TAYLOR DEVICES, INC. — Interim / Quarterly Report 2002

Apr 10, 2002

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For quarter ended February 28, 2002

Commission File Number 0-3498

| TAYLOR DEVICES,
INC. |
| --- |
| (EXACT NAME OF REGISTRANT AS
SPECIFIED IN ITS CHARTER) |

NEW YORK	16-0797789
(State or other Jurisdiction of
incorporation or organization)	(I.R.S. Employer Identification
Number)

| 90 TAYLOR DRIVE, NORTH TONAWANDA, NEW
YORK | 14120-0748 |
| --- | --- |
| Address of principal executive
offices | Zip
Code |

Registrant's Telephone Number, Including Area Code -- 716-694-0800

Indicate by check mark whether the registrant (1) has filed all annual, quarterly, and other reports required to be filed with all the Commission and (2) has been subject to the filing requirements for at least the past 90 days.

Yes X No

Indicate the number of shares outstanding, of each of the Issuer's classes of common stock as of the close of the period covered by this report.

| CLASS | Outstanding at
February 28, 2002 |
| --- | --- |
| Common Stock (2-1/2 cents par value) | 2,849,144 |

| TAYLOR DEVICES,
INC. |
| --- |
| Index to Form
10-QSB |

| PART I | FINANCIAL INFORMATION — Item
1. | Financial Statements | |
| --- | --- | --- | --- |
| | | Condensed
Consolidated Balance Sheets as of February 28, 2002, and May 31,
2001 | 3 |
| | | Condensed Consolidated Statements of Income for
three months ended February 28, 2002 and February 28, 2001, and nine
months ended February 28, 2002 and February 28, 2001 | 4 |
| | | Condensed Consolidated Statements of Cash Flows for
nine months ended February 28, 2002 and February 28, 2001 | 5 |
| | | Notes to Condensed Consolidated Financial
Statements | 6 |
| | Item
2. | Management's Discussion and
Analysis of the Financial Condition and Results of Operations | 7 |
| PART II | OTHER INFORMATION | | |
| | Item
1. | Legal Proceedings | 10 |
| | Item 2. | Changes in Securities | 10 |
| | Item 3. | Defaults upon Senior
Securities | 10 |
| | Item 4. | Submission of Matters to Vote
of Security Holders | 10 |
| | Item 5. | Other Information | 10 |
| | Item 6. | Exhibits and Reports on Form
8-K | 10 |
| ACCOUNTANTS' REVIEW REPORT | | | 11 |
| SIGNATURES | | | 12 |

| TAYLOR DEVICES, INC. AND
SUBSIDIARY — Condensed Consolidated Balance
Sheets | (Unaudited) | |
| --- | --- | --- |
| | February 28, 2002 | May 31, 2001 |
| Assets | | |
| Current assets: | | |
| Cash and cash
equivalents | $ 287,223 | $ 59,847 |
| Short-term
investments | 260,222 | 251,764 |
| Accounts
receivable | 2,688,923 | 3,196,831 |
| Inventory | 6,576,007 | 3,784,824 |
| Costs and
estimated earnings in excess of billings | 4,847,276 | 3,096,325 |
| Other current
assets | 388,658 | 541,186 |
| Total current
assets | 15,048,309 | 10,930,777 |
| Property and equipment, net | 4,350,489 | 3,689,345 |
| Investment in
affiliate, at equity | 368,505 | 335,585 |
| Intangibles and other
assets | 366,455 | 377,291 |
| | $20,133,758 | $15,332,998 |
| Liabilities and Stockholders'
Equity | | |
| Current
liabilities: | | |
| Short-term borrowings and current | | |
| portion of long-term debt | $ 4,724,678 | $ 2,134,786 |
| Payables -
trade | 1,640,298 | 1,525,432 |
| Payables -
affiliate | 487,733 | 391,009 |
| Billings in
excess of costs and estimated earnings | 1,541,865 | 1,340,412 |
| Other current
liabilities | 1,471,956 | 1,041,917 |
| Total current
liabilities | 9,866,530 | 6,433,556 |
| Long-term
liabilities | 1,516,592 | 1,051,279 |
| Minority stockholder's
interest | 358,346 | 346,233 |
| Stockholders' Equity: | | |
| Common stock and additional paid-in
capital | 3,439,959 | 3,012,071 |
| Retained
earnings | 5,723,674 | 4,883,104 |
| | 9,163,633 | 7,895,175 |
| Treasury stock -
at cost | (771,343) | (393,245) |
| Total stockholders'
equity | 8,392,290 | 7,501,930 |
| | $20,133,758 | $15,332,998 |

See notes to condensed consolidated financial statements.

| TAYLOR DEVICES, INC. AND
SUBSIDIARY — Condensed Consolidated Statements of
Income | (Unaudited) | | (Unaudited) | |
| --- | --- | --- | --- | --- |
| | For the three
months ended February 28, | | For the nine months ended February 28, | |
| | 2002 | 2001 | 2002 | 2001 |
| Sales, net | $4,140,156 | $3,623,158 | $11,771,094 | $8,913,431 |
| Cost
of sales | 2,435,261 | 2,232,580 | 6,758,428 | 5,392,265 |
| Gross profit | 1,704,895 | 1,390,578 | 5,012,666 | 3,521,166 |
| Selling, general and administrative expenses | 1,209,542 | 859,753 | 3,589,685 | 2,484,859 |
| Operating income | 495,353 | 530,825 | 1,422,981 | 1,036,307 |
| Other expense,
net | 54,314 | 18,020 | 152,218 | 91,379 |
| Income before provision for income taxes, equity in net income of
affiliate and minority stockholder's interest | 441,039 | 512,805 | 1,270,763 | 944,928 |
| Income before equity in net income of affiliate | | | | |
| and minority
stockholder's interest | 273,039 | 340,105 | 819,763 | 619,928 |
| Equity in net income of affiliate | 9,305 | 8,666 | 32,920 | 14,527 |
| Income before minority stockholder's interest | 282,344 | 348,771 | 852,683 | 634,455 |
| Minority stockholder's interest | (4,389) | (7,707) | (12,113) | (18,753) |
| Net
income | $ 277,955 | $
341,064 | $ 840,570 | $ 615,702 |
| Basic
and diluted earnings per common share | $ 0.10 | $ 0.12 | $ 0.30 | $ 0.22 |
| See notes to
condensed consolidated financial statements. | | | | |

TAYLOR DEVICES, INC. AND SUBSIDIARY
Condensed Consolidated Statements of Cash
Flows
	(Unaudited)
For the nine
months ended February 28,	2002	2001
Cash flows from
operating activities:
Net income	$ 840,570	$ 615,702
Adjustments to
reconcile net income to net cash flows from
operating activities:
Depreciation and amortization	307,861	209,493
Equity in net income of affiliate	(32,920)	(14,527)
Minority stockholder's interest	12,113	18,753
Changes in other current assets and current
liabilities:
Accounts
receivable	507,908	(137,027)
Inventory	(2,791,183)	(293,099)
Costs and estimated earnings in excess of billings	(1,750,951)	(110,126)
Other current assets	82,694	5,176
Payables - trade	114,866	(139,006)
Payables - affiliate	96,724	(42,735)
Billings in excess of costs and estimated earnings	201,453	(75,453)
Other current liabilities	430,039	(665,733)
Net cash flows for
operating activities	(1,980,826)	(628,582)
Cash flows from investing
activities:
Acquisition of property and equipment	(827,169)	(384,958)
Other investing
activities	61,376	37,701
Net cash flows for
investing activities	(765,793)	(347,257)
Cash flows from financing
activities:
Net short-term borrowings	2,641,000	- 0 -
Payments on
long-term debt	(279,319 )	461,990
Proceeds from
long-term debt	562,524	- 0 -
Proceeds from
issuance of common stock	427,888	100,545
Acquisition of
treasury stock	(378,098)	(84,699)
Net cash flows from financing
activities	2,973,995	477,836
Net increase (decrease) in
cash and cash equivalents	227,376	(498,003)
Cash and cash equivalents
- beginning	59,847	552,804
Cash and cash equivalents
- ending	$ 287,223	$ 54,801
See notes to
condensed consolidated financial statements.

| TAYLOR DEVICES, INC. AND
SUBSIDIARY |
| --- |
| Notes to
Condensed Consolidated Financial Statements |

| 1. | The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all of the information
and footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements. In the opinion
of the Company, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of February 28, 2002 and May 31, 2001 and the results of operations and
cash flows for the three and nine months ended February 28, 2002 and 2001.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto contained in the Company's Annual
Report to Shareholders for the year ended May 31, 2001. |
| --- | --- |
| 2. | There is no provision nor shall there be
any provisions for profit sharing, dividends, or any other benefits of any
nature at any time for this fiscal year. |
| 3. | For the nine month period ended February
28, 2002, the profit was divided by 2,849,144 shares, which is net of the
Treasury shares, to calculate the earnings per share. For the nine month
period ended February 28, 2001, the profit was divided by 2,782,661 shares
to calculate the earnings per share, which is net of the Treasury
shares. |
| 4. | The results of operations for the nine
month period ended February 28, 2002 are not necessarily indicative of the
results to be expected for the full
year. |

| TAYLOR DEVICES,
INC. |
| --- |
| Management's Discussion and
Analysis of the F inancial Condition and Results of
Operations |

Cautionary Statement

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain matters discussed in this section and elsewhere in this report, which are not historical facts, are forward-looking statements. Words such as "expects," "intends," "believes," "anticipates," "estimates," "assumes," and analogous expressions are intended to identify forward-looking statements. As such, these statements involve risks and uncertainties including, but not limited to, economic conditions, product demand and industry capacity, competition, pricing pressures, the need for the Company to keep pace with customer needs and technological developments, and other factors, many or all of which may be beyond the control of the Company. The following is management's discussion and analysis of certain significant factors which have affected the Company's earnings during the periods included in the accompanying condensed consolidated statements of income.

A summary of the period to period changes in the principal items included in the consolidated statements of income is shown below:

Increase (Decrease)
Net sales	2,857,663
Cost of sales	1,366,163
Selling, general and
administrative expenses	1,104,826
Other expense,
net	60,839
Income before taxes,
equity in net income of affiliate and minority stockholder's
interest	325,835
Provision for income
taxes	126,000
Income before equity in
net income of affiliate and minority stockholder's interest	199,835
Equity in net income of
affiliates	18,393
Minority stockholder's
interest	(6,640)
Net income	224,868

| TAYLOR DEVICES,
INC. |
| --- |
| Management's Discussion
(Continued) |

The Company's net sales for the nine month y-t-d and three month periods achieved new record levels. Shipments were predominantly for seismic protection products for both domestic and foreign civil engineering and construction projects.

FOR THE NINE MONTHS ENDED FEBRUARY 28, 2002 (all figures being compared are for nine months y-t-d FY2002 vs. nine months y-t-d FY2001)

Net Sales for the first nine months of Fiscal Year 2002 were a nine month year-to-date record high of $11,771,094, representing a 32.1% increase over the prior year's figure $8,913,431. This improvement was attributable primarily to higher progress billings against some of the large seismic products orders in the backlog. In the current period, Gross Margin was recorded at $5,012,666 and 42.6% of sales, compared to Gross Margin of $3,521,166 and 39.5% of sales for FY01. In both periods, the gross margin figure represents the composite of costs calculated for discrete OEM shipments, interim estimates for in-progress projects and final adjustments for completed projects. Much of the improvement in the gross margin performance can be attributed to an extended period of favorable labor and material handling overhead rates generated by the high level of activity being experienced by the Company.

Selling, General and Administrative Expenses were $3,589,685 and 30.5% of sales in the current period compared to $2,484,859 and 27.9% in the prior year. Of the approximately $1,105,000 increase in SG&A expense, approximately $900,000 was generated by sales/marketing related items such as commissions, royalties, advertising and consultant fees. Net Other Expense increased to $152,218 from $91,379 due primarily to the continued increased usage of the Line of Credit to fund certain larger projects which do not contain progress payment provisions.

Net Income improved to a record high $840,570 and $.30 earnings per share, a 36.5 % increase over last year's figure of $615,702 and $.22 earnings per share.

FOR THE THREE MONTHS ENDED FEBRUARY 28, 2002 (all figures being compared are for three months ended 02/28/02 vs. the three months ended 02/28/01)

Net Sales in the current period reached a record-high $4,140,156, a 14.3% increase over the $3,623,158 figure recorded in the second quarter of last year. Gross Margin for the period was $1,704,895 and 41.2% of sales versus last year's figures of $1,390,578 and 38.4% of sales. As discussed in the year-to-date section above, the improvement in revenues and gross margin performance was generated primarily by increased progress billings against seismic product orders. The Company also continued to experience favorable overhead conditions in the third quarter.

SG&A expenses totaled $1,209,542 representing 29.2% of sales compared to $859,753 and 23.7% of sales for FY2001, with most of the change from period to period attributable, as discussed above, primarily to variable, sales/marketing related expenses such as commissions, royalties and consulting fees. Also impacting SG&A in the third quarter of FY02 were expenses incurred during the conversion of the Company's EDP system to a Windows platform. Net Other Expense for FY02 was $54,314 compared to $18,020 with the change generated primarily by the Line of Credit usage referenced above.

Net Income figures for the period were $277,955 and $.10 earnings per share compared to the results of $341,064 and $.12 per share for FY01.

The Company's Balance sheet continues to reflect the Company's commitment to preeminence in its portion of the seismic protection products market. During the course of FY2002 the Company has engaged in a simultaneous program towards completion of the existing seismic orders in the backlog (consisting primarily of custom items) and building a stock of components designed for use in a standardized series of seismic protection products. Procurement of components and services from outside sources reached a record level in the third quarter of FY02 and have generated higher figures in the Inventory and Accounts Payable categories. The combination of lower procurement levels in the fourth quarter and the likely initial shipments of some of the standardized components against existing orders should bring Inventory and A/P back closer to historically normal levels. .

The upgrade/expansion of the Company's physical plant, initiated in Fiscal Year 2001 is functionally complete. Equipment that will improve production efficiency has been received and should be ready in time to facilitate shipments prior to the end of FY02.

The product mix in the Company's backlog continues to shift towards seismic protection products. Although there has been a modest increase in activity for defense related items, there has also been lower activity in the Company's standard lines related to the steel industry. In addition, the Company's primary markets, civil engineering projects in California and the Pacific Rim nations, have been relatively quiet for the past few months due seemingly to economic conditions. The Company's sales staff is seeing signs of revival in these markets and is experiencing increased inquiry activity.

For the remainder of FY02 (and into FY03) the Company will be absorbing a significantly higher insurance expense due to the well-publicized reasons impacting all companies in general and our industry in particular. Fourth quarter shipments against the current backlog will likely produce a new record shipments figure for the Company. Based on the projected profitability of the quarter's shipments and continued efficient usage of the expanded facilities, Management believes that the full year financial results should continue to be favorable.

At this time Management does not anticipate that the Company will require any additional sources of outside funding to finance its operations or expansions.

TAYLOR DEVICES, INC.
Part II - Other
Information

| ITEM
1 | Legal
Proceedings: The Company is not
currently engaged in any litigation. | |
| --- | --- | --- |
| ITEM 2 | Changes in
Securities: None | |
| ITEM 3 | Defaults Upon Senior
Securities: None | |
| ITEM 4 | Submission of Matters
to Vote of Securities Holders: None | |
| ITEM 5 | Other
Information: | |
| | For the period 12/01/01 to 02/28/02, changes in the
Company's outstanding shares are as follows: | |
| | A. | An increase of 6,904 shares for
purchases of Company stock by employees from the Employee's Stock Purchase
Plan. |
| | B. | An increase in Treasury shares
of 17,551, which were returned to the treasury by directors and key
personnel for options exercised during the period of 12/01/01 to 02/28/02.
Treasury shares at 02/28/02 are 201,089. |
| | C. | 33,000 shares were purchased by
directors and key employees through the 1998 Stock Option Plan during the
period of 12/01/01 to 02/28/02. |
| ITEM
6 | Exhibits and Reports
on Form 8-K: None | |

Accountants' Review Report

The Board of Directors and Stockholders Taylor Devices, Inc.

We have reviewed the condensed consolidated balance sheet of Taylor Devices, Inc. and Subsidiary as of February 28, 2002, and the related condensed consolidated statements of income and cash flows for the three and nine months ended February 28, 2002 and 2001. These financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of May 31, 2001, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated August 2, 2001, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of May 31, 2001 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

Lumsden & McCormick, LLP Buffalo, New York April 2, 2002

Signatures

Pursuant to the requirements 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.

TAYLOR DEVICES, INC.
(Registrant)

| By |
| --- |
| Douglas
P. Taylor President Chairman of the Board of
Directors (Principal Executive
Officer) |

AND

| By |
| --- |
| Kenneth
G. Bernstein Treasurer (Principal Financial and Accounting
Officer) |