes resulting from the NOL and
the one-time tax refunds to upgrade the Company's manufacturing capabilities
and strengthen its marketing function. The Company is now in a position to meet
the relatively short delivery times that are regularly required by prospective
customers, which was not feasible two years ago. New marketing channels were
opened in FY96 as representatives from west coast engineering/consulting firms
visited the Company's facility for training and observation of the Company's
capabilities. In FY96, in addition to completing the SBCMC order, the
Company successfully completed three other seismic products orders of moderate
size. Shortly into FY97, four seismic products orders of significant value
($3,100,000 combined) were added to the Company's backlog. Management
believes that additional substantive orders are forthcoming, but based on past
experience, cannot predict exact dates and amounts. Similarly, management
believes that significant defense/aerospace orders may be received in FY97.
The Company's R&D effort continues steadily in two primary directions. In
FY96 the Company fabricated and delivered five sample dampers to HITEC, the
government/industry group developing specifications for highway bridges. The
Company is currently awaiting results from laboratory tests being conducted by
HITEC. The second focus is the E-R "intelligent" damper being developed in
conjunction with the University of Notre Dame. Phase I of this project has
been completed and has been funded by the National Science Foundation. The
Company may elect to submit a proposal for Phase II which will entail the
fabrication of some functional units.
In summary, in FY96 the Company produced record sales and income figures
and enhanced its reputation and credibility in the civil engineering world.
By meeting the rigid technical specifications and the customer's delivery
requirements on the SBCMC project, the Company has established itself as a
reliable vendor on projects of any size. Management believes the Company has
started to benefit from this enhanced presence in the form of bid
solicitations from previously unknown (to the Company) projects. As discussed
previously, the Company recognizes that a solicitation to bid may or may not
result in an order, and an order may have a delivery date three or more years
away. Nonetheless, the increased inquiry activity and good exposure at
recent international conferences are indicators that the Company and its
products are being positively received in a potentially large market. With
respect to FY97, based on the current backlog and a reasonable projection of
receiving at least some of the orders currently being bid on, Management
believes revenues should be at least equivalent to the level experienced in
FY95 and FY96. The depletion of the NOL carryforward and use of all previously
accrued tax credits will subject the Company's income to normal tax rates for
the first time in three years. Notwithstanding the foregoing, Management
believes FY97 will be another year with positive results.
Inflation
Although no exact measurement of inflation can be determined, costs to the
Company have risen, and accordingly, the price of products sold by the Company
have risen with approximately equal timing. Adjustments are made possible
due to continuous review of selling prices and costs for government contract
production, at which time commercial lines are also adjusted.
ITEM 7. FINANCIAL STATEMENTS
For information concerning this Item, see the Company's balance sheet and
related financial statements at Item 13.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There have been no disagreements between the Company and its accountants as
to matters which require disclosure.
PART III
The information required by Items 9, 10, 11 and 12 of this part are
presented in the Company's Proxy Statement issued in connection with the
Annual Meeting of Shareholders to be held on November 8, 1996 which
information is hereby incorporated by reference into such report to be filed
within 120 days after the Company's fiscal year end.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
DOCUMENTS FILED AS PART OF THIS REPORT:
1. Financial Statements:
Consolidated Balance Sheets May 31, 1996 and 1995
Consolidated Statement of Stockholders' Equity for the years
ended May 31, 1996 and 1995
Consolidated Statements of Income for the years ended May 31, 1996
and 1995
Consolidated Statements of Cash Flows for the years ended
May 31, 1996 and 1995
Notes to Financial Statements May 31, 1996
EXHIBITS:
(3) Articles of incorporation and by-laws
(i) Restated Certificate of Incorporation filed by the New York
Department of State on December 7, 1982, incorporated by reference
to exhibit (3) (I) of Annual Report on Form 10-K, dated August 24,
1983.
(ii) Amendment to Certificate of Incorporation filed by the New
York Department of State on November 17, 1992, and incorporated by
reference to exhibit (3) (iv) to Form 8 [Amendment to Application
or Report], dated September 24, 1993.
(iii) By-laws of the registrant, as amended, incorporated by
reference to exhibit (3) (ii) of Annual Report on Form 10-K, dated
August 24, 1983.
(iv) Amendment to By-laws of the registrant incorporated by
reference to Current Report on Form 8-K, dated October 21, 1988.
(v) Certificate of Merger of Tayco Technology, Incorporated
into the registrant, filed by the New York Department of State on
June 29, 1994, effective as of July 1, 1994, incorporated by
reference to exhibit (3) (v) of Annual Report on Form 10-KSB, dated
August 26, 1994.
(4) Instruments defining rights of security holders, including indentures
(i) Pledge and Irrevocable Proxy Agreement, dated as of August 1,
1991, together with attached schedules, incorporated by reference
to Amendment No. 2 to the Schedule 13D, filed by Tayco
Developments, Inc. regarding registrant's shares as filed on
November 6, 1991 and Amendment No. 3 to the Company's Schedule 13D,
as filed on November 14, 1991.
(ii) Amendment No. 1 to the Pledge and Irrevocable Proxy
Agreement, dated as of August 1, 1994, together with attached
schedules, and other arrangements with other shareholders
incorporated by reference to Amendment No. 5 to the Schedule 13D,
filed by Tayco Developments, Inc. regarding registrant's shares as
of August 29, 1994.
(iii) Mortgage in the amount of $260,000 issued by Marine Midland
Bank dated May 28, 1993, incorporated by reference to Exhibit (10)
(vii) Annual Report on Form 10-KSB, dated September 10, 1993.
(iv) Master Indenture between Niagara County Industrial Development
Agency and Bankers Trust Company, as Trustee, dated as of
November 1, 1994 ($1,250,000 Niagara County Industrial Development
Agency, 1994 Adjustable Rate Demand, Industrial Development Revenue
Bonds, Series A [MMARS Second Program]). Incorporated by reference to
Exhibit (4) (iv) to the Annual Report on Form 10-KSB, dated
August 25, 1995.
(v) Series Supplemental Indenture between Niagara County
Industrial Development Agency and Bankers Trust Company, as
Trustee, ($1,250,000 Niagara County Industrial Development Agency,
1994 Adjustable Rate Demand, Industrial Development Revenue Bonds,
Series A [MMARS Second Program]). Incorporated by reference to
Exhibit (4) (v) to the Annual Report on Form 10-KSB, dated
August 25, 1995.
(vi) Series Mortgage from Niagara County Industrial Development
Agency, Tayco Realty, Inc. and registrant to Marine Midland Bank,
as Letter of Credit Bank, dated as of November 1, 1994.
Incorporated by reference to Exhibit (4) (vi) to the Annual Report on
Form 10-KSB, dated August 25, 1995.
(10) Material contracts
(i) Incentive Stock Option Plan, approved December 3, 1982,
incorporated by reference to exhibit (10) (ii) of Annual Report on
Form 10-K, dated August 24, 1983.
(ii) Non-Statutory Stock Option Plan, approved December 3, 1982,
incorporated by reference to exhibit (10) (iii) of Annual Report on
Form 10-K, dated August 24, 1983.
(iii) 1994 Taylor Devices, Inc. Stock Option Plan, approved
October 28, 1994, incorporated by reference to Exhibit 4.1 of Form
S-8 Registration Statement No. 33-88152, as filed on December 30,
1994.
(iv) License Agreement between the registrant and Tayco
Developments, Inc., dated November 1, 1959 incorporated by
reference to exhibit (10) (i) of Annual Report on Form 10-K, dated
August 27, 1982.
(v) Employee Stock Purchase Plan, approved October 29, 1984
incorporated by reference to Exhibit 4.1 of Registration Statement
No. 2-94754.
(vi) Employee Stock Purchase Plan, approved October 28, 1994
incorporated by reference to Exhibit 4.1 to Form S-8 Registration
Statement, No. 33-88154, filed December 30, 1994.
(vii) Loan Agreements between the registrant and Marine Midland
Bank dated December 2, 1992 establishing a $940,000 term loan,
incorporated by reference to exhibit (10) (viii) to the Annual
Report on Form 10-KSB, dated September 10, 1993.
(viii) Series Lease between Niagara County Industrial Development
Agency and registrant, dated as of November 1, 1994 ($1,250,000
Niagara County Industrial Development Agency, 1994 Adjustable Rate
Demand, Industrial Development Revenue Bonds, Series A [MMars Second
Program]). Incorporated by reference to Exhibit (10) (ix) to the
Annual Report on Form 10-KSB, dated August 21, 1995.
(ix) Lease Agreement between registrant and Tayco Realty
Corporation dated November 1, 1995 for a 10 year term attached to
and incorporated into this Annual Report on Form 10-KSB.
(11) Statement re: Computation of per share earnings
This computation appears in the notes to statements.
(21) Subsidiaries of the registrant
Tayco Realty Corporation is a New York corporation organized on
September 8, 1977.
(23) Report and Consent of Independent Certified Public Accountants
REPORTS ON FORM 8-K:
None
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DATE: August 22, 1996
TAYLOR DEVICES, INC.
(Registrant)
By: /S/Douglas P. Taylor
Douglas P. Taylor,
President and Director
(Principal Executive Officer)
and
By: /S/Kenneth G. Bernstein
Kenneth G. Bernstein,
Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By: /S/Joseph P. Gastel By: /S/Richard G. Hill
Joseph P. Gastel Richard G. Hill
Director, August 22, 1996 Director, August 22, 1996
By: /S/Donald B. Hofmar By: /S/O. Eugene Hilger
Donald B. Hofmar O. Eugene Hilger
Director, August 22, 1996 Director, August 22, 1996
CONSENT OF INDEPENDENT AUDITORS
Board of Directors of Taylor Devices, Inc.
We consent to the incorporation by reference in this Annual Report on Form
10-KSB (Commission File Number 0-3498) of Taylor Devices, Inc. of our report
dated July 17, 1996, included in the May 31, 1996 Annual Report to
Stockholders of Taylor Devices, Inc.
/S/ J.D. Elliott & Company, P.C.
J.D. Elliott & Company, P.C.
August 26, 1996
FINANCIAL STATEMENTS
TAYLOR DEVICES, INC.
May 31, 1996
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders of Taylor Devices, Inc.
We have audited the accompanying consolidated balance sheets of Taylor
Devices, Inc. and subsidiary as of May 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Taylor Devices, Inc. and
subsidiary as of May 31, 1996 and 1995, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
/S/ J.D. ELLIOTT & CO., PC.
J. D. ELLIOTT & CO., P.C.
July 17, 1996
TAYLOR DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
May 31, 1996 and 1995
ASSETS 1996 1995
Current
Cash $ 913,284 $ 915,294
Restricted funds held by trustee (Note 7) 106,639 627,591
Receivables (Note 2) 1,210,435 793,046
Inventories (Note 3) 2,408,763 2,113,555
Prepaid expenses 130,843 147,515
Deferred tax assets (Note 9) 63,312 152,377
Total current assets 4,833,276 4,749,378
Property and Equipment, Net (Note 4) 2,403,480 1,957,422
Investment in Affiliate, at Equity
(Note 5) 168,451 141,643
Other
Cash value - life insurance, net 151,186 135,894
Goodwill, net 79,096 85,141
Deferred financing costs, net 120,888 136,060
Deferred tax assets (Note 9) 15,401 29,941
Other, net 3,799 4,098
370,370 391,134
$7,775,577 $7,239,577
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Current portion of long-term debt
(Note 7) $ 366,003 $ 277,396
Payables- trade 961,010 758,162
- affiliate 67,740 56,334
- construction in progress - 303,898
Accrued income taxes 62,582 63,816
Accrued expenses 340,337 142,563
Advance payments, customers 455,991 570,469
Total current liabilities 2,253,663 2,172,638
Long-Term Debt (Note 7) 1,750,583 2,012,092
Total liabilities 4,004,246 4,184,730
Minority Stockholder's Interest 224,505 215,396
Stockholders' Equity
Common stock, par value $.025 a share,
authorized 8,000,000 shares issued
2,676,968 shares and 2,653,748
shares, respectively (Notes 13 and 14) 66,924 66,344
Paid-in capital 2,258,725 2,161,732
Retained earnings 1,269,521 657,200
3,595,170 2,885,276
Less: Cost of treasury stock - 22,607
shares and 21,990 shares,
respectively (Note 14) 48,344 45,825
3,546,826 2,839,451
$7,775,577 $7,239,577
TAYLOR DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended May 31, 1996 and 1995
Common Paid-In Retained Treasury
Stock Capital Earnings Stock
Balance, June 1, 1994 $ 65,631 $1,915,817 $ 101,086 $ (45,825)
Net income for the year
ended May 31, 1995 - - 556,114 -
Conversion of long-term
payables - affiliate
to additional paid-in
capital (Note 11) - 148,000 - -
Common stock issued for
employee stock
purchase plan
(Note 13) 333 41,784 - -
Stock options exercised
(Note 14) 380 56,131 - -
Balance, May 31, 1995 66,344 2,161,732 657,200 (45,825)
Net income for the year
ended May 31, 1996 - - 612,321 -
Common stock issued for
employee stock
purchase plan
(Note 13) 361 62,207 - -
Stock options exercised
(Note 14) 219 34,786 - -
Treasury stock acquired
(Note 14) - - - (2,519)
Balance, May 31, 1996 $66,924 $ 2,258,725 $ 1,269,521 $ (48,344)
The accompanying notes are an integral part of these financial statements.
TAYLOR DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the years ended May 31, 1996 and 1995
1996 1995
Sales, Net (Note 8) $8,916,836 $8,069,154
Cost of Sales 5,694,464 5,609,241
Gross profit 3,222,372 2,459,913
Selling, General and Administrative Expenses 2,361,943 2,072,919
Operating income 860,429 386,994
Other Income/(Expense)
Gain on disposition of equipment - 400
Rental income - affiliate (Note 11) 11,852 32,004
Interest, net (114,750) (30,500)
Miscellaneous 6,348 6,175
(96,550) 8,079
Income before (provision)/benefit for
income taxes, equity in net income of
affiliate and minority interest 763,879 395,073
(Provision)/Benefit for Income Taxes
(Note 9) (169,257) 144,514
Income before equity in net income of
affiliate and minority interest 594,622 539,587
Equity in Net Income of Affiliate (Note 5) 26,808 18,861
Income before minority interest 621,430 558,448
Minority Stockholder's Interest (9,109) (2,334)
Net income $ 612,321 $ 556,114
Net Income Per Common Share (Note 10) $ .22 $ .20
The accompanying notes are an integral part of these financial statements.
TAYLOR DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended May 31, 1996 and 1995
1996 1995
Cash Flows From Operating Activities
Net income $ 612,321 $ 556,114
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 225,335 141,708
Equity in net income of affiliate (26,808) (18,861)
Gain on disposition of equipment - (400)
Increase in cash value - life insurance (15,292) (14,813)
Deferred income taxes/(benefit) 103,605 (169,656)
Minority stockholder's interest 9,109 2,334
Common stock issued, charged to compensation
expense, net 32,486 56,511
Consulting fee expense - 10,000
Interest income - funds held by trustee (7,467) (12,288)
Changes in:
Receivables (417,389) 441,093
Inventories (295,208) (509,261)
Prepaid and refundable income taxes - 106,990
Prepaid expenses 16,672 4,617
Payables - trade 202,848 (64,955)
Payables - affiliates 11,406 24,231
Advance payments, customers (114,478) 570,469
Accrued income taxes (1,234) 63,816
Accrued expenses 197,774 (33,937)
Net cash provided by operating
activities 533,680 1,153,712
Cash Flows From Investing Activities
Acquisition of property and equipment (233,777) (463,041)
Proceeds from sale of equipment - 400
Cash received from trustee 35,000 -
Cash remitted to trustee (Note 7) (105,000) (35,000)
Acquisition of additional one percent (1%) equity
interest in merged subsidiary - (304)
Net cash used for investing
activities (303,777) (497,945)
Cash Flows From Financing Activities
Financing costs paid (12,579) (60,354)
Borrowings - bank demand notes 150,000 314,000
Repayments - bank demand notes (150,000) (314,000)
- long-term debt (281,902) (200,365)
Proceeds from issuance of common stock - employee
stock purchase plan (Note 13) 62,568 42,117
Net cash used for financing activities (231,913) (218,602)
Net (decrease)/increase in cash (2,010) 437,165
Cash Balance at Beginning of Year 915,294 478,129
Cash Balance at End of Year $ 913,284 $ 915,294
TAYLOR DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D)
For the years ended May 31, 1996 and 1995
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
1996 1995
Cash paid/(received) during the year for:
Interest $ 147,094 $ 126,875
Income taxes $ 66,886 $ (145,664)
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
1996 1995
Property and equipment acquired
Cost $ 637,298 $1,352,263
Borrowings - long-term debt (109,000) (585,324)
Withdrawal of funds held by trustee (598,419) -
Payables - construction in progress 303,898 (303,898)
Cash payments for property and equipment $ 233,777 $ 463,041
Financing costs paid $ 12,579 $ 134,727
Borrowings - long-term debt - (74,373)
Cash payments for financing costs $ 12,579 $ 60,354
Borrowings - long-term debt $ - $ 1,250,000
Property and equipment acquired - (585,324)
Financing costs paid - (74,373)
Consulting fees paid - (10,000)
Restricted funds held by trustee - (580,303)
Cash borrowings - long-term debt $ - $ -
Common stock issued - stock option plans $ 35,005 $ 56,511
Treasury stock acquired (617 common shares)
in payment for 1,908 options exercised
(2,519) -
Common stock issued, charged to compensation
expense, net (32,486) (56,511)
Net cash proceeds from exercise of stock
options (Note 14) $ - $ -
The accompanying notes are an integral part of these financial statements.
TAYLOR DEVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 1996
NOTE 1 - CORPORATE ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Corporate Activity - The principal business activity of Taylor Devices, Inc.
("the Company") is the manufacture and sale of tension control, energy storage
and shock absorption devices for use in various types of machinery, equipment
and structures primarily to customers which are located throughout the United
States and several foreign countries.
Principles of Consolidation - The accompanying financial statements include
the accounts of the Company and its 58% owned subsidiary, Tayco Realty
Corporation ("Realty"). Minority interest represents Tayco Developments,
Inc.'s ("Developments") 42% ownership interest in Realty. All intercompany
transactions and balances have been eliminated in consolidation.
The Company's investment in its minority-owned affiliate, Developments, is
reported on the equity method (see Note 5).
Revenue Recognition - Sales are primarily recognized when units are delivered
or a service is performed. Sales under fixed-price contracts are recorded
primarily as deliveries are made at the contract sales price of the units
delivered. Sales under certain fixed-price contracts requiring substantial
performance over several periods prior to commencement of deliveries are
accounted for under the percentage-of-completion method of accounting in which
the estimated sales value is determined on the basis of physical completion
to date and related costs are expensed as incurred (see Note 2). Payments
received in advance from customers on fixed-price contracts in progress for
which revenues and related costs have not yet been recognized are recorded as a
liability.
Inventories - Inventories, other than inventoried costs related to fixed-price
contracts, are stated at the lower of cost (first-in, first-out) or market.
Inventoried costs relating to fixed-price commercial and government contracts
are stated at the actual production cost, including factory overhead incurred to
date, reduced by amounts identified with revenue recognized on units delivered
or progress completed.
Income Taxes - Deferred income taxes are provided to reflect the tax
consequences on future years of temporary differences between the tax bases of
assets and liabilities and their financial reporting amounts at each year-end
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse (see Note 9).
Depreciation - The cost of property and equipment is depreciated over the
estimated useful lives of the related assets using the straight-line and
accelerated methods.
Financing Costs - Costs associated with obtaining new financing are
capitalized and are being amortized over the repayment terms of the related debt
obligations.
Goodwill, Net - Goodwill represents the excess of the cost of obtaining
ownership interests in a merged subsidiary over its net worth at various dates
of acquisition and is amortized on a straight-line basis over 15 years.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the year.
Actual results could differ from those estimates.
NOTE 1 - (CONT'D)
Reclassification - Certain 1995 financial statement items have been
reclassified to conform to the current year's format.
NOTE 2 - RECEIVABLES
The Company's trade receivables primarily represent receivables for units
shipped and billed to customers. Generally, the Company does not require
collateral or other security to support customer receivables. At May 31, 1995,
trade receivables include progress billings under a commercial contract in the
amount of $208,513 for which physical performance was completed on certain units
by the Company with approval and acceptance by the customer prior to delivery of
these units during fiscal year 1995-96.
Receivables are recorded net of an allowance for doubtful accounts of $27,900
and $15,300 as of May 31, 1996 and 1995, respectively.
NOTE 3 - INVENTORIES
Inventories consisted of the following:
1996 1995
Raw materials $ 138,676 $ 135,151
Work-in-process 762,453 634,216
Finished goods 1,507,634 1,344,188
$2,408,763 $2,113,555
The Company's inventories are particularly sensitive to technological
obsolescence in the near term due to their operations in industries
characterized by the continuous introduction of new product lines, rapid
technological advances and product obsolescence. Therefore, management of the
Company has recorded an allowance for potential inventory obsolescence of
$75,000 and $375,000 as of May 31, 1996 and 1995, respectively.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment and their respective depreciable lives consisted of
the following:
Depreciable
1996 1995 Lives
Land $ 141,483 $ 141,483 -
Buildings and improvements 2,141,148 1,351,812 10 - 25 years
Machinery and equipment 2,322,422 2,063,085 8 - 10 years
Office furniture and equipment 387,156 347,980 3 - 10 years
Autos and trucks 59,905 59,905 3 years
5,052,114 3,964,265
Less: Accumulated depreciation 2,661,206 2,470,279
2,390,908 1,493,986
Construction in progress 12,572 463,436
$2,403,480 $1,957,422
NOTE 4 - (CONT'D)
Construction in progress in the prior year represented the cost incurred to
date to construct a new testing facility (see below) and improvements to
office facilities. The projects were completed during the year ended May 31,
1996.
Depreciation expense was $191,240 and $109,684 for the years ended May 31,
1996 and 1995, respectively.
The following is a summary of property and equipment included above which is
held under capital leases:
1996 1995
Buildings and improvements $ 806,707 $ 331,992
Machinery and equipment 524,590 376,613
Office furniture and equipment 108,654 108,654
1,439,951 817,259
Less: Accumulated amortization 189,239 101,383
1,250,712 715,876
Construction in progress (new
testing facility) - 411,323
$1,250,712 $1,127,199
Minimum future lease payments under capital leases as of May 31, 1996 for each
of the next five years and in the aggregate are included in long-term debt
(see Note 7).
Amortization of property and equipment under the capital leases included in
depreciation expense is $87,856 and $26,866 for the years ended May 31, 1996
and 1995, respectively.
NOTE 5 - INVESTMENT IN AFFILIATE
Investment in affiliate consisted of the Company's 23% ownership interest in
common shares of Developments acquired at a cost of $85,619 plus the Company's
cumulative equity in the net income of Developments of $82,832 and $56,024
through the years ended May 31, 1996 and 1995, respectively.
The Company's share of the underlying book value of net assets of Developments
at the date of original purchase exceeded the amount paid for these shares by
$79,018 and this excess ($70,458 balance at May 31, 1996) is being amortized to
income on the straight-line method over 40 years and is recorded as an increase
of equity in net income of the affiliate.
NOTE 6 - CREDIT ARRANGEMENTS
A line of credit facility with a bank dated December 1995 provides for short-
term borrowings of up to $300,000 which are due on demand with interest based
upon the bank's prime rate plus 3/4%. Collateral for any borrowings on the line
of credit consists of the Company's trade accounts receivable, equipment,
inventories, and general intangibles. As of May 31, 1996 and 1995, no amounts
were outstanding under this agreement.
NOTE 7 - LONG-TERM DEBT
Long-term debt consisted of the following:
1996 1995
Taylor Devices, Inc.
Seven year term note due to bank providing
for monthly principal payments of $13,500,
with interest at the bank's prime rate plus
1% (9.25% at May 31, 1996), with the remaining
unpaid principal balance payable in December
1999 (1) $ 584,500 $ 708,000
Five year first mortgage note due to bank providing
for monthly principal payments of $1,444, with
interest at the bank's prime rate plus 1% (9.25%
at May 31, 1996), with the remaining unpaid
principal balance payable in June 1998 (1) 209,445 226,778
Industrial Revenue Development Bonds dated November
1994 providing for annual principal payments ranging
from $25,000 to $150,000 through June 2009 plus
interest at variable rates based on the highest rated
short term, federally tax exempt obligations
(3.90% at May 31, 1996) (2) 1,180,000 1,250,000
Five year obligation due to leasing company providing
for monthly principal and interest payments of $2,217,
with interest at 8.1%, payable through March 2001,
secured by equipment 104,534 -
Ten year term note due to bank providing for monthly
principal payments of $1,975, with interest at the
bank's prime rate plus 1% (9.25% at May 31, 1996),
payable through June 1997, secured by real estate,
receivables and inventory 25,675 49,375
Ten year term notes due to State Job Development
Authority providing for monthly aggregate principal
and interest payments of $2,023, with an interest
rate of 8.25%, payable through August 1996, secured
by real estate and equipment 5,678 28,440
Other three to five year capital lease obligations - 16,782
Tayco Realty Corporation
Five year obligation due to leasing company providing for
monthly principal and interest payments of $331, with
interest at 11.4%, payable through December 1997,
secured by equipment 6,754 10,113
2,116,586 2,289,488
Less: Current portion 366,003 277,396
$1,750,583 $2,012,092
NOTE 7 - (CONT'D)
(1) The five year first mortgage note is secured by real estate and an
assignment of rents. In addition, this note and the seven year bank term
note are secured by the Company's trade accounts receivable, equipment,
inventories and general intangibles. The seven year term note agreement
includes various covenants requiring minimum levels of net worth and working
capital and provides for restrictions on capital expenditures and payments
of dividends. In addition, the Company is restricted from obtaining any
additional borrowings or encumbering any of its assets except as it
pertains to borrowings from that bank.
(2) In November 1994, the Company entered into a capital lease agreement
with the Niagara County Industrial Development Agency ("NCIDA") to finance
certain construction costs for additions to its manufacturing/testing
facilities and for the acquisition of machinery and equipment. To finance
the project, NCIDA authorized the sale of its Industrial Revenue
Development Bonds, in the aggregate principal amount of $1,250,000, under
a trust indenture with Bankers Trust Company as trustee. The capital
lease obligation is secured by a first mortgage on real estate, project
machinery and equipment, and guaranteed by an irrevocable bank letter of
credit in the amount of $1,240,617 as of May 31, 1996.
As of May 31, 1996, $105,000 of funds held by trustee plus interest earned
thereon of $1,639 represents an interest bearing tax free money fund
restricted for use for principal reduction payments of the Industrial Revenue
Bond during fiscal year 1996-97.
The aggregate maturities of long-term debt for each of the following years
are:
1997 $ 366,003
1998 339,950
1999 503,879
2000 272,464
2001 169,290
Thereafter 465,000
$2,116,586
NOTE 8 - SALES
Net sales consisted of the following industry segments:
1996 1995
Commercial and other industries $4,881,110 $5,227,719
Aerospace and defense industries 3,376,820 2,676,965
Government agencies 658,906 164,470
$ 8,916,836 $8,069,154
Sales to commercial and aerospace/defense industries included sales to two
customers in the total amount of $2,366,087 and $3,463,813 for the years ended
May 31, 1996 and 1995, respectively, whereby the sales to each customer exceeded
ten percent (10%) of aggregate total sales.
NOTE 9 - INCOME TAXES
The (provision)/benefit for income taxes consisted of the following:
1996 1995
Current Tax (Provision)
Federal $ (51,622) $ (12,860)
State (14,030) (12,282)
(65,652) (25,142)
Deferred Tax (Provision)/Benefit
Federal (95,716) 147,322
State (7,889) 22,334
103,605) 169,656
Total income tax (provision)/benefit $ (169,257) $ 144,514
A reconciliation of (provision)/benefit for income taxes at the statutory
rate to income tax (provision)/ benefit at the Company's effective rate is as
follows:
1996 1995
Computed tax provision at the expected
statutory rate $ (259,719) $ (134,324)
State income tax - net of Federal tax benefit (14,467) 6,634
Effect of graduated Federal rates - 11,675
Realization of benefits of tax loss carryforwards 48,406 249,590
Prior year refund claim adjustment 49,977 -
Other 6,546 10,939
$ (169,257) $ 144,514
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities
consisted of the following:
1996 1995
Deferred tax assets
Current
Allowance for doubtful receivables $ 10,131 $ 5,707
Tax inventory adjustment 7,554 6,795
Allowance for obsolete inventory 27,233 139,875
Accrued vacation 18,394 -
63,312 152,377
Noncurrent
Net operating loss carryforwards - 73,787
AMT credit carryforwards 4,515 16,306
Research and development tax credit carry-
forwards - 18,323
Excess book depreciation 10,886 9,239
15,401 117,655
Less: Valuation allowance - (73,787)
15,401 43,868
NOTE 9 - (CONT'D)
Deferred tax liabilities
Excess tax depreciation - 13,927
Noncurrent, net 15,401 29,941
Net deferred tax assets $ 78,713 $ 182,318
The net change in the valuation allowance for deferred tax assets was a
decrease of $73,787 and $268,179 at May 31, 1996 and 1995, respectively,
resulting from the current utilization of Federal and State net operating
loss carryforwards.
The Company and its subsidiary file separate Federal and State income tax
returns. As of May 31, 1996 the Company had State investment tax credit
carryforwards of approximately $77,000 expiring through May 2006.
NOTE 10 - EARNINGS PER COMMON SHARE
Earnings per common share have been computed based upon the weighted average
number of common and common equivalent (unexercised stock options) shares
outstanding during the year. The number of shares and common stock equivalents
used in the computation of earnings per share was 2,762,195 and 2,733,390 for
the years ended May 31, 1996 and 1995, respectively.
NOTE 11 - RELATED PARTY TRANSACTIONS
Included in cost of sales are research and development expenses charged by
Developments for services performed by their research engineers in the amount of
$251,829 and $277,530 for the years ended May 31, 1996 and 1995, respectively.
Included in selling, general and administrative expenses is royalty expense
charged by Developments for the use of their patents in the Company's
manufacturing operations in the amount of $118,140 and $65,482 for the years
ended May 31, 1996 and 1995, respectively.
Effective July 1, 1994, management of the Company converted long-term payables
due to Developments in the amount of $148,000 to additional paid-in capital.
The Company leases certain office and laboratory facilities to Developments
for a current annual rental of $10,000.
NOTE 12 - PREFERRED STOCK
The Company has 2,000,000 authorized but unissued shares of preferred stock
which may be issued in series, and the shares of each series shall have such
rights, preferences, and limitations as shall be fixed by the Board of
Directors.
NOTE 13 - EMPLOYEE STOCK PURCHASE PLAN
200,000 shares of common stock were reserved for issuance pursuant to a non-
qualified employee stock purchase plan. Participation in the employee stock
purchase plan is voluntary for all employees of the Company. Purchase of common
shares can be made by employee contributions through payroll deductions with a
matching contribution by the Company of a specified percentage of the employees'
contributions based on length of continuous participation in the stock purchase
plan. At the end of each calendar quarter, the employer/employee contributions
will be applied to the purchase of common shares at fair market value which are
then held in the name of the Company as custodian for the employees' shares.
These shares are distributed to the employees at the end of each calendar
year or upon withdrawal from the plan. During the years ended May 31,
1996 and 1995, 14,466 ($3.69 to $5.44 price per share) and 13,323 ($2.56 to
$3.75 price per share) common shares, respectively, were issued to employees.
As of May 31, 1996, there were 93,362 shares reserved for future issue.
NOTE 14 - STOCK OPTION PLANS
In 1994, the Company established both a non-qualified and incentive stock
option plan. The incentive stock option plan qualifies for preferential
treatment under the Internal Revenue Code. Under these plans 125,000 shares
of common stock have been reserved for grant to key employees and directors
of the Company. Under both plans the option price may not be less than the
fair market value of the stock at the time the options are granted and expire
five to ten years from the date of grant.
Options granted under the Company's previous non-qualified and incentive stock
option plans, which terminated in a prior year, expire ten years from the date
of grant and are exercisable over the period stated in each option. The stock
appreciation rights (SAR's) granted under the non-qualified option plan enable
the option holders to exercise their right, in lieu of purchasing the shares
subject to their options, to relinquish the options and receive an amount of
cash or common stock equal to the excess of the fair market value of the shares
at the date of exercise over the option price for such shares.
The following is a summary of stock option activity:
1996 1995
Outstanding, beginning of year 123,770 127,433
Options granted 30,000 25,000
Options exercised (1,908) -
Stock appreciation rights exercised (13,160) (28,663)
Outstanding at May 31, 1996 (at prices
ranging from $.38 to $4.00 per share) 138,702 123,770
The difference between the fair market value of the rights and the option
price for the SAR's exercised has been recorded as compensation expense in the
amounts of $37,129 and $67,963 in the statement of income for the years ended
May 31, 1996 and 1995, respectively.
The option holders exercised 11,760 SAR's and 23,906 SAR's and received 8,754
shares ($3.94 to $4.09 price per share) and 15,173 shares ($3.57 to $3.75 price
per share) of the Company's common stock in lieu of cash for the years ended
May 31, 1996 and 1995, respectively. In addition, the option holders exercised
1,400 SAR's and 4,757 SAR's for the years ended May 31, 1996 and 1995,
respectively, for cash reimbursement of personal withholding taxes on their
compensation income.
NOTE 14 - (CONT'D)
In March 1996, the Company received 617 common shares of its own stock as
treasury stock at fair market value in lieu of cash payment from the option
holders for the price of 1,908 options exercised under the non-qualified option
plan.
NOTE 15 - RETIREMENT PLAN
The Company maintains a retirement plan pursuant to Section 401(k) of the
Internal Revenue Code for all eligible employees who have completed six months
of service with the Company. The Company's matching contribution is equal to
10% of employee voluntary salary deferrals up to a maximum of 1.0% of each
participant's eligible compensation. The Company may also make discretionary
contributions as determined annually by the Company's Board of Directors.
The amount expensed under the plan was $11,763 and $4,889 for the years ended
May 31, 1996 and 1995, respectively.
NOTE 16 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair value of each
class of financial instruments for which it is practicable to estimate that
value.
The carrying amounts of cash, restricted funds held by trustee, accounts
receivable, accounts payable, and other accrued liabilities approximate fair
value because of the short maturity of these instruments.
The carrying amount of debt approximates fair value because the interest rates
on these instruments fluctuate with market interest rates and are based on
current rates offered to the Company for debt with similar terms and maturities.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-END> MAY-31-1996
<CASH> 913,284
<SECURITIES> 0
<RECEIVABLES> 1,238,335
<ALLOWANCES> 27,900
<INVENTORY> 2,408,763
<CURRENT-ASSETS> 4,833,276
<PP&E> 5,068,188
<DEPRECIATION> 2,664,708
<TOTAL-ASSETS> 7,775,577
<CURRENT-LIABILITIES> 2,253,663
<BONDS> 1,284,445
0
0
<COMMON> 66,924
<OTHER-SE> 3,528,246
<TOTAL-LIABILITY-AND-EQUITY> 7,775,577
<SALES> 8,916,836
<TOTAL-REVENUES> 8,916,836
<CGS> 5,694,464
<TOTAL-COSTS> 8,056,407
<OTHER-EXPENSES> 96,550
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,750
<INCOME-PRETAX> 763,879
<INCOME-TAX> 169,257
<INCOME-CONTINUING> 594,622
<DISCONTINUED> 0
<EXTRAORDINARY> 17,699
<CHANGES> 0
<NET-INCOME> 612,321
<EPS-PRIMARY> .229
<EPS-DILUTED> .218
</TABLE>
EXHIBIT: (10) (iv) to this Annual Report on 10-KSB.
LEASE
THIS AGREEMENT, made this 1st day of November, 1995
BY and BETWEEN Tayco Realty, Inc., known and referred to as the Owner in this
Lease, and Taylor Devices, Inc., known and referred to as the Tenant in this
Lease.
LET IT BE WITNESSED, that the Owner has agreed to lease and by this Lease does
grant a lease to the Tenant, and the Tenant has agreed to this Lease, and has
leased the following described premises:
Those described more fully in Schedule "A" annexed hereto.
For the term of ten years to begin on the 1st day of November, 1995, and to end
on the 31st day of October, 2005, at eight o'clock in the forenoon.
The Tenant agrees to pay the Owner at 100 Taylor Drive, North Tonawanda, NY the
rent of one million, five hundred ninety-six thousand Dollars ($1,596,000.00) in
payments of thirteen thousand three hundred Dollars ($13,300.00) in advance on
the first day of each and every month during the term of this Lease.
1. The Tenant agrees as follows:
(a) Not to use the premises, or any part thereof, for any purpose than a
manufacturing facility or other legal business use.
(b) Not to let, sell, sublet or assign the premises, or any part thereof,
for the whole or any part of the lease term without the written consent of the
Owner, except as noted on Schedule "A", herein.
(c) To punctually pay rent on above agreed day at above agreed place.
(d) To allow the Owner, in person or by agent, to enter the premises at all
reasonable times of day or night and to allow Owner, or his agent, to place on
or about premises notices indicating that premises are for sale or rent; and to
allow Owner, or his agent, to enter upon and pass through and over premises for
purpose of showing premises to persons wishing to purchase or lease the
premises.
(e) To obey and carry out all Federal, State, County and Municipal laws,
regulations, rules and ordinances in regard to the premises leased and their
use, and all walks adjacent thereto and their use, and keep walks free of ice
and snow, and to take such care of premises as may be required by any
Federal, State, County and Municipal authorities and departments, or any of
them; and to obey all lawful requirement of the New York Fire Insurance Rating
Organization, or any similar body, with reference to the premises and its use,
and in the event that the insurance premium rate upon the building shall be
increased, by reason of any act of omission or commission on the part of the
Tenant or by reason of the nature of the occupancy of the premises the Tenant
agrees to pay the amount of such increase; and to hold the Owner harmless from
any expense, loss or damage by reason of the violation of such laws,
regulations, rules, ordinances and requirements, or by reason of any damage that
might be sustained by reason of the Tenant's negligence.
(f) To maintain the lawn and shrubbery in presentable condition, and to care
for, erect and store screens, storms windows, storm doors and awnings which may
be on premises.
(g) To take special care that no damage happens to the building or any
fixtures therein, in the use of electricity, water or gas and be liable for all
damage caused by Tenant, his agents or servants, in the omission or
commission of any acts causing such damage; and to observe all rules and
regulations of the electric, gas and water companies and sewer authority
supplying premises with electricity, gas, water and use of sewer; promptly
paying bills for use.
(h) To return premises broom clean at expiration of lease to Owner, and
in the same condition as when taken, reasonable wear and tear excepted.
(i) To keep building and premises, including the plumbing and heating
apparatus, in such repair as they are at the beginning of the lease, or may
be put in during term of lease, reasonable wear and tear excepted.
(j) Not to make or allow any unlawful, improper, noisy or otherwise offensive
use of the premises, whatsoever, and not keep in, on or about the premises any
animals or pets of any kind without the written consent of the Owner.
2. Every agreement contained in this lease shall be deemed and is hereby made a
condition.
3. In the event of the violation by the Tenant of any agreement or condition
contained in this lease, then, in either case the Owner shall have the right at
Owner's election to terminate this lease, on first giving tot the Tenant three
days' notice of such election, to be served personally or by posting a notice
in some conspicuous place in or about the premises leased, and the above
mentioned lease term shall thereupon cease at the expiration of the three days,
in the manner and to the same effect as if that were the expiration of the
original term of the lease. Such election shall be in the discretion of the
Owner and when exercised shall be final upon the Tenant. If the Tenant
violates the agreement not to sublet or assign, or to use the premises for a
purpose other than stated in this lease, then the Owner in addition to
terminating the lease, may also recover as damages for the violation of the
agreement a sum equal to six months rent. This sum is a fixed amount agreed
upon to be paid instead of performing the lease, and not a penalty.
4. If the premises shall at any time become vacant during the term of this
lease because of the removal of the Tenant, for nonpayment of rent, by legal
process, or any other cause, the Owner may re-enter the premises, and use
such force for that purpose as the Owner may see fit, without being liable to
any prosecution, and may treat the lease as terminated and re-let the premises
for his own use; or the Owner may re-let the premises as the agent of the Tenant
applying the rent received as follows: First, to the expenses that may occur
in the re-entering; Second, to payment of the rent due on the remainder of
the lease term, and the balance paid to the Tenant; and may hold the Tenant
responsible for any balance due after applying the rent received. The right to
hold the Tenant responsible for such balance shall survive the issuance of any
warrant of dispossess or re-entry by the Owner or other termination or
cancellation of this lease.
5. If the premises shall be partially damaged by fire, the premises shall be
repaired as speedily as possible by the Owner. If the premises are totally
destroyed by fire and untenantable, either party may serve personally, or by
registered mail return receipt requested, upon the other party within ten
days after such fire, a thirty day written notice of the intention of such
party to terminate this lease and the term remaining, and at the end of such
thirty days of the Tenant shall pay the rent to the date of such fire and
surrender tot he Owner the premises and this lease shall be discharged.
6. The agreements and conditions contained in this lease shall apply to and
bind and enure to the benefit of the heirs, personal representatives and assigns
of the owner and the personal representatives and licensed assigns of the
Tenant.
For covenants 7-13, see attached rider.
IN WITNESS WHEREOF the parties hereto have affixed their hands and seals the day
and year first above written.
/s/ Richard G. Hill, Vice President LS /s/ Douglas P. Taylor, President LS
TAYCO REALTY, INC. LS TAYLOR DEVICES, INC. LS
GIVEN UNDER MY HAND AND SEAL, the 22 day of November, 1995.
/s/ Kathleen M. King
Notary Public
State of New York
County of Niagara
Expiration 10/31/97
RIDER TO LEASE BETWEEN
TAYLOR DEVICES, INC. AND TAYCO REALTY, INC.
PERIOD 11/1/95 TO 10/31/05
7. The Tenant expressly waives, forfeits, surrenders and releases the Owner
from the operation of any provision of law now in force or which may be
hereafter enacted giving the Tenant the right under any conditions after
default to the redemption and repossession of the leased premises, or
any part thereof.
8. The Tenant covenants to carry and maintain fire and extended insurance
coverage for not less than $1,000,000, and such coverage as amended from
time to time pursuant to the agreement of the parties hereto and
liability insurance of not less than $3,000,000 together with the Owner
as a named insured.
9. If the whole or any part of the premises hereby demised shall be taken or
condemned by any competent authority for any public use or purpose, then
the term hereby granted shall cease from the time when possession of the
part so taken shall be required for such public purpose and without
apportionment of award, the Tenant hereby assigning to the landlord all
right and claim to any such award, the current rent, however, in such
case to be apportioned.
10. This lease shall be subject, insubordinate at all times, to the lien of
existing mortgages and of mortgages which hereafter may be made or
become liens on the leased property. Although no instrument or act on
the part of the Tenant shall be necessary to effectuate such
subordination, the Tenant will, nevertheless, execute and deliver such
further instruments subordinating this lease to the lien of any such
mortgages as may be desired by the mortgagee.
11. The Tenant shall have the right to make lawful improvements to the
demised premises, but any and all of such improvements shall, at the
conclusion of the demised term, become the property of the Owner with no
compensation due Tenant for such improvements. The provisions of
paragraph 8. shall likewise be applicable with regard to any such
improvements.
12. Owner is solely responsible for all property taxes assessed against the
premises.
13. Tenant agrees to pay to Owner, in addition to the rental, any annual
property taxes in excess of $31,000 assessed to Owner, plus a 10% annual
handling fee on the amount of taxes in excess of $31,000.00.
SCHEDULE "A"
WRITTEN DESCRIPTION OF LAND AND FACILITIES OF LEASED PREMISES
1. Owner and Tenant agree to accept the City Tax Map as the general graphic
presentation of the land and facilities being leased. Owner and Tenant
agree that questions pertaining to exact land or facility dimensions and
locations must be resolved by referring back to the county tax and
survey records.
2. Owner and Tenant agree that Owner is solely responsible for all taxes on
the land, specifically:
a. An irregularly shaped eight (8) sided parcel of approximately 5.5
acres.
b. A generally triangularly shaped parcel of approximately .6 acres.
3. Owner and Tenant agree that as of the original date of this lease, the
Niagara County Industrial Development Agency (NCIDA) is the Owner of
record of two identifiable parcels generally:
a. A rectangularly shaped parcel, consisting of approximately 12,250
square feet of land which is the site of a manufacturing facility,
approximately 6,500 square feet in size, erected and equipped in 1994.
b. A triangularly shaped parcel, consisting of approximately .6 acres of
land and the site of a testing facility, approximately 625 square
feet in size, erected and equipped in 1995.
4. Owner and Tenant agree that ownership of the two parcels of land identified
in 3.a. and 3.b., above, shall revert to Owner upon completion of
Tenant's obligations to the NCIDA.
5. Owner and Tenant agree that payment of the lease amount entitles Tenant the
use of all the land identified in 2.a. and 2.b., above, and the facilities
located thereon. As of the date of this lease, these facilities are, as
identified by mutual consent of the parties:
a. A manufacturing facility and office complex.
b. A 1979 IDA manufacturing addition.
c. The "Technology" building.
d. A test facility, part of the original site.
6. Owner and Tenant agree that pursuant to a previously existing agreement
between Tenant and Tayco Developments, Inc., that certain portions of the
"Technology" building will be sublet to Tayco Developments, Inc. on a
rental basis.
