UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number
(Exact name of registrant as specified in its charter)
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| Registrant's telephone number, including area code ( |
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
| None | None | None |
Securities registered pursuant to Section 12(g) of the Act:
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ ] Yes [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
[ ] Yes [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). [ ] Yes [X]
The aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked
price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter on November
30, 2018 is $
The number of shares outstanding of each of the registrant's classes of common stock as of August 2, 2019: .
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TAYLOR DEVICES, INC.
DOCUMENTS INCORPORATED BY REFERENCE
| Documents | Form 10-K Reference |
| Proxy Statement | Part III, Items 10-14 |
FORM 10-K INDEX
| PART I | PAGE | ||
| Item 1. | 4 | ||
| Item 1A. | Risk Factors. | 6 | |
| Item 1B. | Unresolved Staff Comments. | 6 | |
| Item 2. | 6 | ||
| Item 3. |
Legal Proceedings. |
6 | |
| Item 4. | Mine Safety Disclosures. | 6 | |
| PART II | |||
| Item 5. |
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
7 | |
| Item 6. | Selected Financial Data. | 8 | |
| Item 7. |
Management's Discussion and Analysisof Financial Condition and Results of Operations. |
8 | |
| Item 7A. | Quantitativeand Qualitative Disclosures About Market Risk. | 18 | |
| Item 8. |
Financial Statements and Supplementary Data. |
18 | |
| Item 9. |
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. |
18 | |
| Item 9A. |
Controls and Procedures. |
18 | |
| Item 9B. | Other Information. | 18 | |
| PART III | |||
| Item 10. | Directors, Executive Officers and Corporate Governance. | 18 | |
| Item 11. |
Executive Compensation. |
18 | |
| Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
18 | |
| Item 13. |
Certain Relationships and Related Transactions, and Director Independence. |
18 | |
| Item 14. | Principal Accounting Fees and Services. | 18 | |
| PART IV | |||
| Item 15 | Exhibits and Financial Statement Schedules | 19 | |
| SIGNATURES | 23 | ||
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PART I
Item 1. Business.
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 shock absorption, rate control, and energy storage devices for use in various types of machinery, equipment and structures. In addition to manufacturing and selling existing product lines, the Company continues to develop new and advanced technology products.
Principal Products
The Company manufactures and sells a single group of very similar products that have many different applications for customers. These similar products are included in one of eight categories; namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs, Vibration Dampers, Machined Springs and Custom Actuators. Management does not track or otherwise account for sales broken down by these categories. The following is a summary of the capabilities and applications for these products.
Seismic Dampers are designed to mitigate the effects of earthquake tremors on structures, and represent a substantial part of the business of the Company. Fluidicshoks® are small, extremely compact shock absorbers with up to 19,200 inch-pound capacities, 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, ships, container 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. Vibration dampers are used primarily by the aerospace and defense industries to control the response of electronics and optical systems subjected to air, ship, or spacecraft vibration. Machined springs are precisely controlled mechanical springs manufactured from a variety of materials. These are used primarily for aerospace applications that require custom features that are not possible with conventional wound coil springs. Custom actuators are typically of the gas-charged type, using high pressure, that have custom features not available from other suppliers. These actuators are used for special military and aerospace applications.
Distribution
The Company uses the services of more than 15 sales representatives and distributors in the United States and Canada along with more than 30 representatives and distributors throughout the rest of the world. Specialized technical sales in aerospace and custom marketing activities are serviced by several sales agents, under the direction and with the assistance of the Company's President. Sales representatives typically 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 to purchase the Company's products for resale purposes.
Competition
The Company faces competition on mature aerospace and defense programs which may use more conventional products manufactured under less stringent government specifications. Two foreign companies are the Company's competitors in the production of crane buffers.
The Company competes directly against two other firms supplying structural damping devices for use in the United States. For structural applications outside of the USA, the Company competes directly with several other firms particularly in Japan, China and Taiwan. The Company competes with numerous other firms that supply alternative seismic protection technologies.
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Raw Materials and Supplies
The principal raw materials and supplies used by the Company in the manufacture of its products are provided by numerous U.S. and foreign suppliers. The loss of any one of these would not materially affect the Company's operations.
Dependence Upon Major Customers
The Company is not dependent on any one or a few major customers. Sales to four customers approximated 36% (17%, 8%, 6% and 5%, respectively) of net sales for 2019. The loss of any or all of these customers, unless the business is replaced by the Company, could result in an adverse effect on the results for the Company.
Patents, Trademarks and Licenses
The Company holds 12 patents expiring at different times until the year 2035.
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. The Company had no inventory out on consignment and no consignment sales for the years ended May 31, 2019 and 2018. No extended payment terms are offered. During the year ended May 31, 2019, delivery time after receipt of orders averaged 8 to 10 weeks for the Company's standard products. Due to the volatility of construction and aerospace/defense programs, progress payments are usually required for larger projects using custom designed components of the Company.
Need for Government Approval of Principal Products or Services
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. If the federal government should limit defense spending, these contracts could be reduced or terminated, which management believes would have a materially adverse effect on the Company.
Research and Development
The Company does not generally engage in major product research and development activities in connection with the design of its products, except when funded by aerospace customers or the federal government. The Company, however, engages in research testing of its products. For the fiscal years ended May 31, 2019 and 2018, the Company expended $319,000 and $263,000, respectively, on manufacturing research. This increase is primarily due to research and development required to meet new types of specifications on certain domestic seismic protection contracts in the current year. For the years ended May 31, 2019 and 2018, defense sponsored research and development totaled $26,000 and $22,000, 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 establish strict standards for the protection of employees, and impose 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 currently incurs only moderate costs with respect to disposal of hazardous waste and compliance with OSHA regulations.
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.
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Employees
Exclusive of Company sales representatives and distributors, as of May 31, 2019, the Company had 119 employees, including three executive officers, and one part time employee. The Company has good relations with its employees.
Item 1A. Risk Factors.
Smaller reporting companies are not required to provide the information required by this item.
Item 1B. Unresolved Staff Comments.
Not applicable.
| Item 2. Properties |
The Company's production facilities occupy approximately six acres on Tonawanda Island in North Tonawanda, New York and are comprised of four interconnected buildings and two adjacent buildings. The production facilities consist of a small parts plant (approximately 4,400 square feet), a large parts plant (approximately 13,500 square feet), and include a facility of approximately 7,000 square feet comprised of a test facility, storage area, pump area and the Company's general offices. One adjacent building is a 27,000 square foot seismic assembly and test facility. This building contains overhead traveling cranes to allow dampers to be built up to 45 ft. in length. It is also the site of two long bed damper test machines where seismic dampers Taylor Devices manufactures will be tested at maximum force to satisfy customer specifications. Another adjacent building (approximately 2,000 square feet) is used as a training facility. These facilities total more than 54,000 square feet. Adjacent to these facilities, the Company has a remote test facility used for shock testing. This state-of-the-art test facility is 1,200 square feet. The Company owns three additional industrial buildings on nine acres of land in the City of North Tonawanda located 1.4 miles from the Company’s headquarters on Tonawanda Island. Total area of the three buildings is 46,000 square feet. One building includes a machine shop containing custom-built machinery for boring, deep-hole drilling and turning of parts. Another is used for painting and packaging parts and completed units.
The Company's real properties are subject to a negative pledge agreement with its lender, M&T Bank. The Company has agreed with the lender that, for so long as the credit facilities with the lender are outstanding, the Company will not sell, lease or mortgage any of its real properties. Additional information regarding the Company's agreement with M&T Bank is contained in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, at "Capital Resources, Line of Credit and Long-Term Debt."
The Company leases a separate warehouse for storage from an unrelated third party, consisting of approximately 3,600 square feet at $975 per month. The warehouse is located approximately one-quarter mile from the Company’s headquarters. The total rental expense incurred by the Company for this facility in fiscal 2019 was $11,700.
The Company believes it carries adequate insurance coverage on its facilities and their contents.
Item 3. Legal Proceedings.
There are no legal proceedings at present.
Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities.
Market Information
The Company's Common Stock trades on the NASDAQ Capital Market of the National Association of Securities Dealers Automated Quotation ("NASDAQ") stock market under the symbol TAYD. The high and low sales information noted below for the quarters of fiscal year 2019 and fiscal year 2018 were obtained from NASDAQ.
| Fiscal 2019 | Fiscal 2018 | |||||||||||||||
| High | Low | High | Low | |||||||||||||
| First Quarter | $ | 12.62 | $ | 9.99 | $ | 14.12 | $ | 10.62 | ||||||||
| Second Quarter | $ | 12.70 | $ | 10.80 | $ | 14.00 | $ | 10.84 | ||||||||
| Third Quarter | $ | 13.29 | $ | 11.50 | $ | 15.14 | $ | 11.01 | ||||||||
| Fourth Quarter | $ | 12.75 | $ | 10.42 | $ | 12.23 | $ | 9.70 | ||||||||
Holders
As of August 2, 2019, the number of issued and outstanding shares of Common Stock was 3,478,866 and the approximate number of record holders of the Company's Common Stock was 509. 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 1,500.
Dividends
No cash or stock dividends have been declared during the last two fiscal years. The Company plans to retain cash in the foreseeable future to fund working capital needs.
Rights Plan
As of September 25, 2018, the Company's Board of Directors adopted a shareholder rights plan designed to deter coercive or unfair takeover tactics and prevent an acquirer from gaining control of the Company without offering a fair price to shareholders. Under the plan, certain rights ("Rights") were distributed as a dividend on each share of Common Stock (one Right for each share of Common Stock) held as of the close of business on October 2, 2018. Each whole Right entitles the holder, under certain defined conditions, to buy one two-thousandths (1/2000) of a newly issued share of the Company's Series A Junior Participating Preferred Stock ("Series A Preferred Stock") at a purchase price of $5.00 per unit of one two-thousandths of a share. Rights attach to and trade with the shares of Common Stock, without being evidenced by a separate certificate. No separate Rights certificates will be issued unless and until the Rights detach from Common Stock and become exercisable for shares of the Series A Preferred Stock.
The Rights become exercisable to purchase shares of Preferred Stock (or, in certain circumstances, Common Stock) only if (i) a person acquired 15% or more of the Company's Common Stock, or (ii) a person commenced a tender or exchange offer for 10% or more of the Company's Common Stock, or (iii) the Board of Directors determined that the beneficial owner of at least 10% of the Company's Common Stock intended to cause the Company to take certain actions adverse to it and its shareholders or that such ownership would have a material adverse effect on the Company. The Rights Plan will expire on October 5, 2028.
Issuer Purchases of Equity Securities
The share repurchase agreement with a major broker-dealer, under which the Company repurchased shares of its common stock on the open market, has been terminated by the Company. No shares have been purchased since August 2011.
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Equity Compensation Plan Information
The following table sets forth information regarding equity compensation plans of the Company as of May 31, 2019.
| Equity Compensation Plan Information | |||||||
|
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) |
Weighted-average exercise price of outstanding options, warrants and rights (b) |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | ||||
|
Equity compensation plans approved by security holders:
|
|||||||
|
2008 Stock Option Plan 2012 Stock Option Plan 2015 Stock Option Plan 2018 Stock Option Plan
|
39,750 73,750 110,500
|
$ 7.80 $11.51 $13.26 |
- - 21,500 160,000 | ||||
| Equity compensation plans not approved by security holders: |
|
||||||
| 2004 Employee Stock Purchase Plan (1) |
- |
- |
221,627 | ||||
|
Total
|
224,500 | 403,127 | |||||
| (1) | The Company's 2004 Employee Stock Purchase Plan (the "Employee Plan") permits eligible employees to purchase shares of the Company's common stock at fair market value through payroll deductions and without brokers' fees. Such purchases are without any contribution on the part of the Company. As of May 31, 2019, 221,627 shares were available for issuance. | ||||||
Item 6. Selected Financial Data
The Company qualifies as a smaller reporting company, as defined by 17 CFR §229.10(f)(1), and is not required to provide the information required by this Item.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Information in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this 10-K that does not consist of historical facts are "forward-looking statements." Statements accompanied or qualified by, or containing, words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," "assume" and "optimistic" constitute forward-looking statements and, as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; variations in timing and amount of customer orders; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results. The Company disclaims any obligation to release publicly any updates or revisions to the forward-looking statements herein to reflect any change in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement is based.
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Application of Critical Accounting Policies and Estimates
The Company's consolidated financial statements and accompanying notes are prepared in accordance with U.S. generally accepted accounting principles. The preparation of the Company's financial statements requires management to make estimates, assumptions and judgments that affect the amounts reported. These estimates, assumptions and judgments are affected by management's application of accounting policies, which are discussed in Note 1, "Summary of Significant Accounting Policies", and elsewhere in the accompanying consolidated financial statements. As discussed below, our financial position or results of operations may be materially affected when reported under different conditions or when using different assumptions in the application of such policies. In the event estimates or assumptions prove to be different from actual amounts, adjustments are made in subsequent periods to reflect more current information. Management believes the following critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company's financial statements.
Accounts Receivable
Our ability to collect outstanding receivables from our customers is critical to our operating performance and cash flows. Accounts receivable are stated at an amount management expects to collect from outstanding balances. Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts after considering the age of each receivable and communications with the customers involved. Balances that are collected, for which a credit to a valuation allowance had previously been recorded, result in a current-period reversal of the earlier transaction charging earnings and crediting a valuation allowance. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable in the current period. The actual amount of accounts written off over the five year period ended May 31, 2019 equaled less than 0.1% of sales for that period. The balance of the valuation allowance has remained at slightly less than $110,000 since May 31, 2017. Management does not expect the valuation allowance to materially change in the next twelve months for the current accounts receivable balance.
Inventory
Inventory is stated at the lower of average cost or net realizable value. Average cost approximates first-in, first-out cost.
Maintenance and other inventory represent stock that is estimated to have a product life-cycle in excess of twelve-months. This stock represents certain items the Company is required to maintain for service of products sold, and items that are generally subject to spontaneous ordering.
This inventory is particularly sensitive to technical obsolescence in the near term due to its use 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. Based on certain assumptions and judgments made from the information available at that time, we determine the amount in the inventory allowance. If these estimates and related assumptions or the market changes, we may be required to record additional reserves. Historically, actual results have not varied materially from the Company's estimates.
The provision for potential inventory obsolescence was $175,000 and $60,000 for the years ended May 31, 2019 and 2018.
Revenue Recognition
Accounting Standard Update (ASU) 2014-09 was adopted on June 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings.
Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services.
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A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations. In the year ended May 31, 2019, 45% of revenue was recorded for contracts with a single performance obligation that was satisfied within the period. In the year ended May 31, 2018, 40% of revenue was recorded for contracts with a single performance obligation that was satisfied within the period.
For contracts with customers in which the Company satisfies a promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time, using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead. Total estimated costs for each of the contracts are estimated based on a combination of historical costs of manufacturing similar products and estimates or quotes from vendors for supplying parts or services towards the completion of the manufacturing process. Adjustments to cost and profit estimates are made periodically due to changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements. These changes may result in revisions to costs and income and are recognized in the period in which the revisions are determined. Any losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. If total costs calculated upon completion of the manufacturing process in the current period for a contract are more than the estimated total costs at completion used to calculate revenue in a prior period, then the profits in the current period will be lower than if the estimated costs used in the prior period calculation were equal to the actual total costs upon completion. Historically, actual results have not varied materially from the Company's estimates. In the year ended May 31, 2019, 55% of revenue was recorded for contracts in which revenue was recognized over time. In the year ended May 31, 2018, 60% of revenue was recorded for contracts in which revenue was recognized over time.
For financial statement presentation purposes, the Company nets progress billings against the total costs incurred on uncompleted contracts. The asset, "costs and estimated earnings in excess of billings," represents revenues recognized in excess of amounts billed. The liability, "billings in excess of costs and estimated earnings," represents billings in excess of revenues recognized.
We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The cumulative effect of the changes made to our consolidated June 1, 2018 balance sheet for the adoption of ASU 2014-09, were as follows:
| Balance Sheet | Balance at May 31, 2018 | Adjustments Due to ASU 2014-09 | Balance at June 1, 2018 | |||||||||
| Assets | ||||||||||||
| Inventory | $ | 11,317,775 | $ | 1,101,116 | $ | 12,418,891 | ||||||
| Costs and estimated earnings in excess of billings | $ | 6,356,963 | (326,509 | ) | $ | 6,030,454 | ||||||
| Liabilities | ||||||||||||
| Billings in excess of costs and estimated earnings | $ | 2,043,002 | (25,105 | ) | $ | 2,017,897 | ||||||
| Other accrued expenses (customer advances) | $ | 1,412,502 | $ | 794,713 | $ | 2,207,215 | ||||||
| Equity | ||||||||||||
| Retained earnings | $ | 26,959,080 | $ | 4,999 | $ | 26,964,079 | ||||||
- 10-
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption of ASU 2014-09 on our consolidated balance sheet and income statement was as follows:
| May 31, 2019 | ||||||||||||
| Balance Sheet | As Reported | Effect of Change Higher/(Lower) | Balances Without Adoption of ASU 2014-09 | |||||||||
| Assets | ||||||||||||
| Inventory | $ | 11,239,331 | $ | — | $ | 11,239,331 | ||||||
| Costs and estimated earnings in excess of billings | $ | 7,572,490 | $ | — | $ | 7,572,490 | ||||||
| Liabilities | ||||||||||||
| Other accrued expenses (customer advances) | $ | 1,532,271 | $ | — | $ | 1,532,271 | ||||||
| Equity | ||||||||||||
| Retained earnings | $ | 29,508,604 | $ | — | $ | 29,508,604 | ||||||
| For the year ended May 31, 2019 | ||||||||||||
| Income Statement | As Reported | Effect of Change Higher/(Lower) | Balances Without Adoption of ASU 2014-09 | |||||||||
| Revenues | ||||||||||||
| Sales, net | $ | 33,619,031 | $ | 1,096,117 | $ | 32,522,914 | ||||||
| Costs and Expenses | ||||||||||||
| Cost of goods sold | $ | 24,571,255 | $ | 1,101,116 | $ | 23,470,139 | ||||||
| Provision for income taxes | $ | 515,000 | $ | — | $ | 515,000 | ||||||
| Net income (loss) | $ | 2,544,525 | $ | (4,999 | ) | $ | 2,549,524 | |||||
Income Taxes
The provision for income taxes provides for the tax effects of transactions reported in the financial statements regardless of when such taxes are payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets and liabilities. The deferred tax assets relate principally to asset valuation allowances such as inventory obsolescence reserves and bad debt reserves and also to liabilities including warranty reserves, accrued vacation, accrued commissions and others. The deferred tax liabilities relate primarily to differences between financial statement and tax depreciation. Deferred taxes are based on tax laws currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered.
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Realization of the deferred tax assets is dependent on generating sufficient taxable income at the time temporary differences become deductible. The Company provides a valuation allowance to the extent that deferred tax assets may not be realized. A valuation allowance has not been recorded against the deferred tax assets since management believes it is more likely than not that the deferred tax assets are recoverable. The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance. In future years the Company will need to generate approximately $3.6 million of taxable income in order to realize our deferred tax assets recorded as of May 31, 2019 of $761,000. This deferred tax asset balance is 15% ($98,000) more than at the end of the prior year. The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced. If actual results differ from estimated results or if the Company adjusts these assumptions, the Company may need to adjust its deferred tax assets or liabilities, which could impact its effective tax rate. In December 2017, the Tax Cuts and Jobs Act (the 2017 Act) became law. It includes a broad range of tax reform proposals affecting businesses, including corporate tax rates, business deductions, and international tax provisions. Among the changes, the 2017 Act reduces the corporate rate from 34% to 21% for periods beginning after December 31, 2017. Because of the rate change, the Company recorded a non-cash write down of deferred tax assets and recognized incremental deferred tax expense of $164,000 during the year ended May 31, 2018.
The Company's practice is to recognize interest related to income tax matters in interest income / expense and to recognize penalties in selling, general and administrative expenses.
The Company and its subsidiary file consolidated Federal and State income tax returns. As of May 31, 2019, the Company had State investment tax credit carryforwards of approximately $370,000 expiring through May 2025.
Results of Operations
A summary of the period to period changes in the principal items included in the consolidated statements of income is shown below:
| Summary comparison of the years ended May 31, 2019 and 2018 | ||||
| Increase / | ||||
| (Decrease) | ||||
| Sales, net | $ | 9,255,000 | ||
| Cost of goods sold | $ | 6,131,000 | ||
| Selling, general and administrative expenses | $ | 769,000 | ||
| Income before provision for income taxes | $ | 2,383,000 | ||
| Provision for income taxes | $ | 282,000 | ||
| Net income | $ | 2,101,000 | ||
For the year ended May 31, 2019 (All figures being discussed are for the year ended May 31, 2019 as compared to the year ended May 31, 2018.)
| Year ended May 31 | Change | |||||||||||||||
| 2019 | 2018 | Amount | Percent | |||||||||||||
| Net Revenue | $ | 33,619,000 | $ | 24,364,000 | $ | 9,255,000 | 38 | % | ||||||||
| Cost of sales | 24,571,000 | 18,440,000 | 6,131,000 | 33 | % | |||||||||||
| Gross profit | $ | 9,048,000 | $ | 5,924,000 | $ | 3,124,000 | 53 | % | ||||||||
| … as a percentage of net revenues | 27 | % | 24 | % | ||||||||||||
The Company's consolidated results of operations showed a 38% increase in net revenues and an increase in net income of 474%. Revenues recorded in the current period for long-term construction projects (“Project(s)”) were 26% more than the level recorded in the prior year. We had 48 Projects in process during the current period compared with 50 during the same period last year. Revenues recorded in the current period for other-than long-term construction projects (non-projects) were 56% more than the level recorded in the prior year. The impact of adoption of accounting regulation ASU 2014-09 increased non-project revenue for the period by $1,096,000 or about 11% of the prior period’s level of non-project revenue. The number of Projects in-process fluctuates from period to period. The changes from the prior period to the current period are not necessarily representative of future results.
- 12-
The mix of customers buying our products changed slightly from last year. Sales of the Company's products are made to three general groups of customers: industrial, construction and aerospace / defense. The Company saw a 65% increase from last year’s level in sales to construction customers who were seeking seismic / wind protection for either construction of new buildings and bridges or retrofitting existing buildings and bridges along with a 5% increase in sales to customers using our products in industrial applications and a 12% increase in sales to customers in aerospace / defense. The significant increase in sales to construction customers was the result of several factors including 1.) an increase in domestic spending on infrastructure for seismic protection, and 2.) an increase in domestic buildings and bridges being retrofitted for seismic protection. The impact of adoption of accounting regulation ASU 2014-09 increased revenue for the period by $1,096,000 or about 4.5% of the prior period’s level of revenue. A breakdown of sales to these three general groups of customers, as a percentage of total net revenue for fiscal years ended May 31, 2019 and 2018 is as follows:
| Year ended May 31 | ||||||||
| 2019 | 2018 | |||||||
| Industrial | 6 | % | 8 | % | ||||
| Construction | 60 | % | 50 | % | ||||
| Aerospace / Defense | 34 | % | 42 | % | ||||
Total sales within North America increased 46% from last year. Total sales to Asia increased 12% from the prior year. Net revenue by geographic region, as a percentage of total net revenue for fiscal years ended May 31, 2019 and 2018 is as follows:
| Year ended May 31 | ||||||||
| 2019 | 2018 | |||||||
| North America | 79 | % | 74 | % | ||||
| Asia | 17 | % | 21 | % | ||||
| Other | 4 | % | 5 | % | ||||
The gross profit as a percentage of net revenue of 27% in the current is slightly higher than the 24% recorded in the same period of the prior year.
At May 31, 2018, we had 121 open sales orders in our backlog with a total sales value of $23.1 million. At May 31, 2019, we had 153 open sales orders in our backlog with a total sales value is $13.3 million. $6.7 million of the current backlog is on Projects already in progress. $8.8 million of the $23.1 million sales order backlog at May 31, 2018 was in progress at that date. 43% of the sales value in the backlog is for aerospace / defense customers compared to 33% at the end of fiscal 2018. As a percentage of the total sales order backlog, orders from customers in construction accounted for 52% at May 31, 2019 and 65% at May 31, 2018.
The Company's backlog, revenues, commission expense, gross margins, gross profits, and net income fluctuate from period to period. Total sales in the current period and the changes in the current period compared to the prior period, are not necessarily representative of future results.
Selling, General and Administrative Expenses
| Year ended May 31 | Change | |||||||||||||||
| 2019 | 2018 | Amount | Percent | |||||||||||||
| Outside Commissions | $ | 1,815,000 | $ | 1,254,000 | $ | 561,000 | 45 | % | ||||||||
| Other SG&A | 4,231,000 | 4,023,000 | 208,000 | 5 | % | |||||||||||
| Total SG&A | $ | 6,046,000 | $ | 5,277,000 | $ | 769,000 | 15 | % | ||||||||
| … as a percentage of net revenues | 18 | % | 22 | % | ||||||||||||
Selling, general and administrative expenses increased by 15% from the prior year. Outside commission expense increased 45% from last year's level due to the significant increase in the level of commissionable sales recorded in the current period as compared to the prior period. Other selling, general and administrative expenses increased by 5% from last year.
The above factors resulted in operating income of $3,002,000 for the year ended May 31, 2019, up 364% from the $648,000 in the prior year.
- 13-
The Company's effective tax rate (ETR) is calculated based upon current assumptions relating to the year's operating results and various tax related items. The ETR for the fiscal year ended May 31, 2019 is 17%, half of the ETR for the prior year of 34%. In December 2017, the Tax Cuts and Jobs Act (the 2017 Act) became law. It includes a broad range of tax reform proposals affecting businesses, including corporate tax rates, business deductions, and international tax provisions. Among the changes, the 2017 Act reduces the corporate rate from 34% to 21% for periods beginning after December 31, 2017. Because of the rate change, the Company recorded a non-cash write down of deferred tax assets and recognized incremental deferred tax expense of $164,000 during the year ended May 31, 2018.
A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows:
| 2019 | 2018 | |||||||
| Computed tax provision at the expected statutory rate | $ | 643,000 | $ | 194,000 | ||||
| Tax effect of permanent differences: | ||||||||
| Research tax credits | (166,000 | ) | (110,000 | ) | ||||
| Tax rate change on deferred taxes | — | 164,000 | ||||||
| Other permanent differences | 29,000 | (3,000 | ) | |||||
| Other | 9,000 | (12,000 | ) | |||||
| $ | 515,000 | $ | 233,000 | |||||
Stock Options
The Company has stock option plans which provide for the granting of nonqualified or incentive stock options to officers, key employees and non-employee directors. Options granted under the plans are exercisable over a ten year term. Options not exercised by the end of the term expire.
The Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award. The Company recognized $138,000 and $125,000 of compensation cost for the years ended May 31, 2019 and 2018.
The fair value of each stock option grant has been determined using the Black-Scholes model. The model considers assumptions related to exercise price, expected volatility, risk-free interest rate, and the weighted average expected term of the stock option grants. The Company used a weighted average expected term. Expected volatility assumptions used in the model were based on volatility of the Company's stock price for the thirty month period immediately preceding the granting of the options. The Company issued stock options in August 2018 and April 2019. The risk-free interest rate is derived from the U.S. treasury yield.
The following assumptions were used in the Black-Scholes model in estimating the fair market value of the Company's stock option grants:
| August 2018 | April 2019 | |||||||
| Risk-free interest rate: | 2.625 | % | 2.375 | % | ||||
| Expected life of the options: | 3.7 years | 3.8 years | ||||||
| Expected share price volatility: | 31 | % | 30 | % | ||||
| Expected dividends: | zero | zero | ||||||
| These assumptions resulted in estimated fair-market value per stock option: | $ | 3.18 | $ | 3.21 | ||||
- 14-
The ultimate value of the options will depend on the future price of the Company's common stock, which cannot be forecast with reasonable accuracy. A summary of changes in the stock options outstanding during the year ended May 31, 2019 is presented below.
| Weighted- | ||||||||
| Number of | Average | |||||||
| Options | Exercise Price | |||||||
| Options outstanding and exercisable at May 31, 2018: | 271,750 | $ | 11.33 | |||||
| Options granted: | 43,000 | $ | 11.90 | |||||
| Less: Options exercised: | 10,750 | $ | 3.05 | |||||
| Less: Options expired: | 80,000 | $ | 11.68 | |||||
| Options outstanding and exercisable at May 31, 2019: | 224,000 | $ | 11.71 | |||||
| Closing value per share on NASDAQ at May 31, 2019: | $ | 11.08 | ||||||
Capital Resources, Line of Credit and Long-Term Debt
The Company's primary liquidity is dependent upon its working capital needs. These are primarily inventory, accounts receivable, costs and estimated earnings in excess of billings, accounts payable, accrued commissions, billings in excess of costs and estimated earnings, and debt service. The Company's primary sources of liquidity have been operations and bank financing.
Capital expenditures for the year ended May 31, 2019 were $473,000 compared to $937,000 in the prior year. The Company has commitments to make capital expenditures of approximately $50,000 as of May 31, 2019.
The Company has a $10,000,000 demand line of credit from a bank, with interest payable at the Company's option of 30, 60 or 90 day LIBOR rate plus 2.25%. There is no outstanding balance at May 31, 2019. There was no outstanding balance as of May 31, 2018. The outstanding balance on the line of credit fluctuates as the Company's various long-term projects progress. The line is secured by a negative pledge of the Company's real and personal property. This line of credit is subject to the usual terms and conditions applied by the bank and is subject to renewal annually.
The bank is not committed to make loans under this line of credit and no commitment fee is charged.
Inventory and Maintenance Inventory
| May 31, 2019 | May 31, 2018 | Increase /(Decrease) | ||||||||||||||||||||||
| Raw materials | $ | 679,000 | $ | 727,000 | $ | (48,000 | ) | -7 | % | |||||||||||||||
| Work in process | 9,905,000 | 9,990,000 | (85,000 | ) | -1 | % | ||||||||||||||||||
| Finished goods | 655,000 | 601,000 | 54,000 | 9 | % | |||||||||||||||||||
| Inventory | 11,239,000 | 94 | % | 11,318,000 | 93 | % | (79,000 | ) | -1 | % | ||||||||||||||
| Maintenance and other inventory | 732,000 | 6 | % | 886,000 | 7 | % | (154,000 | ) | -17 | % | ||||||||||||||
| Total | $ | 11,971,000 | 100 | % | $ | 12,204,000 | 100 | % | $ | (233,000 | ) | -2 | % | |||||||||||
| Inventory turnover | 2.0 | 1.5 | ||||||||||||||||||||||
Inventory, at $11,239,000 as of May 31, 2019, is 1% less than the prior year-end. Of this, approximately 88% is work in process, 6% is finished goods, and 6% is raw materials. All of the current inventory is expected to be consumed or sold within twelve months. The level of inventory will fluctuate from time to time due to the stage of completion of the non-project sales orders in progress at the time.
The Company continues to rework slow-moving inventory, where applicable, to convert it to product to be used on customer orders. There was approximately $148,000 of slow-moving inventory used during the year ended May 31, 2019. The Company disposed of approximately $111,000 and $41,000 of obsolete inventory during the years ended May 31, 2019 and 2018, respectively.
- 15-
Accounts Receivable, Costs and Estimated Earnings in Excess of Billings (“CIEB”) and Billings in Excess of Costs and Estimated Earnings (“BIEC”)
| May 31, 2019 | May 31, 2018 | Increase /(Decrease) | ||||||||||||||
| Accounts receivable | $ | 5,279,000 | $ | 6,266,000 | $ | (987,000 | ) | -16 | % | |||||||
| CIEB | 7,572,000 | 6,357,000 | 1,215,000 | 19 | % | |||||||||||
| Less: BIEC | 634,000 | 2,043,000 | (1,409,000 | ) | -69 | % | ||||||||||
| Net | $ | 12,217,000 | $ | 10,580,000 | $ | 1,637,000 | 15 | % | ||||||||
| Number of an average day’s sales outstanding in accounts receivable (DSO) | 53 | 88 | ||||||||||||||
The Company combines the totals of accounts receivable, the asset CIEB, and the liability BIEC, to determine how much cash the Company will eventually realize from revenue recorded to date. As the accounts receivable figure rises in relation to the other two figures, the Company can anticipate increased cash receipts within the ensuing 30-60 days.
Accounts receivable of $5,279,000 as of May 31, 2019 includes approximately $951,000 of amounts retained by customers on long-term construction projects. The Company expects to collect all of these amounts, including the retained amounts, during the next twelve months. The number of an average day's sales outstanding in accounts receivable (DSO) decreased to 53 days at May 31, 2019 from 88 days as of May 31, 2018. The DSO is a function of 1.) the level of sales for an average day (for example, total sales for the past three months divided by 90 days) and 2.) the level of accounts receivable at the balance sheet date. The level of sales for an average day in the fourth quarter of the current fiscal year is 41% more than in the fourth quarter of the prior year. The level of accounts receivable at the end of the current fiscal quarter is 16% less than the level at the end of the prior year. The significant increase in the level of an average day’s sales caused the DSO to decrease from last year end to this year-end. The Company expects to collect the net accounts receivable balance, including the retainage, during the next twelve months.
The status of the projects in-progress at the end of the current and prior fiscal years have changed in the factors affecting the year-end balances in the asset CIEB, and the liability BIEC:
| 2019 | 2018 | |||||||
| Number of projects in progress at year-end | 22 | 26 | ||||||
| Aggregate percent complete at year-end | 77 | % | 72 | % | ||||
| Average total value of projects in progress at year-end | $ | 1,358,000 | $ | 942,000 | ||||
| Percentage of total value invoiced to customer | 54 | % | 55 | % | ||||
There are four fewer projects in-process at the end of the current fiscal year as compared with the prior year end and the average value of those projects has increased by 44% between those two dates.
As noted above, CIEB represents revenues recognized in excess of amounts billed. Whenever possible, the Company negotiates a provision in sales contracts to allow the Company to bill, and collect from the customer, payments in advance of shipments. Unfortunately, provisions such as this are often not possible. The $7,572,000 balance in this account at May 31, 2019 is a 19% increase from the prior year-end. Generally, if progress billings are permitted under the terms of a project sales agreement, then the more complete the project is, the more progress billings will be permitted. The Company expects to bill the entire amount during the next twelve months. 40% of the CIEB balance as of the end of the last fiscal quarter, February 28, 2019, was billed to those customers in the current fiscal quarter ended May 31, 2019. The remainder will be billed as the projects progress, in accordance with the terms specified in the various contracts.
As of May 31, 2019, there are sales orders for four projects that are not yet in progress. These projects average $248,000 each in value upon completion. This compares to four such projects as of the prior year end with an average value of $2,198,000.
- 16-
The year-end balances in the CIEB account are comprised of the following components:
| May 31, 2019 | May 31, 2018 | |||||||
| Costs | $ | 15,035,000 | $ | 9,939,000 | ||||
| Estimated earnings | 4,815,000 | 3,529,000 | ||||||
| Less: Billings to customers | 12,278,000 | 7,111,000 | ||||||
| CIEB | $ | 7,572,000 | $ | 6,357,000 | ||||
| Number of projects in progress | 18 | 19 | ||||||
As noted above, BIEC represents billings to customers in excess of revenues recognized. The $634,000 balance in this account at May 31, 2019 is in comparison to a $2,043,000 balance at the end of the prior year. The balance in this account fluctuates in the same manner and for the same reasons as the account "costs and estimated earnings in excess of billings", discussed above. Final delivery of product under these contracts is expected to occur during the next twelve months.
The year-end balances in this account are comprised of the following components:
| May 31, 2019 | May 31, 2018 | |||||||
| Billings to customers | $ | 3,910,000 | $ | 6,246,000 | ||||
| Less: Costs | 1,565,000 | 2,574,000 | ||||||
| Less: Estimated earnings | 1,711,000 | 1,629,000 | ||||||
| BIEC | $ | 634,000 | $ | 2,043,000 | ||||
| Number of projects in progress | 4 | 7 | ||||||
Accounts payable, at $1,403,000 as of May 31, 2019, is 4% less than the prior year-end. The Company expects the current accounts payable amount to be paid during the next twelve months.
Commission expense on applicable sales orders is recognized at the time revenue is recognized. The commission is paid following receipt of payment from the customers. Accrued commissions as of May 31, 2019 are $1,309,000. This is 33% more than the $983,000 accrued at the prior year-end. This increase is due to the increase in the CIEB, discussed above. The Company expects the current accrued amount to be paid during the next twelve months.
Other accrued expenses of $1,532,000 increased by 8% from the prior year level of $1,413,000.
Management believes that the Company's cash on hand, cash flows from operations and borrowing capacity under the bank line of credit will be sufficient to fund ongoing operations, capital improvements and share repurchases (if any) for the next twelve months.
- 17-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Smaller reporting companies are not required to provide the information required by this item.
Item 8. Financial Statements and Supplementary Data.
The financial statements and supplementary data required pursuant to this Item 8 are included in this Form 10-K as a separate section commencing on page 23 and are incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
There have been no disagreements between the Company and its accountants as to matters which require disclosure.
Item 9A. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
The Company's principal executive officer and principal financial officer have evaluated the Company's disclosure controls and procedures as of May 31, 2019 and have concluded that, as of the evaluation date, the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and that information required to be disclosed in the reports the Company files or submits under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.
(b) Management's report on internal control over financial reporting.
The Company's management, with the participation of the Company's principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's management has assessed the effectiveness of the Company's internal control over financial reporting as of May 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control -- Integrated Framework, updated in 2013. Based on this assessment management has concluded that, as of May 31, 2019, the Company's internal control over financial reporting is effective based on those criteria.
(c) Changes in internal control over financial reporting.
There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal year ended May 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's control over financial reporting.
Item 9B. Other Information.
None.
PART III
The information required by Items 10, 11, 12, 13 and 14 of this part will be presented in the Company's Proxy Statement to be issued in connection with the Annual Meeting of Shareholders to be held on November 2, 2019, which information is hereby incorporated by reference into this Annual Report. The proxy materials, including the Proxy Statement and form of proxy, will be filed within 120 days after the Company's fiscal year end.
- 18-
PART IV
Item 15. Exhibits and Financial Statement Schedules.
| DOCUMENTS FILED AS PART OF THIS REPORT: | |||||
|
Index to Financial Statements:
| |||||
| (i) |
Report of Independent Registered Public Accounting Firm
| ||||
| (ii) |
Consolidated Balance Sheets as of May 31, 2019 and 2018
| ||||
| (iii) | Consolidated Statements of Income for the years ended May 31, 2019 and 2018 | ||||
| (iv) |
Consolidated Statements of Stockholders' Equity for the years ended May 31, 2019 and 2018
| ||||
| (v) |
Consolidated Statements of Cash Flows for the years ended May 31, 2019 and 2018
| ||||
| (vi) | Notes to Consolidated Financial Statements - May 31, 2019 and 2018 | ||||
| EXHIBITS: | |||||
| 3 |
Articles of incorporation and by-laws
| ||||
| (i) |
Restated Certificate of Incorporation incorporated by reference to Exhibit (3)(i) of Annual Report on Form 10-K, dated August 24, 1983.
| ||||
| (ii) |
Amendment to Certificate of Incorporation incorporated by reference to Exhibit (3)(iv) to Form 8 [Amendment to Application or Report], dated September 24, 1993.
| ||||
| (iii) |
Amendment to Certificate of Incorporation eliminating and re-designating the Series A Junior Preferred Stock and creating 5,000 Series 2008 Junior Participating Preferred Stock, at $.05 par value, as filed by the Secretary of State of the State of New York on September 16, 2008, and incorporated by reference to Exhibit (3)(i) of Form 8-K, dated as of September 15, 2008 and filed September 18, 2008.
| ||||
| (iv) |
Certificate of Change incorporated by reference to Exhibit (3)(i) to Quarterly Report on Form 10-QSB for the period ending November 30, 2002.
| ||||
| (v) |
By-laws and Proxy Review Guidelines incorporated by reference to Exhibit (3) to Quarterly Report on Form 10-Q for the period ending February 28, 2015, filed April 14, 2015.
| ||||
| 4 |
Instruments defining rights of security holders, including indentures
| ||||
| (i) |
Rights Agreement by and between registrant and Computershare Trust Company, N.A., dated as of September 25, 2018 and letter to shareholders (including Summary of Rights), dated October 5, 2018, attached as Exhibits 4 and 20, respectively, to Registration Statement on Form 8-A 12G, filed with the Securities and Exchange Commission on October 5, 2018.
| ||||
| (vi) |
Description of registrant’s securities
| ||||
- 19-
|
10 |
Material Contracts
| ||
| (i) |
2005 Taylor Devices, Inc. Stock Option Plan attached as Appendix B to Definitive Proxy Statement, filed with the Securities and Exchange Commission on September 27, 2005.
| ||
| (ii) |
2008 Taylor Devices, Inc. Stock Option Plan attached as Appendix C to Definitive Proxy Statement, filed with the Securities and Exchange Commission on September 26, 2008.
| ||
| (iii) |
2012 Taylor Devices, Inc. Stock Option Plan attached as Appendix C to Definitive Proxy Statement, filed with the Securities and Exchange Commission on September 21, 2012.
| ||
| (iv) |
2015 Taylor Devices, Inc. Stock Option Plan attached as Appendix B to Definitive Proxy Statement, filed with the Securities and Exchange Commission on April 8, 2016.
| ||
| (v) |
2018 Taylor Devices, Inc. Stock Option Plan attached as Appendix B to Definitive Proxy Statement, filed with the Securities and Exchange Commission on September 27, 2018.
| ||
| (vi) |
The 2004 Taylor Devices, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 4.1 to Registration Statement on Form S-8, File No. 333-114085, filed with the Securities and Exchange Commission on March 31, 2004.
| ||
| (vii) |
Post-Effective Amendment No. 1 to Registration Statement on Form S-8, File No. 333-114085, for the 2004 Taylor Devices, Inc. Employee Stock Purchase Plan, filed with the Securities and Exchange Commission on August 24, 2006.
| ||
| (viii) |
Form of Indemnification Agreement between registrant and directors and executive officers, attached as Appendix A to Definitive Proxy Statement, filed with the Securities and Exchange Commission on September 27, 2007.
| ||
| (ix) |
Management Bonus Policy dated as of March 4, 2011 between the Registrant and executive officers, incorporated by reference to Exhibit 10(i) to Quarterly Report on Form 10-Q for the period ending February 28, 2011.
| ||
| (x) |
Negative Pledge Agreement dated August 30, 2018 by the Registrant in favor of M&T Bank, filed with this report.
| ||
| (xi) |
Employment Agreement dated as of June 14, 2019 between the Registrant and Alan R. Klembczyk, incorporated by reference to Exhibit 10(i) to Current Report on Form 8-K filed June 19, 2019.
| ||
| (xii) |
Employment Agreement dated as of June 14, 2019 between the Registrant and Mark V. McDonough, incorporated by reference to Exhibit 10(ii) to Current Report on Form 8-K filed June 19, 2019.
| ||
- 20-
| 11 | Statement regarding computation of per share earnings | ||||||||
| REG. 228.601(A)(11) Statement regarding computation of per share earnings | |||||||||
| Weighted average of common stock/equivalents outstanding - fiscal year ended May 31, 2019 | |||||||||
| Weighted average common stock outstanding | 3,470,595 | ||||||||
| Common shares issuable under stock option plans using treasury stock method | 17,043 | ||||||||
| Weighted average common stock outstanding assuming dilution | 3,487,638 | ||||||||
| Net income fiscal year ended May 31, 2019 | (1) | $ 2,544,525 | |||||||
| Weighted average common stock | (2) | 3,470,595 | |||||||
| Basic income per common share (1) divided by (2) | $ 0.73 | ||||||||
| Net income fiscal year ended May 31, 2019 | (3) | $ 2,544,525 | |||||||
| Weighted average common stock outstanding assuming dilution | (4) | 3,487,638 | |||||||
| Diluted income per common share (3) divided by (4) | $ 0.73 | ||||||||
| Weighted average of common stock/equivalents outstanding - fiscal year ended May 31, 2018 | |||||||||
| Weighted average common stock outstanding | 3,458,049 | ||||||||
| Common shares issuable under stock option plans using treasury stock method | 30,876 | ||||||||
| Weighted average common stock outstanding assuming dilution | 3,488,925 | ||||||||
| Net income fiscal year ended May 31, 2018 | (1) | $ 443,370 | |||||||
| Weighted average common stock | (2) | 3,458,049 | |||||||
| Basic income per common share (1) divided by (2) | $ 0.13 | ||||||||
| Net income fiscal year ended May 31, 2018 | (3) | $ 443,370 | |||||||
| Weighted average common stock outstanding assuming dilution | (4) | 3,488,925 | |||||||
| Diluted income per common share (3) divided by (4) | $ 0.13 | ||||||||
| 13 | The Annual Report to Security Holders for the fiscal year ended May 31, 2019, attached to this Annual Report on Form 10-K. | ||||||||
| 14 | Code of Ethics, incorporated by reference to Exhibit 14 to Annual Report on Form 10-KSB for the period ending May 31, 2005. | ||||||||
| 21 | Subsidiaries of the registrant | ||||||||
| Tayco Realty Corporation is a New York corporation organized on September 8, 1977, owned by the Company. | |||||||||
| 23 | The Consent of Independent Registered Public Accounting Firm precedes the Consolidated Financial Statements. | ||||||||
| 31 | Officer Certifications | ||||||||
| (i) | Rule 13a-14(a) Certification of Chief Executive Officer. | ||||||||
| (ii) | Rule 13a-14(a) Certification of Chief Financial Officer. | ||||||||
- 21-
| 32 | Officer Certifications | |||
| (i) | Section 1350 Certification of Chief Executive Officer. | |||
| (ii) | Section 1350 Certification of Chief Financial Officer. | |||
| 101 | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements. | |||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||
- 22-
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.
| TAYLOR DEVICES, INC. | |
| (Registrant) |
| By: | /s/Timothy J. Sopko | Date: | August 2, 2019 |
| Timothy J. Sopko | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) |
and
| By: | /s/Mark V. McDonough | Date: | August 2, 2019 |
| Mark V. McDonough | |||
| Chief Financial Officer and Director |
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/John Burgess | By: | /s/Randall L. Clark |
| John Burgess, Director | Randall L. Clark, Director | ||
| August 2, 2019 | August 2, 2019 |
| By: | /s/F. Eric Armenat | By: | /s/Alan R. Klembczyk |
| F. Eric Armenat, Director | Alan R. Klembczyk, President and Director | ||
| August 2, 2019 | August 2, 2019 |
- 23-
[Lumsden & McCormick, LLP Letterhead]
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To The Board of Directors of
Taylor Devices, Inc.
Gentlemen:
We hereby consent to the incorporation by reference in this Annual Report on Form 10-K (Commission File Number 0-3498) of Taylor Devices, Inc. of our report dated August 2, 2019 and any reference thereto in the Annual Report to Shareholders for the fiscal year ended May 31, 2019.
We also consent to such incorporation by reference in Registration Statement Nos. 333-114085, 333-133340, 333-155284, 333-184809, 333-210660 and 333-232121 of Taylor Devices, Inc. on Form S-8 of our report dated August 2, 2019.
/s/Lumsden & McCormick, LLP
Lumsden & McCormick, LLP
Buffalo, New York
August 2, 2019
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TAYLOR DEVICES, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2019
- 25
[Lumsden & McCormick, LLP Letterhead]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Taylor Devices, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Taylor Devices, Inc. and Subsidiary (the Company) as of May 31, 2019 and 2018, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial condition of the Company as of May 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Adoption of ASU No. 2014-09
As discussed in Note 1 to the consolidated financial statements, the Company changed its method for recognizing revenue as a result of the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments in ASUs 2015-14, 2016-08, 2016-10, and 2016-12, effective June 1, 2018.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating 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.
/s/Lumsden & McCormick, LLP
Lumsden & McCormick, LLP
We have served as the Company’s auditor since 1998.
Buffalo, New York
August 2, 2019
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| TAYLOR DEVICES, INC. AND SUBSIDIARY | ||||||||||||
| Consolidated Balance Sheets | ||||||||||||
| May 31, | 2019 | 2018 | ||||||||||
| Assets | ||||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||
| Short-term investments | ||||||||||||
| Accounts receivable, net | ||||||||||||
| Inventory | ||||||||||||
| Prepaid expenses | ||||||||||||
| Prepaid income taxes | ||||||||||||
| Costs and estimated earnings in excess of billings | ||||||||||||
| Total current assets | ||||||||||||
| Maintenance and other inventory, net | ||||||||||||
| Property and equipment, net | ||||||||||||
| Cash value of life insurance, net | ||||||||||||
| Deferred income taxes | ||||||||||||
| Assets | $ | $ | ||||||||||
| Liabilities and Stockholders' Equity | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | $ | ||||||||||
| Accrued commissions | ||||||||||||
| Other accrued expenses | ||||||||||||
| Billings in excess of costs and estimated earnings | ||||||||||||
| Total current liabilities | ||||||||||||
| Stockholders' Equity: | ||||||||||||
| Common stock, $ par value, authorized shares, issued and shares | ||||||||||||
| Paid-in capital | ||||||||||||
| Retained earnings | ||||||||||||
| Stockholders’ equity before treasury stock | ||||||||||||
| Treasury stock - 550,872 shares at cost | ( | ) | ( | ) | ||||||||
| Total stockholders' equity | ||||||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||||||
| See notes to consolidated financial statements. | ||||||||||||
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| TAYLOR DEVICES, INC. AND SUBSIDIARY | ||||||||
| Consolidated Statements of Income | ||||||||
| For the years ended May 31, | 2019 | 2018 | ||||||
| Sales, net | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Selling, general and administrative expenses | ||||||||
| Operating income | ||||||||
| Other income | ||||||||
| Interest, net | ||||||||
| Miscellaneous | ( | ) | ||||||
| Total other income | ||||||||
| Income before provision for income taxes | ||||||||
| Provision for income taxes | ||||||||
| Net income | $ | $ | ||||||
| Basic and diluted earnings per common share | $ | $ | ||||||
| See notes to consolidated financial statements. | ||||||||
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| TAYLOR DEVICES, INC. AND SUBSIDIARY | |||||||||||||||||
| Consolidated Statements of Stockholders' Equity | |||||||||||||||||
| For the years ended May 31, 2019 and 2018 | |||||||||||||||||
| Common | Paid-In | Retained | Treasury | ||||||||||||||
| Stock | Capital | Earnings | Stock | ||||||||||||||
| Balance, May 31, 2017 | $ | $ | $ | $ | ( | ) | |||||||||||
| Net income for the year ended May 31, 2018 | |||||||||||||||||
| Common stock issued for employee stock option plan | |||||||||||||||||
| Common stock issued for employee stock purchase plan | |||||||||||||||||
| Stock options issued for services | |||||||||||||||||
| Balance, May 31, 2018 | ( | ) | |||||||||||||||
| Net income for the year ended May 31, 2019 | |||||||||||||||||
| Common stock issued for employee stock option plan | |||||||||||||||||
| Common stock issued for employee stock purchase plan | |||||||||||||||||
| Adjustments Due to ASU 2014-09 | |||||||||||||||||
| Stock options issued for services | |||||||||||||||||
| Balance, May 31, 2019 | $ | $ | $ | $ | ( | ) | |||||||||||
| See notes to consolidated financial statements. | |||||||||||||||||
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| TAYLOR DEVICES, INC. AND SUBSIDIARY | |||||||||
| Consolidated Statements of Cash Flows | |||||||||
| For the years ended May 31, | 2019 | 2018 | |||||||
| Operating activities: | |||||||||
| Net income | $ | $ | |||||||
| Adjustments to reconcile net income to net cash flows from | |||||||||
| operating activities: | |||||||||
| Depreciation | |||||||||
| Stock options issued for services | |||||||||
| Loss on disposal of property and equipment | |||||||||
| Provision for inventory obsolescence | |||||||||
| Deferred income taxes | |||||||||
| Changes in other current assets and liabilities: | |||||||||
| Accounts receivable | ( | ) | |||||||
| Inventory | |||||||||
| Prepaid expenses | ( | ) | |||||||
| Prepaid income taxes | ( | ) | ( | ) | |||||
| Costs and estimated earnings in excess of billings | ( | ) | |||||||
| Accounts payable | ( | ) | |||||||
| Accrued commissions | |||||||||
| Other accrued expenses | ( | ) | |||||||
| Billings in excess of costs and estimated earnings | ( | ) | |||||||
| Net operating activities | |||||||||
| Investing activities: | |||||||||
| Acquisition of property and equipment | ( | ) | ( | ) | |||||
| Increase in short-term investments | ( | ) | ( | ) | |||||
| Increase in cash value of life insurance | ( | ) | ( | ) | |||||
| Net investing activities | ( | ) | ( | ) | |||||
| Financing activities: | |||||||||
| Proceeds from issuance of common stock | |||||||||
| Net financing activities | |||||||||
| Net change in cash and cash equivalents | ( | ) | |||||||
| Cash and cash equivalents - beginning | |||||||||
| Cash and cash equivalents - ending | $ | $ | |||||||
| See notes to consolidated financial statements. | |||||||||
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| TAYLOR DEVICES, INC. AND SUBSIDIARY |
| Notes to Consolidated Financial Statements |
1. Summary of Significant Accounting Policies:
Nature of Operations:
Taylor Devices, Inc. (the Company) manufactures and sells a single group of very similar products that have many different applications for customers. These similar products are included in one of eight categories; namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs,Vibration Dampers, Machined Springs and Custom Actuators for use in various types of machinery, equipment and structures, primarily to customers which are located throughout the United States and several foreign countries. The products are manufactured at the Company's sole operating facility in the United States where all of the Company's long-lived assets reside. Management does not track or otherwise account for sales broken down by these categories.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Tayco Realty Corporation (Realty). All inter-company transactions and balances have been eliminated in consolidation.
Subsequent Events:
The Company has evaluated events and transactions for potential recognition or disclosure in the financial statements through the date the financial statements were issued.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents:
The Company includes all highly liquid investments in money market funds in cash and cash equivalents on the accompanying balance sheets.
Cash and cash equivalents in financial institutions may exceed insured limits at various times during the year and subject the Company to concentrations of credit risk.
Short-term Investments:
At times, the Company invests excess funds in liquid interest earning instruments. Short-term investments at May 31, 2019 include “available for sale” corporate bonds stated at fair value, which approximates cost. The bonds (7) mature on various dates during the period May 2020 to December 2021. Unrealized holding gains and losses would be presented as a separate component of accumulated other comprehensive income, net of deferred income taxes. Realized gains and losses on the sale of investments are determined using the specific identification method.
The bonds are valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings.
- 31-
Accounts Receivable:
Accounts receivable are stated at an amount management expects to collect from outstanding balances. Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
Inventory:
Inventory is stated at the lower of average cost or net realizable value. Average cost approximates first-in, first-out cost.
Property and Equipment:
Property and equipment is stated at cost net of accumulated depreciation. Deprecation is provided primarily using the straight-line method for financial reporting purposes, and accelerated methods for income tax reporting purposes. Maintenance and repairs are charged to operations as incurred; significant improvements are capitalized.
Cash Value of Life Insurance:
Cash value of life insurance is stated at the surrender value of the contracts.
Revenue Recognition:
As noted below, ASU 2014-09 was adopted on June 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings.
Revenue is recognized (generally at fixed prices) when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services.
A performance obligation is a promise in
a contract to transfer a distinct good or service to the customer, and is the unit of account. A contract’s transaction
price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation
is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual
goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct.
Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance
obligations. In the year ended May 31, 2019,
For contracts with customers in which
the Company satisfies a promise to the customer to provide a product that has no alternative use to the Company and the Company
has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation
and recognizes revenue over time (generally less than one year), using costs incurred to date relative to total estimated costs
at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which
corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and
overhead. Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are
charged to operations in the period such losses are determined. In the year ended May 31, 2019,
Progress payments are typically negotiated for longer term projects. Payments are otherwise due once performance obligations are complete (generally at shipment and transfer of title). For financial statement presentation purposes, the Company nets progress billings against the total costs incurred on uncompleted contracts. The asset, “costs and estimated earnings in excess of billings,” represents revenues recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings,” represents billings in excess of revenues recognized.
- 32-
If applicable, the Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. As of May 31, 2019, the Company does not have material incremental costs on any open contracts with an original expected duration of greater than one year, and therefore such costs are expensed as incurred. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer.
We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings primarily because certain longer term contracts accounted for on the percentage of completion method did not contain “enforceable right to payment” terms, as defined. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The cumulative effect of the changes made to our consolidated June 1, 2018 balance sheet for the adoption of ASU 2014-09, were as follows:
| Balance Sheet | Balance at May 31, 2018 | Adjustments Due to ASU 2014-09 | Balance at June 1, 2018 | |||||||||
| Assets | ||||||||||||
| Inventory | $ | $ | $ | |||||||||
| Costs and estimated earnings in excess of billings | $ | $ | ( | ) | $ | |||||||
| Liabilities | ||||||||||||
| Billings in excess of costs and estimated earnings | $ | $ | ( | ) | $ | |||||||
| Other accrued expenses | $ | $ | $ | |||||||||
| Equity | ||||||||||||
| Retained earnings | $ | $ | $ | |||||||||
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption of ASU 2014-09 on our consolidated balance sheet and income statement was as follows:
| May 31, 2019 | ||||||||||||
| Balance Sheet | As Reported | Effect of Change Higher/(Lower) | Balances Without Adoption of ASU 2014-09 | |||||||||
| Assets | ||||||||||||
| Inventory | $ | $ | $ | |||||||||
| Costs and estimated earnings in excess of billings | $ | $ | $ | |||||||||
| Liabilities | ||||||||||||
| Other accrued expenses | $ | $ | $ | |||||||||
| Equity | ||||||||||||
| Retained earnings | $ | $ | $ | |||||||||
- 33-
| For the year ended May 31, 2019 | ||||||||||||
| Income Statement | As Reported | Effect of Change Higher/(Lower) | Balances Without Adoption of ASU 2014-09 | |||||||||
| Revenues | ||||||||||||
| Sales, net | $ | $ | $ | |||||||||
| Costs and Expenses | ||||||||||||
| Cost of goods sold | $ | $ | $ | |||||||||
| Provision for income taxes | $ | $ | $ | |||||||||
| Net income (loss) | $ | $ | ( | ) | $ | |||||||
Shipping and Handling Costs:
Shipping and handling costs on incoming inventory
items are classified as a component of cost of goods sold, while shipping and handling costs on outgoing shipments to customers
are classified as a component of selling, general and administrative expenses. The amounts of these costs classified as a component
of selling, general and administrative expenses were $
Research and Development Costs:
Research and development costs are classified
as a component of cost of sales. The amounts of these costs were $
Income Taxes:
The provision for income taxes provides for the tax effects of transactions reported in the financial statements regardless of when such taxes are payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets and liabilities. Deferred taxes are based on tax laws currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered.
The Company's practice is to recognize interest related to income tax matters in interest income / expense and to recognize penalties in selling, general and administrative expenses. The Company did not have any accrued interest or penalties included in its consolidated balance sheets at May 31, 2019 or 2018. The Company recorded no interest expense or penalties in its consolidated statements of income during the years ended May 31, 2019 and 2018.
The Company believes it is no longer subject to examination by federal and state taxing authorities for years prior to May 31, 2016.
Sales Taxes:
Certain jurisdictions impose a sales tax on Company sales to nonexempt customers. The Company collects these taxes from customers and remits the entire amount as required by the applicable law. The Company excludes from revenues and expenses the tax collected and remitted.
The Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award. The stock-based compensation expense for the years ended May 31, 2019 and 2018 was and .
- 34-
New Accounting Standards:
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09, as amended, is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2018 (fiscal year 2019 for the Company). Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company adopted ASU 2014-09 on June 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings. The effect of the adoption is detailed above.
Other recently issued Accounting Standards Codification (ASC) guidance has either been implemented or are not significant to the Company.
2. Accounts Receivable:
| 2019 | 2018 | |||||||
| Customers | $ | $ | ||||||
| Customers - retention | ||||||||
| Gross accounts receivable | ||||||||
| Less allowance for doubtful accounts | ||||||||
| Net accounts receivable | $ | $ | ||||||
3. Inventory:
| 2019 | 2018 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Gross inventory | ||||||||
| Less allowance for obsolescence | ||||||||
| Net inventory | $ | $ | ||||||
4. Costs and Estimated Earnings on Uncompleted Contracts:
| 2019 | 2018 | |||||||
| Costs incurred on uncompleted contracts | $ | $ | ||||||
| Estimated earnings | ||||||||
| Total costs and estimated earnings | ||||||||
| Less billings to date | ||||||||
| Costs and estimated earnings not billed | $ | $ | ||||||
Amounts are included in the accompanying balance sheets under the following captions:
| 2019 | 2018 | |||||||
| Costs and estimated earnings in excess of billings | $ | $ | ||||||
| Billings in excess of costs and estimated earnings | ||||||||
| Costs and estimated earnings not billed | $ | $ | ||||||
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The following summarizes the status of Projects in progress as of May 31, 2019 and 2018:
| 2019 | 2018 | |||||||
| Number of Projects in progress | ||||||||
| Aggregate percent complete | % | % | ||||||
| Aggregate amount remaining | $ | $ | ||||||
| Percentage of total value invoiced to customer | % | % | ||||||
Additionally, as of May 31, 2019, there are
sales orders for
Revenue recognized during the years ended May
31, 2019 and 2018 for amounts included in billings in excess of costs and estimated earnings as of the beginning of the year amounted
to $
5. Maintenance and Other Inventory:
| 2019 | 2018 | |||||||
| Maintenance and other inventory | $ | $ | ||||||
| Less allowance for obsolescence | ||||||||
| Maintenance and other inventory, net | $ | $ | ||||||
Maintenance and other inventory represent stock that is estimated to have a product life-cycle in excess of twelve-months. This stock represents certain items the Company is required to maintain for service of products sold, and items that are generally subject to spontaneous ordering.
This inventory is particularly sensitive to technical obsolescence in the near term due to its use 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.
The provision for potential inventory obsolescence
was $
6. Property and Equipment:
| 2019 | 2018 | |||||||
| Land | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Machinery and equipment | ||||||||
| Office furniture and equipment | ||||||||
| Autos and trucks | ||||||||
| Land improvements | ||||||||
| Gross property and equipment | ||||||||
| Less accumulated depreciation | ||||||||
| Property and equipment, net | $ | $ | ||||||
Depreciation expense was $
The Company has commitments to make capital
expenditures of approximately $
7. Short-Term Borrowings:
The Company has available a $
- 36-
There is
The Company uses a cash management facility
under which the bank draws against the available line of credit to cover checks presented for payment on a daily basis. Outstanding
checks under this arrangement totaled $
8. Legal Proceedings:
There are no legal proceedings except for routine litigation incidental to the business.
9. Sales:
The Company manufactures and sells a single group of very similar products that have many different applications for customers. These similar products are included in one of eight categories; namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs,Vibration Dampers, Machined Springs and Custom Actuators. Management does not track or otherwise account for sales broken down by these categories. Sales of the Company's products are made to three general groups of customers: industrial, construction and aerospace / defense. A breakdown of sales to these three general groups of customers is as follows:
| 2019 | 2018 | |||||||
| Construction | $ | $ | ||||||
| Aerospace / Defense | ||||||||
| Industrial | ||||||||
| Sales, net | $ | $ | ||||||
Sales to four customers approximated
10. Income Taxes:
| 2019 | 2018 | |||||||
| Current tax provision: | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Total current tax provision | ||||||||
| Deferred tax provision: | ||||||||
| Federal | ( | ) | ||||||
| State | ||||||||
| Total deferred tax provision | ( | ) | ||||||
| Total tax provision | $ | $ | ||||||
A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows:
| 2019 | 2018 | |||||||
| Computed tax provision at the expected statutory rate | $ | $ | ||||||
| State income tax - net of Federal tax benefit | ( | ) | ||||||
| Tax effect of permanent differences: | ||||||||
| Research tax credits | ( | ) | ( | ) | ||||
| Tax rate change on deferred taxes | ||||||||
| Other permanent differences | ( | ) | ||||||
| Other | ( | ) | ||||||
| Total tax provision | $ | $ | ||||||
| Effective income tax rate | % | % | ||||||
- 37-
Significant components of the Company's deferred tax assets and liabilities consist of the following:
| 2019 | 2018 | |||||||
| Deferred tax assets: | ||||||||
| Allowance for doubtful receivables | $ | $ | ||||||
| Tax inventory adjustment | ||||||||
| Allowance for obsolete inventory | ||||||||
| Accrued vacation | ||||||||
| Accrued commissions | ||||||||
| Warranty reserve | ||||||||
| Stock options issued for services | ||||||||
| Total deferred tax assets | ||||||||
| Deferred tax liabilities: | ||||||||
| Excess tax depreciation | ||||||||
| Net deferred tax assets | $ | $ | ||||||
In December 2017, the Tax Cuts and Jobs Act
(the 2017 Act) became law. It includes a broad range of tax reform proposals affecting businesses, including corporate tax rates,
business deductions, and international tax provisions. Among the changes, the 2017 Act reduces the corporate rate from
Realization of the deferred tax assets is dependent
on generating sufficient taxable income at the time temporary differences become deductible. The Company provides a valuation allowance
to the extent that deferred tax assets may not be realized. A valuation allowance has not been recorded against the deferred tax
assets since management believes it is more likely than not that the deferred tax assets are recoverable. The Company considers
future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance. The amount
of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income
are reduced. The Company will need to generate approximately $3.6 million in taxable income in future years in order to realize
the deferred tax assets recorded as of May 31, 2019 of $
The Company and its subsidiary file
consolidated Federal and State income tax returns. As of May 31, 2019, the Company had State investment tax credit
carryforwards of approximately $
Basic earnings per common share is computed by dividing income available to common stockholders by the weighted-average common shares outstanding for the period. Diluted earnings per common share reflects the weighted-average common shares outstanding and dilutive potential common shares, such as stock options.
A reconciliation of weighted-average common shares outstanding to weighted-average common shares outstanding assuming dilution is as follows:
| 2019 | 2018 | |||||||
| Average common shares outstanding | ||||||||
| Common shares issuable under stock option plans | ||||||||
| Average common shares outstanding assuming dilution | ||||||||
12. Related Party Transactions:
The Company had no related party transactions for the years ended May 31, 2019 and 2018.
- 38-
In March 2004, the Company reserved 295,000 shares of common stock for issuance pursuant to a non-qualified employee stock purchase plan. Participation in the employee stock purchase plan is voluntary for all eligible employees of the Company. Purchase of common shares can be made by employee contributions through payroll deductions. At the end of each calendar quarter, the employee contributions will be applied to the purchase of common shares using a share value equal to the mean between the closing bid and ask prices of the stock on that date. These shares are distributed to the employees at the end of each calendar quarter or upon withdrawal from the plan. During the years ended May 31, 2019 and 2018, ($10.235 to $12.28 price per share) and ($11.025 to $13.415 price per share) common shares, respectively, were issued to employees. As of May 31, 2019, 221,627 shares were reserved for further issue.
In 2015, the Company adopted a stock option plan which permits the Company to grant both incentive stock options and non-qualified stock options. The incentive stock options qualify for preferential treatment under the Internal Revenue Code. Under this plan, shares of common stock have been reserved for grant to key employees and directors of the Company and 138,500 shares have been granted as of May 31, 2019. Under the plan, the option price may not be less than the fair market value of the stock at the time the options are granted. Options vest immediately and expire ten years from the date of grant.
Using the Black-Scholes option pricing model, the weighted average estimated fair value of each option granted under the plan was during 2019 and during 2018. The pricing model uses the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company's stock. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of options granted is derived from previous history of stock exercises from the grant date and represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise and employee termination assumptions under the valuation model. The Company has never paid dividends on its common stock and does not anticipate doing so in the foreseeable future.
| 2019 | 2018 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected life in years | ||||||||
| Expected volatility | % | % | ||||||
| Expected dividend yield | % | % | ||||||
The following is a summary of stock option activity:
| Shares | Weighted Average Exercise Price | Intrinsic Value | ||||||||||
| Outstanding - May 31, 2017 | $ | $ | ||||||||||
| Options granted | $ | |||||||||||
| Less: options exercised | $ | |||||||||||
| Less: options expired | $ | |||||||||||
| Outstanding - May 31, 2018 | $ | $ | ||||||||||
| Options granted | $ | |||||||||||
| Less: options exercised | $ | |||||||||||
| Less: options expired | $ | |||||||||||
| Outstanding - May 31, 2019 | $ | $ | ||||||||||
We calculated intrinsic value for those options that had an exercise price lower than the market price of our common shares as of the balance sheet dates. The aggregate intrinsic value of outstanding options as of the end of each fiscal year is calculated as the difference between the exercise price of the underlying options and the market price of our common shares for the options that were in-the-money at that date (77,250 at May 31, 2019 and 93,000 at May 31, 2018.) The Company's closing stock price was and as of May 31, 2019 and 2018. As of May 31, 2019, there are options available for future grants under the 2015 stock option plan. and was received from the exercise of share options during the fiscal years ended May 31, 2019 and 2018.
- 39-
In 2018, the Company adopted a stock option plan which permits the Company to grant both incentive stock options and non-qualified stock options. The incentive stock options qualify for preferential treatment under the Internal Revenue Code. Under this plan, 160,000 shares of common stock have been reserved for grant to key employees and directors of the Company and no shares have been granted as of May 31, 2019. Under the plan, the option price may not be less than the fair market value of the stock at the time the options are granted. Options vest immediately and expire ten years from the date of grant.
The following table summarizes information about stock options outstanding at May 31, 2019:
| Outstanding and Exercisable | ||||||||||||
| Range of Exercise Prices | Number of Options | Weighted Average Remaining Years of Contractual Life | Weighted Average Exercise Price | |||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
The following table summarizes information about stock options outstanding at May 31, 2018:
| Outstanding and Exercisable | ||||||||||||
| Range of Exercise Prices | Number of Options | Weighted Average Remaining years of Contractual Life | Weighted Average Exercise Price | |||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
| $-$ | $ | |||||||||||
15. Preferred Stock:
The Company has authorized but unissued shares of preferred stock which may be issued in series. The shares of each series shall have such rights, preferences, and limitations as shall be fixed by the Board of Directors.
16. Treasury Stock:
Treasury shares are at May 31, 2019 and 2018.
- 40-
17. Retirement Plan:
The Company maintains a retirement plan for
essentially all employees pursuant to Section 401(k) of the Internal Revenue Code. The Company matches a percentage of employee
voluntary salary deferrals subject to limitations. The Company may also make discretionary contributions as determined annually
by the Company's Board of Directors. The amount expensed under the plan was $
18. Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short maturity of these instruments.
The fair values of short-term investments were determined as described in Note 1.
19. Cash Flows Information:
| 2019 | 2018 | |||||||
| Interest paid | ||||||||
| Income taxes paid | $ | $ | ||||||
Exhibit 13
Taylor Devices, Inc. 2019 Annual Report
LETTERS FROM THE PRESIDENT AND THE CEO
2019 LETTER FROM PRESIDENT
Alan Klembczyk | President
Dear Shareholders,
Significant changes have occurred at Taylor Devices over the last year. There have been substantial improvement efforts initiated at every level of the Company. These changes included aggressive sales strategies, accelerated efforts to implement Lean Manufacturing principles throughout our facilities, along with key changes in management positions.
At the Annual Shareholder’s Meeting last fall, we reported on some key initiatives and strategies that would accommodate our corporate goals of increasing revenue and profitability. While working through this climate of change, we are happy to report that we have been able to record very good results for Fiscal Year 2019. We continue to stay focused on both maintaining and improving our long-term goals.
Sales for the fiscal year ending May 31, 2019 were $33,619,031 compared to last year’s sales of $24,363,967; an increase of 38%. Operating income was $3,013,792 compared to $647,633 in 2018. Net income was $2,544,525 compared to $443,370 in 2018; an increase of 474%. Taylor Devices’ firm order backlog at the end of the 2019 fiscal year was $13.3 million compared to $23.1 million at the close of the 2018 fiscal year. The backlog product mix consists of approximately 43% aerospace and defense, 52% seismic products, and 5% commercial/industrial products. Despite this decline in backlog from the previous year, management is forecasting a solid year in FY2020 as many major projects are continuing to materialize into firm orders.
Featured within our 2019 Annual Report are three major bridge projects involving seismic dampers that we have been involved with. These are the Vincent Thomas Bridge, the Gerald Desmond Bridge and the San Francisco Oakland Bay Bridge (SFOBB) all located within the state of California. As reported last year, the SFOBB damper project was the largest order ever received at Taylor Devices. Production of these large devices will continue through early 2020. We successfully completed the work on the Vincent Thomas Bridge project in 2018 and the Gerald Desmond Bridge project finishes within the current calendar year.
Also featured in this Annual Report is the Phalanx Close-in Weapons System currently used by several navies around the world on their surface vessels. Taylor Devices first started working on specialized energy absorbing devices for this system with General Electric and the U.S. Navy back in the late 1970s. Now, forty years later, we are still proudly providing the same components for that system. Recently, we received a large order for these devices that have assuredly stood the test of time.
Our management team and all our employees remain diligent in meeting and exceeding our projected plans for growth and profitability. We are confident in all our efforts moving forward and continue to build a successful future for Taylor Devices, Inc.
Sincerely,
TAYLOR DEVICES, INC.
/s/Alan R. Kembczyk
Alan Klembczyk
President
2019 LETTER FROM CEO
Timothy J. Sopko | Chief Executive Officer
To our Shareholders,
It is with great honor that I write this, my first Shareholders letter, as the new CEO for Taylor Devices Inc. After only a short time with the company, I am happy to report that the key prerequisites for successful growth and prosperity: great people, differentiating technologies and capabilities that are valued by customers in multiple markets, are alive and well here at Taylor.
Before I highlight some of the priorities that we are focusing on to drive continued profitable growth, I must congratulate the Team on an outstanding 2019 fiscal year. Sales of $33.6m, second highest in the company’s history exceeded only in 2016 when sales finished at $35.7m, were significantly greater than last year’s $24.4m. While sales from our Construction, Aerospace/Defense and Industrial customers all experienced year on year growth, sales from our Construction customers dominated with an increase of almost $8m this year vs. last year. Costs were well managed by the Team as indicated by Gross Profit which, as a percentage of sales, improved 2.6% year on year; $9.0m (26.9% of sales) this year vs. $5.9m (24.3% of sales) last year. Operating Income finished at $3.0m (8.9% of sales) this year vs. $0.65m (2.7% of sales) last year. Net Income landed at $2.5m (7.6% of sales) vs. $0.44m (1.8% of sales) last year. Backlog finished at $13.3m vs. $23.1m at the end of FY2018. This decrease in backlog is due partly to improved execution of orders (higher volume with less past due orders) but also the timing of larger orders that we receive from our Construction customers. The strong overall US economy coupled with an unprecedented U.S. Defense budget are driving a favorable outlook for FY2020, particularly for products provided to our Construction (seismic and wind protection for buildings and bridges, both new and retrofit) as well as Aerospace/Defense (dampers, actuators and springs for various components and subsystems on Space and Military Platforms) customers. We expect the United States to dominate our sales by geographic region in FY2020 as it did in FY2019 (just under 80% of total annual sales).
Priorities for FY2020 are execution with an emphasis on quality and delivery. Continuous improvement of our key business processes, driven by our on-going Lean efforts and variation reduction, as well as improved cross-functional teaming and empowered ownership of our plan by all employees will be primary areas of focus to help drive our success. Accordingly, I am very much looking forward to working with the Team to build upon the strong foundation and rich heritage that has been established over the past sixty-four years to achieve our primary goal of continued profitable growth.
Sincerely,
TAYLOR DEVICES, INC.
/s/Timothy J. Sopko
Timothy J. Sopko
Chief Executive Officer
STATUS REPORTS
2019 STATUS REPORT – FROM THE VICE PRESIDENT, OPERATIONS
Todd Avery | Vice President, Operations
Having just joined the Company in June 2019, it has been my pleasure meeting the great people of Taylor Devices as well as some of our key customers. The work we do is of great importance to the health and well-being of others, and I am excited to be a part of the Team, making a difference to those who utilize our products.
The fiscal Year 2019 had brought in many new and positive changes and we are looking to continue on that path and incorporate even more improvements for the Fiscal Year 2020 and beyond in many areas of the Company. Specifically, in Operations, steps to improve our on-time delivery to our customers are being undertaken.
To that end, we will be making the following changes:
| - | Prioritize our initiatives and track actions via Strategy Deployment. |
| - | Bring accountability to everything that we do through consistent leadership. |
| - | Manage our performance through daily stand-up meetings, identify gaps between plan and actual. |
| - | Identify and eliminate waste through Kaizen events. |
| - |
The Fiscal Year 2020 will also see us implement a more efficient method to plan our production, thereby removing the waste within the current state methods and ensuring we are effective at meeting our customer due dates that we have committed to. This will help ensure that our overall corporate goals are met in terms of increasing revenue and profitability.
Lastly, we will judiciously spend capital to provide our people with the safest and most productive manufacturing processes and equipment for our industry so that we may continue to maintain and improve upon our reputation and competitiveness long-term.
Todd Avery
Vice President, Operations
2019 STATUS REPORT – FROM THE CHIEF FINANCIAL OFFICER
Mark V. McDonough | Chief Financial Officer
While beating fiscal 2018 results is nothing to overemphasize, bouncing back from last year’s disappointing results with a sales level that is better than all past years but one and with a profit level that beats all past years but two is encouraging after the first change in Taylor Devices’ leadership in over twenty-five years. The 38% increase in revenue over fiscal 2018 was dominated by domestic sales of Seismic/Wind protection units. While sales volume to customers for Seismic/Wind protection increased by 65% over last year, we also enjoyed sales increases to Aerospace/Defense customers (12%) and industrial customers (5%). As sales in the United States increased by 40% over last year’s very low level, they also beat the average level of domestic sales for the prior four years by 19%. Sales to customers in Asia increased for the second straight year but remain below the average level for the prior four years. We improved our gross margin by a bit and gross profit jumped 53% from last year. Selling expenses rose with sales while our operating income improved more than fourfold over last year’s level. The net income for fiscal 2019 is the third best in the history of the Company and 9% better than the average of the prior four years. Earnings per share were 72 cents for fiscal 2019 compared to 13 cents for the prior year and 66 cents average for the prior four years.
The strong fiscal 2019 sales ate into our sales order backlog, which stands at $13.3 million on May 31, 2019. This is down from $23.1 million at the end of fiscal 2018. The sales order backlog is weighted slightly more towards customers in Aerospace/Defense with 84% to domestic customers. We are encouraged by continued new sales order activity in the early months of the 2020 fiscal year. While there is much work to be done to close on many of the sizable opportunities currently being planned around the world, based on our sales order backlog at year-end and new order activity in the early stages of the new fiscal year, we are optimistic that our profitable growth will continue through fiscal 2020. As we continue to grow our business in 2020, we are working to become more efficient in our operations as we strive to increase customer interest in our products.
We will continue to work with our advisors to keep abreast of changes in the regulations and to remain in compliance with them in order to ensure that accurate, reliable financial and business information is provided to investors and other users of this annual report and our interim reports.
Mark V. McDonough
Chief Financial Officer
2019 STATUS REPORT – FROM AEROSPACE / DEFENSE PRODUCTS
John C. Metzger | Vice President, Engineering
Sales in the Aerospace/Defense sector for Fiscal Year 2019 represented 34% of the total sales and 43% of our year-end backlog. Sales were up 12% at $11,383,329 compared to $10,205,900 in FY18. Revenue has been stable based on the steady recurring orders of our mature products on healthy U.S. Government programs.
Taylor Devices continues to work on new programs that will help sustain and improve sales for many years to come. Likewise, there are significant efforts in Research and Development being conducted to help ensure corporate goals are met and surpassed.
A full development and qualification program, driven by new customer specifications for landing gear shock absorbers on drone aircraft, is currently underway. This work is complemented by the development of similar products for an overseas customer.
The Aerospace/Defense team effectively overcame many technical challenges in Fiscal Year 2019. This was highlighted by successful qualification testing of our Abort Springs Assemblies for the Orion Space Capsule. Each launch of the Space Launch System Vehicle will require a complete shipset of assemblies, returning us to the Moon and beyond, while ensuring sustained sales for the Company.
A contract for Ground Wind Damper (GWD) System to be used on a new rocket will bolster our continuing manufacture of many distinct energy absorbers located on the launch pad. An additional order was received to perform system-level testing of the GWD which accommodates the release of the system from the rocket at liftoff. Completion of testing and the qualification of this system is scheduled for December 2019.
The Company continues their work on a substantial U.S. Government contract involving the testing of various shock isolation components utilized in Naval applications. Taylor Devices’ world-class testing facility proves to be an industry-wide standout. We continue to explore new business opportunities for our unique testing capabilities.
John C. Metzger
Vice President, Engineering
2019 STATUS REPORT – FROM INDUSTRIAL PRODUCTS
Robert H. Schneider | Industrial Products Division
Craig W. Winters | Industrial Products Division
Fiscal Year 2019 was another solid year for Taylor Devices’ Industrial Product Lines. Sales increased 65% to $20,168,586 for our construction-related products with a modest 5% to $2,067,071 for our crane buffers and other catalog items. The total for both product lines represents 66% of the Company’s sales for the year.
FY19 represented a breakthrough year under our new president, Alan Klembczyk. Expansion of a much-needed, separate marketing division within the sales department has allowed us to refocus our efforts into a more direct approach. We have consolidated our reach by bringing more of our marketing in-house, where it was previously outsourced.
During the summer of 2018, Taylor Devices hired Sebastian Habermehl as a Marketing Specialist to handle and oversee marketing initiatives. As a result, our social media presence has increased with relevant and current content being spread to a broader-reaching audience. We have also amped-up our conference attendance with the primary goal of meeting more clients face-to-face, as well as introducing an expanded consumer base to our technology.
Another change for the sales department is the transformative evolution of the Taylor Devices website. We modified the website with a refreshed, inviting look into our three market segments which include industrial, seismic/wind, and aerospace/military. This revised website displays a clarified approach reaching the relevant product lines and information. Although this is the first major improvement to our website in many years, we are already undergoing another revision with plans to roll-out an even better user experience. It will allow us to bring all updating in-house, with the implementation of changes upon immediate demand.
During October 2018, Taylor Devices held its first annual international sales representative meeting in downtown Buffalo. This meeting provided a hands-on forum for collaboration and direct learning about our industry. It opened communication for helping both the seasoned as well as the new representatives better understand our product lines and markets while gaining valuable insight about marketing and selling these products.
During FY19, orders for our seismic and wind damping technology yielded several projects. Along with the completion of forty replacement seismic dampers for the featured Vincent Thomas Bridge, and the continued supply of thirty-four huge Gerald Desmond Bridge dampers, Taylor Devices received another contract from Caltrans. It consisted of one hundred replacement dampers, utilizing our new technology called “LMD” (Lost-Motion Device), for the San Francisco-Oakland Bay Bridge’s west-span. We will also be continuing with the supply of Loma Linda Hospital vertical isolation components throughout FY20.
Some other projects include the seismic retrofit of the National Air and Space Museum in Washington, D.C., the 888 North Main Street Project in Santa Ana, CA, the TMD dampers for the One Vanderbilt skyscraper in NYC, and the supply of seismic dampers for UCLA’s Franz Hall retrofit. Taylor Devices was also awarded contracts to supply fluid viscous dampers for a base-isolated, high-speed internet data center in California, a semiconductor chip manufacturing facility in Taiwan, along with a number of residential projects in Taiwan, and several building projects in Japan.
A solid backlog of existing orders at the end of FY19 as well as new and retrofit construction projects in the pipeline provide a great outlook for FY20 expectations. We have upgraded our CRM software, which is helping us to improve focus on the relevant and critical items.
On the technical side, our recognized ability to suit our customer’s needs with special products and innovative technologies allow us to maintain our reputation as a world industry leader while keeping our brand recognition at the forefront of our clients’ attention.
Robert H. Schneider | Craig W. Winters
Industrial Products Division
CORPORATE DATA
| OFFICERS AND DIRECTORS |
| F. ERIC ARMENAT | Secretary and Director |
| JOHN BURGESS | Chairman of the Board of Directors |
| RANDALL L. CLARK | Director |
| ALAN R. KLEMBCZYK | President and Director |
| MARK V. MCDONOUGH | Chief Financial Officer and Director |
| TIMOTHY J. SOPKO | Chief Executive Officer |
| INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
| Lumsden & McCormick, LLP |
| Cyclorama Building |
| 369 Franklin Street |
| Buffalo, NY 14202-1702 |
| GENERAL COUNSEL |
| Barclay Damon, LLP |
| Barclay Damon Tower |
| 125 East Jefferson Street |
| Syracuse, NY 13202 |
|
MANAGERS TODD AVERY | Vice President, Operations |
| SUSAN EWING | Human Resources Manager |
| DONALD HORNE | Chief Engineer |
| CHARLES KETCHUM III | Quality Assurance/Quality Control Manager |
| NICHOLAS MARSOLAIS |Production Control Manager |
| JOHN METZGER | Vice President, Engineering |
| PETER MILICIA | Accounting Supervisor / Shareholder Relations Manager |
| MICHAEL ROGOWSKI | Supply Chain Manager |
| ERIC ROTH | Scholl Operations Manager |
| ROBERT SCHNEIDER | Industrial/Seismic Products Sales Manager |
| THOMAS STRUZIK JR. | Large Machine Shop Supervisor |
| KEVIN SUPLICKI | Information Systems Manager |
| DENNIS WARMUS | Manufacturing Engineering Manager |
| CRAIG WINTERS | Industrial/Seismic Products Sales Manager |
TRANSFER AGENT AND REGISTRAR
Computershare Investor Services
150 Royall Street
Canton, MA 02021
800-522-6645
www.computershare.com
FINANCIAL REPORT – BY WRITTEN REQUEST
A copy of the financial report on form 10-K can be obtained by written request to the attention of Peter Milicia at Taylor Devices, Inc., 90 Taylor Drive, North Tonawanda, NY 14120-0748.
MARKET INFORMATION
The Company's Common Stock trades on the NASDAQ Capital Market of the National Association of Securities Dealers Automated Quotation (NASDAQ) stock market under the symbol TAYD.
The high and low sales information noted below for the quarters of Fiscal Year 2019 and Fiscal Year 2018 were obtained from NASDAQ.
| Fiscal Year 2019 | Fiscal Year 2018 | |||||||
| High | Low | High | Low | |||||
| First Quarter | $12.62 | $ 9.99 | $14.12 | $10.62 | ||||
| Second Quarter | $12.70 | $10.80 | $14.00 | $10.84 | ||||
| Third Quarter | $13.29 | $11.50 | $15.14 | $11.01 | ||||
| Fourth Quarter | $12.75 | $10.42 | $12.23 | $ 9.70 | ||||
As of May 31, 2019, the number of issued and outstanding shares of Common Stock was 3,478,559 and the approximate number of record holders of the Company's Common Stock was 509. 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 is less than 2,000. No cash or stock dividends have been declared during the fiscal year ended May 31, 2019.
NOTICE OF ANNUAL MEETING
Taylor Devices’ Annual Shareholders Meeting will take place on Friday, November 1, 2019, at 11:00 a.m. This year's meeting will be held at the Millennium Buffalo, 2040 Walden Avenue, Buffalo, New York 14225. Shareholders desiring accommodations may call the Millennium Buffalo at 716-681-2400.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
John Burgess
Chairman of the Board of Directors
Mr. Burgess gained his international strategy, manufacturing operations and organizational development expertise from his more than 40 years experience with middle market public and privately-owned companies. Mr. Burgess served as President and CEO of Reichert, Inc. a leading provider of ophthalmic instruments, and spearheaded the acquisition of the company from Leica Microsystems in 2002, leading the company until its sale in January 2007. Prior to the acquisition, Mr. Burgess served as President of Leica’s Ophthalmic and Educational Divisions before leading the buyout of the Ophthalmic Division and formation of Reichert, Inc.
From 1996 to 1999, Mr. Burgess was COO of International Motion Controls (IMC), a $200 million diversified manufacturing firm. During
his tenure there, he led a significant acquisition strategy that resulted in seven completed acquisitions and sixteen worldwide
businesses in the motion control market. Previously, Mr. Burgess operated a number of companies for Moog, Inc. and Carleton Technologies,
including six years as President of Moog’s Japanese subsidiary, Nihon Moog K.K. located in Hiratsuka, Japan. Moog, Inc. is
the global leader in electro-hydraulic servo control technology with focus on the aerospace and defense sectors and was recognized
as one of The 100 Best Companies to Work for in America by Fortune Magazine.
Mr. Burgess earned a Bachelor of Science in Engineering from Bath University in England, and a Master of Business Administration
from Canisius College.
Currently Mr. Burgess is an Operating Partner of Summer Street Capital LLC and Director of Bird Technologies Corporation of Solon, Ohio.
ALAN R. KLEMBCZYK
Board Member and President
After graduating from the University of Buffalo in 1987 with a degree in Mechanical Engineering, Mr. Klembczyk has held key positions in Sales and Engineering at Taylor Devices over the last 30 years including Design Engineer, Assistant Chief Engineer, Chief Engineer, Vice President of Sales and Engineering and was appointed President of the Company and Member of the Board of Directors in June 2018.
Mr. Klembczyk has spent most of his career managing the Taylor Devices Engineering Department along with designing and developing shock and vibration mitigating products for a diverse customer base. These include hundreds of applications to improve performance under wind, seismic, shock and vibration for many aerospace, industrial and structural applications.
Mr. Klembczyk has been responsible for establishing new Sales & Marketing policies and has been directly involved with defining internal Company policy and strategic direction in cooperation with all levels of Taylor Devices’ Management. He has been an integral part of the team that managed upgrades to the Quality System and obtaining 3rd party certification to International Standards ISO 9001, ISO 14000 and Aerospace Standard AS9100.
Mr. Klembczyk has served for many years on the Technical Advisory Group for the US Shock and Vibration Information & Analysis Center (SAVIAC) and the Shock and Vibration Exchange (SAVE). Additionally, he has been a tutorial and course instructor for various organizations internationally and has participated in technical conferences and symposia.
Mr. Klembczyk has participated in many research projects for products for military & aerospace, industrial, and structural applications. He has served as Program Manager for many of these projects and has worked with academia including the University at Buffalo’s MCEER: Earthquake Engineering to Extreme Events, among others.
He has published several papers describing unique applications for structural dampers, tuned mass dampers, vibration isolators, shock absorbers, and shock isolators and holds US Patents for some of these components. These papers have been published by SAVE, SAVIAC, the Society for Experimental Mechanics (SEM) and the Applied Technology Council (ATC).
F. Eric Armenat
Board Member and Secretary
Mr. Armenat has more than 37 years of business experience across a myriad of industries both private and public. He is currently the President and Chief Executive Officer of Multisorb Filtration Group which he successfully spearheaded the sale of in early 2018 from a private equity owner. Multisorb is the world leader in the active packaging industry solving complex technical challenges in the pharmaceutical, food, and industrial markets.
From 2012 to 2016, Mr. Armenat served and President and Chief Executive Officer for several companies owned by private equity. These companies included healthcare delivery, medical waste collection and disposal as well as active packaging. He was responsible for the successful business improvement and eventual divestiture of the companies.
From 2009 to 2012, Mr. Armenat served as Chief Operating Officer of Avox Systems (Zodiac Aerospace), a leading supplier of aircraft oxygen systems. From 1994 to 2009, he served as Vice President of Operations and then President and General Manager of Carleton Technologies (Cobham Mission Systems), a global leader of technology for the military and commercial aviation markets. Mr. Armenat also worked as an Operations Management Consultant with Ernst and Young beginning in 1984.
Mr. Armenat earned his Bachelor of Science Degree in Industrial Engineering from Southern Illinois University and his MBA in Finance and Accounting from St. Bonaventure University. He also proudly served in the United States Airforce.
RANDALL L. CLARK
Board Member
Mr. Clark holds a B.A. degree from the University of Pennsylvania, and earned his M.B.A. from the Wharton School of Finance and Commerce. He is and has been the Chairman of Dunn Tire LLC since 1996. From 1992 to 1996, Mr. Clark was Executive Vice President and Chief Operating Officer of Pratt & Lambert, until it was purchased by Sherwin-Williams.
Mr. Clark has been employed in the tire industry for many years. He was named President of the Dunlop Tire Corporation in 1980, was appointed to the Board of Directors in 1983, and named President and Chief Executive Officer in 1984. He was one of seven chief executives of operating companies appointed to the Group Management Board of Dunlop Holdings, PLC., and was Chairman of the Board and Chief Executive Officer of Dunlop Tire Corporation in North America from 1985 to 1991. In 2012 he was inducted into the Tire Industry Association Hall of Fame.
From 1977 to 1980, Mr. Clark was Vice President of Marketing for the Dunlop Tire Division. From 1973 to 1977, he was employed by Dunlop as Director of Marketing at the company’s Buffalo, NY headquarters. From 1968 to 1973, Mr. Clark was employed by the B.F. Goodrich Company.
Mr. Clark is currently a Director of Merchants Mutual Insurance Company. He recently retired as a Director of Computer Task Group, a publicly traded company, and The Ten Eleven Group. He is a past President of the International Trade Council of Western New York, past Chairman of the Buffalo Chamber of Commerce, and past Chairman of Invest Buffalo Niagara. He is also a past Chairman of AAA of Western and Central New York. Mr. Clark was appointed by Governor George Pataki and served on the Council for the State University of New York at Buffalo. Recently he retired from the Board of Trustees of the University at Buffalo Foundation.
MARK V. MCDONOUGH
Board Member and Chief Financial Officer
Mr. McDonough, who joined Taylor Devices in June 2003, is a Certified Public Accountant in New York State and holds a BBA degree from Niagara University, awarded in 1982. He has been involved in financial management of various Western New York manufacturing organizations for over twenty-five years. He has extensive experience in international operations coupled with a long history of implementing systems of internal controls. From 1986 to 1989 he was an auditor with the Buffalo office of Ernst & Young, LLP.
Mr. McDonough is a member of the New York State Society of Certified Public Accountants and the American Institute of Certified Public Accountants.
TIMOTHY J. SOPKO
Chief Executive Officer
Mr. Sopko’s business experience spans more than thirty years in Aerospace (Military and Civil), Industrial as well as Commercial markets with a primary focus in the areas of Engineering, Product Development, Program Management, Operations, and Business Management.
Prior to joining Taylor Devices as CEO in April 2019, Mr. Sopko was Vice President and General Manager of Carleton Technologies Inc. (d.b.a. Cobham Mission Systems) in Orchard Park, New York, a Department of Defense Contractor where he also held the positions of General Manager, Director of Engineering and Programs, Director of Engineering and Director of Business Development. Under Mr. Sopko’s leadership as VP and GM, Carleton successfully grew annual sales from $110m to over $200m.
After nine years of Design Engineering and Program Management in industry (1988-1997), Mr. Sopko co-founded Comprehensive Technical Solutions Inc., a New York State S-corporation which provides product design engineering services to companies across the United States as well as producing and supporting a portfolio of internally funded products.
Mr. Sopko is a Mechanical Engineering graduate of The State University of New York at Buffalo and has been a member of The University’s Mechanical and Aerospace Dean’s Advisory Board since 2012. Mr. Sopko is also an author and/or co-author on several US Patents.
Exhibit 31(i)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a - 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Timothy J. Sopko, certify that:
1. I have reviewed this annual report on Form 10-K of Taylor Devices, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 2, 2019 | /s/Timothy J. Sopko |
|
Timothy J. Sopko Chief Executive Officer |
Exhibit 32(i)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connect with the annual
report of Taylor Devices, Inc. ("the Company") on Form 10-K for the fiscal year ended May 31, 2019 to be filed with Securities
and Exchange Commission on or about the date hereof (the
"Report"), I, Timothy J. Sopko, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.
It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.
| Date: August 2, 2019 | By: | /s/Timothy J. Sopko |
|
Timothy J. Sopko, Chief Executive Officer
|
Exhibit 31(ii)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a - 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark V. McDonough, certify that:
1. I have reviewed this annual report on Form 10-K of Taylor Devices, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: August 2, 2019 | /s/ Mark V. McDonough |
|
Mark V. McDonough Chief Financial Officer
|
Exhibit 32(ii)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
In connect with the annual report of Taylor Devices, Inc. (the "Company") on Form 10-K for the fiscal year ended May 31, 2019 to be filed with Securities and Exchange Commission on or about the date hereof (the "Report"), I, Mark V. McDonough, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered by the Report.
It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.
| Date: August 2, 2019 | By: | /s/ Mark V. McDonough |
|
Mark V. McDonough, Chief Financial Officer
|
Exhibit 4(vi)
DESCRIPTION OF REGISTRANT’S SECURITIES
The following summary description of the securities is not complete and is qualified in its entirety by reference to our Certificate of Incorporation, our By-laws, and applicable provisions of the New York Business Corporation Law.
The authorized capital stock of the Company consists of 8,000,000 shares of Common Stock, par value $0.025 per share, and 2,000,000 shares of Preferred Stock, par value $0.05 per share.
Rights of Our Common Stock
All outstanding shares of Common Stock are of the same class and have equal rights and attributes. Each holder of Common Stock is entitled to one vote for each share held of record on each matter submitted to a vote of shareholders. Shareholders do not have cumulative voting rights in the election of directors. As a result, the holders of more than 50% of the outstanding shares have the power to elect all directors. The quorum required at a shareholders’ meeting for consideration of any matter is a majority of the shares entitled to vote on that matter, represented in person or by proxy. If a quorum is present, the affirmative vote of a majority of shares represented at the meeting and entitled to vote on the matter is required for shareholder approval, except in the case of certain major corporate actions, such as the merger or liquidation of the Company, or the sale of all or substantially all of the Company’s assets, with respect to which, under the provisions of the New York Business Corporation Law, approval is required by the affirmative vote of more than two-thirds of all shares entitled to vote on the matter, whether or not represented at the meeting. An amendment to the Company’s Certificate of Incorporation requires approval by the affirmative vote by a majority or all shares entitled to vote, whether or not represented at the meeting.
Subject to the rights of any holders of Preferred Stock, the holders of shares of Common Stock are entitled to receive dividends when, as and if declared by the Board of Directors out of funds legally available therefor and, in the event of the liquidation, dissolution or winding up of the Company, to share ratably in all assets remaining after the payment of liabilities.
There are no preemptive or other subscription rights, conversion rights, or redemption or sinking fund provisions with respect to shares of Common Stock.
Rights of Our Preferred Stock
The Board of Directors is authorized to issue Preferred Stock in one or more series from time to time and to determine, with respect to each series, its designation, relative rights (including voting, dividend, conversion, sinking fund and redemption rights), preferences (including with respect to dividends and on liquidation) and limitations. The Board of Directors, without the consent of shareholders, can issue Preferred Stock with voting and conversion rights, which could adversely affect the voting power of the holders of Common Stock. Shares of Preferred Stock issued by the Board of Directors can be utilized, under certain circumstances, as a method of making it more difficult for a party to gain control of the Company without the approval of the Board of Directors.
Rights Plan
As of September 25, 2018, the Company's Board of Directors adopted a shareholder rights plan designed to deter coercive or unfair takeover tactics and prevent an acquirer from gaining control of the Company without offering a fair price to shareholders. Under the plan, certain rights (“Rights”) were distributed as a dividend on each share of Common Stock (one Right for each share of Common Stock) held as of the close of business on October 2, 2018. Each whole Right entitles the holder, under certain defined conditions, to buy one two-thousandths (1/2000) of a newly issued share of the Company's Series A Junior Participating Preferred Stock (“Series A Preferred Stock”) at a purchase price of $5.00 per unit of one two-thousandths of a share. Rights attach to and trade with the shares of Common Stock, without being evidenced by a separate certificate. No separate Rights certificates will be issued unless and until the Rights detach from Common Stock and become exercisable for shares of the Series A Preferred Stock.
The Rights become exercisable to purchase shares of Preferred Stock (or, in certain circumstances, Common Stock) only if (i) a person acquired 15% or more of the Company's Common Stock, or (ii) a person commenced a tender or exchange offer for 10% or more of the Company's Common Stock, or (iii) the Board of Directors determined that the beneficial owner of at least 10% of the Company's Common Stock intended to cause the Company to take certain actions adverse to it and its shareholders or that such ownership would have a material adverse effect on the Company. The Rights Plan will expire on October 5, 2028.
Classification of Our Board of Directors
Each year one or more directors comprising one of the three Classes of the Board of Directors of the Company are proposed for election by the shareholders at the annual meeting, each to serve for a three-year term, and until the election and qualification of his or her successor. All Classes of Directors are as nearly equal in number as possible. The current term of Class 3 Directors will expire in 2019; the current term of Class 2 Directors will expire in 2020; and the current term of Class 1 Directors will expire in 2021.
Director Vacancies
Our By-laws provide that any vacancies on our Board of Directors, including a vacancy resulting from the removal of a director or an increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum.
Advance Notice for Shareholder Proposals and Nominations
Our By-laws contain provisions requiring advance notice be delivered to the Company of any business to be brought by a shareholder before an annual meeting and providing for procedures to be followed by shareholders in nominating persons for election to our Board of Directors. For both, a shareholder must give notice no later than 30 days before the meeting, except that, if less than 40 days’ notice or prior public disclosure is given to shareholders before the date of the meeting, then the notice must be presented no later than the close of business on the tenth day following the day on which the notice of meeting was mailed, or such public disclosure was made, whichever occurs first. The notice must contain the information required by our By-laws.
Special Meetings of Shareholders
Our By-laws state that special meetings of shareholders may be called by the President or the Board of Directors, and shall be called by the President at the written request of the holders of record of a majority of shares entitled to vote.
By-law Amendment
Our By-laws may be adopted, amended or repealed by the affirmative vote of the holders of a majority of all shares entitled to vote, whether or not represented at the meeting. By-laws may also be adopted, amended or repealed by the Board of Directors subject to being amended or repealed by the shareholders.
New York Business Combination Statute
We are subject to Section 912 of the New York Business Corporation Law, which regulates business combinations and generally prohibits an interested shareholder, defined generally as a person beneficially owning 20% or more of a corporation’s outstanding voting stock, from engaging in a business combination with the corporation for five years after first becoming an interested shareholder, unless the board of directors approves. After the five year period, the interested shareholder and the corporation may engage in a business combination if the business combination is approved by a majority of the outstanding voting stock not beneficially owned by the interested shareholder or if certain fair price requirements are met.
Consolidated Balance Sheets (Parenthetical) - $ / shares |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Authorized shares | 8,000,000 | 8,000,000 |
| Issued shares | 4,029,431 | 4,017,139 |
| Common Stock [Member] | ||
| Par value | $ 0.025 | $ 0.025 |
Consolidated Statements of Income - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Income Statement [Abstract] | ||
| Sales, net | $ 33,619,031 | $ 24,363,967 |
| Cost of goods sold | 24,571,255 | 18,439,760 |
| Gross profit | 9,047,776 | 5,924,207 |
| Selling, general and administrative expenses | 6,045,984 | 5,276,574 |
| Operating income | 3,001,792 | 647,633 |
| Other income | ||
| Interest, net | 69,006 | 26,861 |
| Miscellaneous | (11,273) | 1,876 |
| Total other income | 57,733 | 28,737 |
| Income before provision for income taxes | 3,059,525 | 676,370 |
| Provision for income taxes | 515,000 | 233,000 |
| Net income | $ 2,544,525 | $ 443,370 |
| Basic and diluted earnings per common share | $ 0.73 | $ 0.13 |
Consolidated Statements of Stockholders Equity - USD ($) |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Treasury Stock [Member] |
|---|---|---|---|---|
| Beginning balance, value at May. 31, 2017 | $ 99,763 | $ 9,070,278 | $ 26,515,710 | $ (2,829,359) |
| Net income | 443,370 | |||
| Common stock issued for employee stock option plan | 619 | 164,364 | ||
| Common stock issued for employee stock purchase plan | 46 | 22,629 | ||
| Stock options issued for services | 124,931 | |||
| Ending balance, value at May. 31, 2018 | 100,428 | 9,382,202 | 26,959,080 | (2,829,359) |
| Net income | 2,544,525 | |||
| Common stock issued for employee stock option plan | 269 | 32,561 | ||
| Common stock issued for employee stock purchase plan | 38 | 17,473 | ||
| Stock options issued for services | 106,656 | |||
| Adjustments Due to ASU 2014-09 at May. 31, 2018 | 4,999 | |||
| Ending balance, value at May. 31, 2019 | $ 100,735 | $ 9,538,892 | $ 29,508,604 | $ (2,829,359) |
1. Summary of Significant Accounting Policies: |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 1. Summary of Significant Accounting Policies: | 1. Summary of Significant Accounting Policies:
Nature of Operations:
Taylor Devices, Inc. (the Company) manufactures and sells a single group of very similar products that have many different applications for customers. These similar products are included in one of eight categories; namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs,Vibration Dampers, Machined Springs and Custom Actuators for use in various types of machinery, equipment and structures, primarily to customers which are located throughout the United States and several foreign countries. The products are manufactured at the Company's sole operating facility in the United States where all of the Company's long-lived assets reside. Management does not track or otherwise account for sales broken down by these categories.
78% of the Company's 2019 revenue was generated from sales to customers in the United States and 17% was from sales to customers in Asia. Remaining sales were to customers in other countries in North America, Europe and South America.
74% of the Company's 2018 revenue was generated from sales to customers in the United States and 21% was from sales to customers in Asia. Remaining sales were to customers in other countries in North America, Europe, Australia and South America.
Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Tayco Realty Corporation (Realty). All inter-company transactions and balances have been eliminated in consolidation.
Subsequent Events:
The Company has evaluated events and transactions for potential recognition or disclosure in the financial statements through the date the financial statements were issued.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents:
The Company includes all highly liquid investments in money market funds in cash and cash equivalents on the accompanying balance sheets.
Cash and cash equivalents in financial institutions may exceed insured limits at various times during the year and subject the Company to concentrations of credit risk.
Short-term Investments:
At times, the Company invests excess funds in liquid interest earning instruments. Short-term investments at May 31, 2019 include “available for sale” corporate bonds stated at fair value, which approximates cost. The bonds (7) mature on various dates during the period May 2020 to December 2021. Unrealized holding gains and losses would be presented as a separate component of accumulated other comprehensive income, net of deferred income taxes. Realized gains and losses on the sale of investments are determined using the specific identification method.
The bonds are valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings.
Accounts Receivable:
Accounts receivable are stated at an amount management expects to collect from outstanding balances. Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.
Inventory:
Inventory is stated at the lower of average cost or net realizable value. Average cost approximates first-in, first-out cost.
Property and Equipment:
Property and equipment is stated at cost net of accumulated depreciation. Deprecation is provided primarily using the straight-line method for financial reporting purposes, and accelerated methods for income tax reporting purposes. Maintenance and repairs are charged to operations as incurred; significant improvements are capitalized.
Cash Value of Life Insurance:
Cash value of life insurance is stated at the surrender value of the contracts.
Revenue Recognition:
As noted below, ASU 2014-09 was adopted on June 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings.
Revenue is recognized (generally at fixed prices) when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations. In the year ended May 31, 2019, 45% of revenue was recorded for contracts with a single performance obligation that was satisfied within the period. In the year ended May 31, 2018, 40% of revenue was recorded for contracts with a single performance obligation that was satisfied within the period.
For contracts with customers in which the Company satisfies a promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time (generally less than one year), using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead. Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. In the year ended May 31, 2019, 55% of revenue was recorded for contracts in which revenue was recognized over time. In the year ended May 31, 2018, 60% of revenue was recorded for contracts in which revenue was recognized over time. Progress payments are typically negotiated for longer term projects. Payments are otherwise due once performance obligations are complete (generally at shipment and transfer of title). For financial statement presentation purposes, the Company nets progress billings against the total costs incurred on uncompleted contracts. The asset, “costs and estimated earnings in excess of billings,” represents revenues recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings,” represents billings in excess of revenues recognized.
If applicable, the Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. As of May 31, 2019, the Company does not have material incremental costs on any open contracts with an original expected duration of greater than one year, and therefore such costs are expensed as incurred. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings primarily because certain longer term contracts accounted for on the percentage of completion method did not contain “enforceable right to payment” terms, as defined. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The cumulative effect of the changes made to our consolidated June 1, 2018 balance sheet for the adoption of ASU 2014-09, were as follows:
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption of ASU 2014-09 on our consolidated balance sheet and income statement was as follows:
Shipping and Handling Costs:
Shipping and handling costs on incoming inventory items are classified as a component of cost of goods sold, while shipping and handling costs on outgoing shipments to customers are classified as a component of selling, general and administrative expenses. The amounts of these costs classified as a component of selling, general and administrative expenses were $268,847 and $264,696 for the years ended May 31, 2019 and 2018.
Research and Development Costs:
Research and development costs are classified as a component of cost of sales. The amounts of these costs were $319,000 and $263,000 for the years ended May 31, 2019 and 2018.
Income Taxes:
The provision for income taxes provides for the tax effects of transactions reported in the financial statements regardless of when such taxes are payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets and liabilities. Deferred taxes are based on tax laws currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered.
The Company's practice is to recognize interest related to income tax matters in interest income / expense and to recognize penalties in selling, general and administrative expenses. The Company did not have any accrued interest or penalties included in its consolidated balance sheets at May 31, 2019 or 2018. The Company recorded no interest expense or penalties in its consolidated statements of income during the years ended May 31, 2019 and 2018.
The Company believes it is no longer subject to examination by federal and state taxing authorities for years prior to May 31, 2016.
Sales Taxes:
Certain jurisdictions impose a sales tax on Company sales to nonexempt customers. The Company collects these taxes from customers and remits the entire amount as required by the applicable law. The Company excludes from revenues and expenses the tax collected and remitted.
The Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award. The stock-based compensation expense for the years ended May 31, 2019 and 2018 was and .
New Accounting Standards:
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09, as amended, is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2018 (fiscal year 2019 for the Company). Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company adopted ASU 2014-09 on June 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings. The effect of the adoption is detailed above.
Other recently issued Accounting Standards Codification (ASC) guidance has either been implemented or are not significant to the Company.
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2. Accounts Receivable: |
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2. Accounts Receivable: | 2. Accounts Receivable:
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3. Inventory: |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3. Inventory: | 3. Inventory:
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4. Costs and Estimated Earnings on Uncompleted Contracts: |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4. Costs and Estimated Earnings on Uncompleted Contracts: | 4. Costs and Estimated Earnings on Uncompleted Contracts:
Amounts are included in the accompanying balance sheets under the following captions:
The following summarizes the status of Projects in progress as of May 31, 2019 and 2018:
Additionally, as of May 31, 2019, there are sales orders for four Projects that are not yet in progress. These projects total $990,971 in value upon completion. This compares to four such Projects as of May 31, 2018 with a total value of $8,793,737. The Company expects to recognize the entire remaining revenue on all open projects during the May 31, 2020 fiscal year.
Revenue recognized during the years ended May 31, 2019 and 2018 for amounts included in billings in excess of costs and estimated earnings as of the beginning of the year amounted to $4,187,015 and $2,005,000. |
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5. Maintenance and Other Inventory: |
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May 31, 2019 | |||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| 5. Maintenance and Other Inventory: | 5. Maintenance and Other Inventory:
Maintenance and other inventory represent stock that is estimated to have a product life-cycle in excess of twelve-months. This stock represents certain items the Company is required to maintain for service of products sold, and items that are generally subject to spontaneous ordering.
This inventory is particularly sensitive to technical obsolescence in the near term due to its use 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.
The provision for potential inventory obsolescence was $175,000 and $60,000 for the years ended May 31, 2019 and 2018. |
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6. Property and Equipment: |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 6. Property and Equipment: | 6. Property and Equipment:
Depreciation expense was $1,072,959 and $995,924 for the years ended May 31, 2019 and 2018.
The Company has commitments to make capital expenditures of approximately $50,000 as of May 31, 2019. |
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7. Short-Term Borrowings: |
12 Months Ended |
|---|---|
May 31, 2019 | |
| Debt Disclosure [Abstract] | |
| 7. Short-Term Borrowings: | 7. Short-Term Borrowings:
The Company has available a $10,000,000 demand line of credit from a bank, with interest payable at the Company's option of 30, 60 or 90 day LIBOR rate plus 2.25%. The line is secured by a negative pledge of the Company's real and personal property. This line of credit is subject to the usual terms and conditions applied by the bank and subject to renewal annually.
There is no amount outstanding under the line of credit at May 31, 2019 or May 31, 2018.
The Company uses a cash management facility under which the bank draws against the available line of credit to cover checks presented for payment on a daily basis. Outstanding checks under this arrangement totaled $292,000 and $57,042 as of May 31, 2019 and 2018. These amounts are included in accounts payable. |
8. Legal Proceedings: |
12 Months Ended |
|---|---|
May 31, 2019 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| 8. Legal Proceedings: | 8. Legal Proceedings:
There are no legal proceedings except for routine litigation incidental to the business. |
9. Sales: |
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May 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sales | ||||||||||||||||||||||||||||||||||||||||||||||
| 9. Sales: | 9. Sales:
The Company manufactures and sells a single group of very similar products that have many different applications for customers. These similar products are included in one of eight categories; namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs,Vibration Dampers, Machined Springs and Custom Actuators. Management does not track or otherwise account for sales broken down by these categories. Sales of the Company's products are made to three general groups of customers: industrial, construction and aerospace / defense. A breakdown of sales to these three general groups of customers is as follows:
Sales to four customers approximated 36% (17%, 8%, 6% and 5% respectively) of net sales for 2019. Sales to five customers approximated 49% (14%, 13%, 9%, 7% and 6% respectively) of net sales for 2018. |
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10. Income Taxes: |
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| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 10. Income Taxes: | 10. Income Taxes:
A reconciliation of provision for income taxes at the statutory rate to income tax provision at the Company's effective rate is as follows:
Significant components of the Company's deferred tax assets and liabilities consist of the following:
In December 2017, the Tax Cuts and Jobs Act (the 2017 Act) became law. It includes a broad range of tax reform proposals affecting businesses, including corporate tax rates, business deductions, and international tax provisions. Among the changes, the 2017 Act reduces the corporate rate from 34% to 21% for periods beginning after December 31, 2017. Because of the rate change, the Company recorded a non-cash write down of deferred tax assets and recognized incremental deferred tax expense of $164,000 during the year ended May 31, 2018.
Realization of the deferred tax assets is dependent on generating sufficient taxable income at the time temporary differences become deductible. The Company provides a valuation allowance to the extent that deferred tax assets may not be realized. A valuation allowance has not been recorded against the deferred tax assets since management believes it is more likely than not that the deferred tax assets are recoverable. The Company considers future taxable income and potential tax planning strategies in assessing the need for a potential valuation allowance. The amount of the deferred tax assets considered realizable however, could be reduced in the near term if estimates of future taxable income are reduced. The Company will need to generate approximately $3.6 million in taxable income in future years in order to realize the deferred tax assets recorded as of May 31, 2019 of $760,500.
The Company and its subsidiary file consolidated Federal and State income tax returns. As of May 31, 2019, the Company had State investment tax credit carryforwards of approximately $370,000 expiring through May 31, 2025. |
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11. Earnings Per Common Share: |
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May 31, 2019 | |||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||
| 11. Earnings Per Common Share: |
Basic earnings per common share is computed by dividing income available to common stockholders by the weighted-average common shares outstanding for the period. Diluted earnings per common share reflects the weighted-average common shares outstanding and dilutive potential common shares, such as stock options.
A reconciliation of weighted-average common shares outstanding to weighted-average common shares outstanding assuming dilution is as follows:
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12. Related Party Transactions: |
12 Months Ended |
|---|---|
May 31, 2019 | |
| Related Party Transactions [Abstract] | |
| 12. Related Party Transactions: | 12. Related Party Transactions:
The Company had no related party transactions for the years ended May 31, 2019 and 2018. |
13. Employee Stock Purchase Plan: |
12 Months Ended |
|---|---|
May 31, 2019 | |
| Share-based Payment Arrangement [Abstract] | |
| 13. Employee Stock Purchase Plan: |
In March 2004, the Company reserved 295,000 shares of common stock for issuance pursuant to a non-qualified employee stock purchase plan. Participation in the employee stock purchase plan is voluntary for all eligible employees of the Company. Purchase of common shares can be made by employee contributions through payroll deductions. At the end of each calendar quarter, the employee contributions will be applied to the purchase of common shares using a share value equal to the mean between the closing bid and ask prices of the stock on that date. These shares are distributed to the employees at the end of each calendar quarter or upon withdrawal from the plan. During the years ended May 31, 2019 and 2018, ($10.235 to $12.28 price per share) and ($11.025 to $13.415 price per share) common shares, respectively, were issued to employees. As of May 31, 2019, 221,627 shares were reserved for further issue. |
14. Stock Option Plans: |
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| Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 14. Stock Option Plans: |
In 2015, the Company adopted a stock option plan which permits the Company to grant both incentive stock options and non-qualified stock options. The incentive stock options qualify for preferential treatment under the Internal Revenue Code. Under this plan, shares of common stock have been reserved for grant to key employees and directors of the Company and 138,500 shares have been granted as of May 31, 2019. Under the plan, the option price may not be less than the fair market value of the stock at the time the options are granted. Options vest immediately and expire ten years from the date of grant.
Using the Black-Scholes option pricing model, the weighted average estimated fair value of each option granted under the plan was during 2019 and during 2018. The pricing model uses the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company's stock. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of options granted is derived from previous history of stock exercises from the grant date and represents the period of time that options granted are expected to be outstanding. The Company uses historical data to estimate option exercise and employee termination assumptions under the valuation model. The Company has never paid dividends on its common stock and does not anticipate doing so in the foreseeable future.
The following is a summary of stock option activity:
We calculated intrinsic value for those options that had an exercise price lower than the market price of our common shares as of the balance sheet dates. The aggregate intrinsic value of outstanding options as of the end of each fiscal year is calculated as the difference between the exercise price of the underlying options and the market price of our common shares for the options that were in-the-money at that date (77,250 at May 31, 2019 and 93,000 at May 31, 2018.) The Company's closing stock price was and as of May 31, 2019 and 2018. As of May 31, 2019, there are options available for future grants under the 2015 stock option plan. and was received from the exercise of share options during the fiscal years ended May 31, 2019 and 2018.
In 2018, the Company adopted a stock option plan which permits the Company to grant both incentive stock options and non-qualified stock options. The incentive stock options qualify for preferential treatment under the Internal Revenue Code. Under this plan, 160,000 shares of common stock have been reserved for grant to key employees and directors of the Company and no shares have been granted as of May 31, 2019. Under the plan, the option price may not be less than the fair market value of the stock at the time the options are granted. Options vest immediately and expire ten years from the date of grant.
The following table summarizes information about stock options outstanding at May 31, 2019:
The following table summarizes information about stock options outstanding at May 31, 2018:
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15. Preferred Stock: |
12 Months Ended |
|---|---|
May 31, 2019 | |
| Equity [Abstract] | |
| 15. Preferred Stock: | 15. Preferred Stock:
The Company has authorized but unissued shares of preferred stock which may be issued in series. The shares of each series shall have such rights, preferences, and limitations as shall be fixed by the Board of Directors. |
16. Treasury Stock: |
12 Months Ended |
|---|---|
May 31, 2019 | |
| Equity [Abstract] | |
| 16. Treasury Stock: | 16. Treasury Stock:
Treasury shares are at May 31, 2019 and 2018. |
17. Retirement Plan: |
12 Months Ended |
|---|---|
May 31, 2019 | |
| Retirement Benefits [Abstract] | |
| 17. Retirement Plan: | 17. Retirement Plan:
The Company maintains a retirement plan for essentially all employees pursuant to Section 401(k) of the Internal Revenue Code. The Company matches a percentage of employee voluntary salary deferrals subject to limitations. The Company may also make discretionary contributions as determined annually by the Company's Board of Directors. The amount expensed under the plan was $71,222 and $74,279 for the years ended May 31, 2019 and 2018. |
18. Fair Value of Financial Instruments: |
12 Months Ended |
|---|---|
May 31, 2019 | |
| Accounting Policies [Abstract] | |
| 18. Fair Value of Financial Instruments: | 18. Fair Value of Financial Instruments:
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate fair value because of the short maturity of these instruments.
The fair values of short-term investments were determined as described in Note 1. |
19. Cash Flows Information: |
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| Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| 19. Cash Flows Information: | 19. Cash Flows Information:
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1. Summary of Significant Accounting Policies: (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nature of Operations: | Nature of Operations:
Taylor Devices, Inc. (the Company) manufactures and sells a single group of very similar products that have many different applications for customers. These similar products are included in one of eight categories; namely, Seismic Dampers, Fluidicshoks®, Crane and Industrial Buffers, Self-Adjusting Shock Absorbers, Liquid Die Springs,Vibration Dampers, Machined Springs and Custom Actuators for use in various types of machinery, equipment and structures, primarily to customers which are located throughout the United States and several foreign countries. The products are manufactured at the Company's sole operating facility in the United States where all of the Company's long-lived assets reside. Management does not track or otherwise account for sales broken down by these categories.
78% of the Company's 2019 revenue was generated from sales to customers in the United States and 17% was from sales to customers in Asia. Remaining sales were to customers in other countries in North America, Europe and South America.
74% of the Company's 2018 revenue was generated from sales to customers in the United States and 21% was from sales to customers in Asia. Remaining sales were to customers in other countries in North America, Europe, Australia and South America. |
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| Principles of Consolidation: | Principles of Consolidation:
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Tayco Realty Corporation (Realty). All inter-company transactions and balances have been eliminated in consolidation. |
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| Subsequent Events: | Subsequent Events:
The Company has evaluated events and transactions for potential recognition or disclosure in the financial statements through the date the financial statements were issued. |
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| Use of Estimates: | Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. |
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| Cash and Cash Equivalents: | Cash and Cash Equivalents:
The Company includes all highly liquid investments in money market funds in cash and cash equivalents on the accompanying balance sheets.
Cash and cash equivalents in financial institutions may exceed insured limits at various times during the year and subject the Company to concentrations of credit risk. |
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| Short-term Investments: | Short-term Investments:
At times, the Company invests excess funds in liquid interest earning instruments. Short-term investments at May 31, 2019 include “available for sale” corporate bonds stated at fair value, which approximates cost. The bonds (7) mature on various dates during the period May 2020 to December 2021. Unrealized holding gains and losses would be presented as a separate component of accumulated other comprehensive income, net of deferred income taxes. Realized gains and losses on the sale of investments are determined using the specific identification method.
The bonds are valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings. |
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| Accounts Receivable [Policy Text Block] |
Accounts Receivable:
Accounts receivable are stated at an amount management expects to collect from outstanding balances. Management provides for probable uncollectible accounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable. |
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| Inventory: | Inventory:
Inventory is stated at the lower of average cost or net realizable value. Average cost approximates first-in, first-out cost. |
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| Property and Equipment: | Property and Equipment:
Property and equipment is stated at cost net of accumulated depreciation. Deprecation is provided primarily using the straight-line method for financial reporting purposes, and accelerated methods for income tax reporting purposes. Maintenance and repairs are charged to operations as incurred; significant improvements are capitalized. |
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| Cash Value of Life Insurance: | Cash Value of Life Insurance:
Cash value of life insurance is stated at the surrender value of the contracts. |
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| Revenue Recognition: | Revenue Recognition:
As noted below, ASU 2014-09 was adopted on June 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings.
Revenue is recognized (generally at fixed prices) when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for transferring those products or services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations. In the year ended May 31, 2019, 45% of revenue was recorded for contracts with a single performance obligation that was satisfied within the period. In the year ended May 31, 2018, 40% of revenue was recorded for contracts with a single performance obligation that was satisfied within the period.
For contracts with customers in which the Company satisfies a promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time (generally less than one year), using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material and overhead. Adjustments to cost estimates are made periodically, and losses expected to be incurred on contracts in progress are charged to operations in the period such losses are determined. In the year ended May 31, 2019, 55% of revenue was recorded for contracts in which revenue was recognized over time. In the year ended May 31, 2018, 60% of revenue was recorded for contracts in which revenue was recognized over time. Progress payments are typically negotiated for longer term projects. Payments are otherwise due once performance obligations are complete (generally at shipment and transfer of title). For financial statement presentation purposes, the Company nets progress billings against the total costs incurred on uncompleted contracts. The asset, “costs and estimated earnings in excess of billings,” represents revenues recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings,” represents billings in excess of revenues recognized.
If applicable, the Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. As of May 31, 2019, the Company does not have material incremental costs on any open contracts with an original expected duration of greater than one year, and therefore such costs are expensed as incurred. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings primarily because certain longer term contracts accounted for on the percentage of completion method did not contain “enforceable right to payment” terms, as defined. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The cumulative effect of the changes made to our consolidated June 1, 2018 balance sheet for the adoption of ASU 2014-09, were as follows:
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption of ASU 2014-09 on our consolidated balance sheet and income statement was as follows:
Shipping and Handling Costs:
Shipping and handling costs on incoming inventory items are classified as a component of cost of goods sold, while shipping and handling costs on outgoing shipments to customers are classified as a component of selling, general and administrative expenses. The amounts of these costs classified as a component of selling, general and administrative expenses were $268,847 and $264,696 for the years ended May 31, 2019 and 2018.
Research and Development Costs:
Research and development costs are classified as a component of cost of sales. The amounts of these costs were $319,000 and $263,000 for the years ended May 31, 2019 and 2018.
Income Taxes:
The provision for income taxes provides for the tax effects of transactions reported in the financial statements regardless of when such taxes are payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets and liabilities. Deferred taxes are based on tax laws currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered.
The Company's practice is to recognize interest related to income tax matters in interest income / expense and to recognize penalties in selling, general and administrative expenses. The Company did not have any accrued interest or penalties included in its consolidated balance sheets at May 31, 2019 or 2018. The Company recorded no interest expense or penalties in its consolidated statements of income during the years ended May 31, 2019 and 2018.
The Company believes it is no longer subject to examination by federal and state taxing authorities for years prior to May 31, 2016.
Sales Taxes:
Certain jurisdictions impose a sales tax on Company sales to nonexempt customers. The Company collects these taxes from customers and remits the entire amount as required by the applicable law. The Company excludes from revenues and expenses the tax collected and remitted.
The Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award. The stock-based compensation expense for the years ended May 31, 2019 and 2018 was and .
New Accounting Standards:
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09, as amended, is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2018 (fiscal year 2019 for the Company). Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company adopted ASU 2014-09 on June 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings. The effect of the adoption is detailed above.
Other recently issued Accounting Standards Codification (ASC) guidance has either been implemented or are not significant to the Company.
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| Shipping and Handling Costs: | Shipping and Handling Costs:
Shipping and handling costs on incoming inventory items are classified as a component of cost of goods sold, while shipping and handling costs on outgoing shipments to customers are classified as a component of selling, general and administrative expenses. The amounts of these costs classified as a component of selling, general and administrative expenses were $268,847 and $264,696 for the years ended May 31, 2019 and 2018. |
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| Research and Development Costs: | Research and Development Costs:
Research and development costs are classified as a component of cost of sales. The amounts of these costs were $319,000 and $263,000 for the years ended May 31, 2019 and 2018. |
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| Income Taxes: | Income Taxes:
The provision for income taxes provides for the tax effects of transactions reported in the financial statements regardless of when such taxes are payable. Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax and financial statement basis of assets and liabilities. Deferred taxes are based on tax laws currently enacted with tax rates expected to be in effect when the taxes are actually paid or recovered.
The Company's practice is to recognize interest related to income tax matters in interest income / expense and to recognize penalties in selling, general and administrative expenses. The Company did not have any accrued interest or penalties included in its consolidated balance sheets at May 31, 2019 or 2018. The Company recorded no interest expense or penalties in its consolidated statements of income during the years ended May 31, 2019 and 2018.
The Company believes it is no longer subject to examination by federal and state taxing authorities for years prior to May 31, 2016. |
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| Sales Taxes: | Sales Taxes:
Certain jurisdictions impose a sales tax on Company sales to nonexempt customers. The Company collects these taxes from customers and remits the entire amount as required by the applicable law. The Company excludes from revenues and expenses the tax collected and remitted. |
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| Stock-Based Compensation: |
The Company measures compensation cost arising from the grant of share-based payments to employees at fair value and recognizes such cost in income over the period during which the employee is required to provide service in exchange for the award. The stock-based compensation expense for the years ended May 31, 2019 and 2018 was and .
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| New Accounting Standards: | New Accounting Standards:
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09, as amended, is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2018 (fiscal year 2019 for the Company). Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company adopted ASU 2014-09 on June 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings. The effect of the adoption is detailed above.
Other recently issued Accounting Standards Codification (ASC) guidance has either been implemented or are not significant to the Company. |
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1. Summary of Significant Accounting Policies: (Tables) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Impact of Adoption of Standards Related to Revenue Recognition |
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| Revenue Impact on Financial Statements Balance Sheet |
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| Condensed Income Statement [Table Text Block] |
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2. Accounts Receivable: (Tables) |
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| Receivables [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts receivable table |
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3. Inventory: (Tables) |
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| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventory table |
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4. Costs and Estimated Earnings on Uncompleted Contracts: (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Costs and estimated earnings on uncompleted contracts components table |
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| Costs and estimated earnings on uncompleted contracts table |
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| Costs and estimated earnings on uncompleted contracts two table |
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5. Maintenance and Other Inventory: (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2019 | |||||||||||||||||||||||||||||||||||||
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||
| Maintenance and other inventory table |
|
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6. Property and Equipment: (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and equipment table |
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9. Sales: (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Sales | ||||||||||||||||||||||||||||||||||||||||||||||
| Sales by major customer type |
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10. Income Taxes: (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Taxes Table |
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| Reconciliation of income tax statutory rate to effective rate |
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| Net deferred tax assets |
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11. Earnings Per Common Share: (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2019 | |||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||
| Earnings per common share table |
|
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14. Stock Option Plans: (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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May 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock option plans table |
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| Stock options roll foward |
|
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| Share-based Payment Arrangement, Option, Exercise Price Range [Table Text Block] |
The following table summarizes information about stock options outstanding at May 31, 2018:
|
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19. Cash Flows Information: (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental cash flow information |
|
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Revenue Impact on Financial Statements Balance Sheet (Details) - USD ($) |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Inventory | $ 11,239,331 | $ 11,317,775 |
| Costs and estimated earnings in excess of billings | 7,572,490 | 6,356,963 |
| Other accrued expenses | 1,532,271 | |
| Retained earnings | 29,508,604 | $ 26,959,080 |
| Accounting Standards Update 2014-09 [Member] | ||
| Inventory | 0 | |
| Costs and estimated earnings in excess of billings | 0 | |
| Other accrued expenses | 0 | |
| Retained earnings | $ 0 |
Revenue Impact on Financial Statements Income Statement (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Sales, net | $ 33,619,031 | $ 24,363,967 |
| Cost of goods sold | 24,571,255 | 18,439,760 |
| Provision for income taxes | 515,000 | 233,000 |
| Net income (loss) | 2,544,525 | $ 443,370 |
| Calculated under Revenue Guidance in Effect before Topic 606 [Member] | ||
| Sales, net | 32,522,914 | |
| Cost of goods sold | 23,470,139 | |
| Provision for income taxes | 515,000 | |
| Net income (loss) | 2,549,524 | |
| Accounting Standards Update 2014-09 [Member] | ||
| Sales, net | 1,096,117 | |
| Cost of goods sold | 1,101,116 | |
| Provision for income taxes | 0 | |
| Net income (loss) | $ (4,999) | |
1. Summary of Significant Accounting Policies: (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Accounting Policies [Abstract] | ||
| Domestic revenue as percentage of total | 78.00% | 74.00% |
| Asian revenue as percentage of total | 17.00% | 21.00% |
| Percent of revenue recognized with sales contracts containing a single performance obligation | 45.00% | 40.00% |
| Percent of revenue recognized with sales contracts for which revenue is recognized over time | 55.00% | 60.00% |
| Shipping and handling costs | $ 268,847 | |
| Shipping and handling costs | $ 264,696 | |
| Research and development costs | 319,000 | 263,000 |
| Share based compensation expense | $ 106,656 | $ 124,931 |
Accounts receivable table (Details) - USD ($) |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Receivables [Abstract] | ||
| Customers | $ 4,438,373 | $ 5,515,848 |
| Customers - retention | 950,684 | 859,771 |
| Gross accounts receivable | 5,389,057 | 6,375,619 |
| Less allowance for doubtful accounts | 109,755 | 109,755 |
| Net accounts receivable | $ 5,279,302 | $ 6,265,864 |
Inventory table (Details) - USD ($) |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 679,018 | $ 726,852 |
| Work-in-process | 9,905,495 | 9,990,225 |
| Finished goods | 754,818 | 700,698 |
| Gross inventory | 11,339,331 | 11,417,775 |
| Less allowance for obsolescence | 100,000 | 100,000 |
| Net inventory | $ 11,239,331 | $ 11,317,775 |
Costs and estimated earnings on uncompleted contracts components table (Details) - USD ($) |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Costs incurred on uncompleted contracts | $ 16,599,307 | $ 12,512,350 |
| Estimated earnings | 6,526,707 | 5,157,890 |
| Total costs and estimated earnings | 23,126,014 | 17,670,240 |
| Less billings to date | 16,187,227 | 13,356,279 |
| Costs and estimated earnings not billed | $ 6,938,787 | $ 4,313,961 |
Costs and estimated earnings on uncompleted contracts table (Details) - USD ($) |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Costs and estimated earnings in excess of billings | $ 7,572,490 | $ 6,356,963 |
| Billings in excess of costs and estimated earnings | 633,703 | 2,043,002 |
| Costs and estimated earnings not billed | $ 6,938,787 | $ 4,313,961 |
Costs and estimated earnings on uncompleted contracts two table (Details) |
May 31, 2019
USD ($)
|
May 31, 2018
USD ($)
|
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Number of Projects in progress | 22 | 26 |
| Aggregate percent complete | 77.00% | 72.00% |
| Aggregate amount remaining | $ 6,748,520 | $ 6,816,089 |
| Percentage of total value invoiced to customer | 54.00% | 55.00% |
Maintenance and other inventory table (Details) - USD ($) |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Maintenance and other inventory | $ 2,197,958 | $ 2,287,897 |
| Less allowance for obsolescence | 1,466,081 | 1,402,246 |
| Maintenance and other inventory, net | $ 731,877 | $ 885,651 |
4. Costs and Estimated Earnings on Uncompleted Contracts: (Details Narrative) |
12 Months Ended | |
|---|---|---|
|
May 31, 2019
USD ($)
|
May 31, 2018
USD ($)
|
|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Quantity of Projects not yet started | 4 | 4 |
| Sales value of projects not yet in progress | $ 990,971 | $ 8,793,737 |
| Revenue recognized in current period for projects included in billings in excess of costs and estimated earnings at end of prior year | $ 4,187,015 | $ 2,005,000 |
5. Maintenance and Other Inventory: (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract] | ||
| Provision for potentially obsolete inventory | $ 175,000 | $ 60,000 |
Property and equipment table (Details) - USD ($) |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Property, Plant and Equipment [Abstract] | ||
| Land | $ 195,220 | $ 195,220 |
| Buildings and improvements | 9,342,431 | 9,342,431 |
| Machinery and equipment | 10,390,610 | 10,302,681 |
| Office furniture and equipment | 1,975,392 | 1,652,711 |
| Autos and trucks | 24,818 | 84,256 |
| Land improvements | 455,429 | 455,429 |
| Gross property and equipment | 22,383,900 | 22,032,728 |
| Less accumulated depreciation | 13,066,458 | 12,097,103 |
| Property and equipment, net | $ 9,317,442 | $ 9,935,625 |
6. Property and Equipment: (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expense | $ 1,072,959 | $ 995,924 |
| Commitments for future capital expenditures | $ 50,000 | |
7. Short-Term Borrowings: (Details Narrative) - USD ($) |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Debt Disclosure [Abstract] | ||
| Line of Credit Facility, Current Borrowing Capacity | $ 10,000,000 | |
| Line of credit outstanding balance | 0 | $ 0 |
| Uncleared checks | $ 292,000 | $ 57,042 |
Sales by major customer type (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Sales, net | $ 33,619,031 | $ 24,363,967 |
| Construction | ||
| Sales, net | 20,168,587 | 12,192,836 |
| Aerospace / Defense | ||
| Sales, net | 11,383,374 | 10,205,945 |
| Industrial | ||
| Sales, net | $ 2,067,070 | $ 1,965,186 |
9. Sales: (Details Narrative) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Sales | ||
| Percentage of total sales to significant individual customers | 36.00% | 49.00% |
| Percentage of total sales to significant individual customer1 | 17.00% | 14.00% |
| Percentage of total sales to significant individual customer2 | 8.00% | 13.00% |
| Percentage of total sales to significant individual customer3 | 6.00% | 9.00% |
| Percentage of total sales to significant individual customer4 | 5.00% | 7.00% |
| Percentage of total sales to significant individual customer5 | 6.00% | |
Income Taxes Table (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Current tax provision: | ||
| Federal | $ 521,000 | $ 23,000 |
| State | 0 | 0 |
| Total current tax provision | 521,000 | 23,000 |
| Deferred tax provision: | ||
| Federal | (6,000) | 210,000 |
| State | 0 | 0 |
| Total deferred tax provision | (6,000) | 210,000 |
| Total tax provision | $ 515,000 | $ 233,000 |
Reconciliation of income tax statutory rate to effective rate (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Income Tax Disclosure [Abstract] | ||
| Computed tax provision at the expected statutory rate | $ 642,500 | $ 193,500 |
| State income tax - net of Federal tax benefit | 500 | (1,200) |
| Tax effect of permanent differences: | ||
| Research tax credits | (166,000) | (110,000) |
| Tax rate change on deferred taxes | 0 | 164,000 |
| Other permanent differences | 28,700 | (3,700) |
| Other | 9,300 | (9,600) |
| Total tax provision | $ 515,000 | $ 233,000 |
| Effective income tax rate | 16.80% | 34.40% |
Net deferred tax assets (Details) - USD ($) |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Deferred tax assets: | ||
| Allowance for doubtful receivables | $ 23,000 | $ 23,000 |
| Tax inventory adjustment | 99,700 | 18,800 |
| Allowance for obsolete inventory | 328,900 | 315,500 |
| Accrued vacation | 50,200 | 40,900 |
| Accrued commissions | 19,800 | 14,000 |
| Warranty reserve | 30,300 | 27,600 |
| Stock options issued for services | 208,600 | 223,100 |
| Total deferred tax assets | 760,500 | 662,900 |
| Deferred tax liabilities: | ||
| Excess tax depreciation | 571,385 | 443,785 |
| Net deferred tax assets | $ 189,115 | $ 219,115 |
10. Income Taxes: (Details Narrative) - USD ($) |
5 Months Ended | 7 Months Ended | 12 Months Ended | 72 Months Ended | |
|---|---|---|---|---|---|
May 31, 2019 |
Dec. 31, 2018 |
May 31, 2019 |
May 31, 2018 |
May 31, 2025 |
|
| Income Tax Disclosure [Abstract] | |||||
| Corporate income tax rate | 21.00% | 34.00% | |||
| Effect of change in tax rate | $ 0 | $ 164,000 | |||
| Deferred Tax Assets, Gross | $ 760,500 | 760,500 | $ 662,900 | ||
| Deferred tax credits carryforward | $ 370,000 | $ 370,000 | |||
| Tax credit carryforward expiration date | May 31, 2025 | ||||
Earnings per common share table (Details) - shares |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Earnings Per Share [Abstract] | ||
| Average common shares outstanding | 3,470,595 | 3,458,049 |
| Common shares issuable under stock option plans | 17,043 | 30,876 |
| Average common shares outstanding assuming dilution | 3,487,638 | 3,488,925 |
13. Employee Stock Purchase Plan: (Details Narrative) - shares |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Share-based Payment Arrangement [Abstract] | ||
| Common shares issued from employee stock purchase plan | 1,542 | 1,835 |
Stock option plans table (Details) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Share-based Payment Arrangement [Abstract] | ||
| Risk-free interest rate | 2.179% | 2.179% |
| Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term | 3 years 8 months 12 days | 3 years 8 months 12 days |
| Expected volatility | 30.00% | 30.00% |
| Expected dividend yield | 0.00% | 0.00% |
Stock options roll foward (Details) - USD ($) |
12 Months Ended | ||
|---|---|---|---|
May 31, 2019 |
May 31, 2018 |
May 31, 2017 |
|
| Share-based Payment Arrangement [Abstract] | |||
| Stock options outstanding | 224,000 | 271,750 | 253,500 |
| Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price | $ 11.71 | $ 11.33 | $ 10.93 |
| Intrinsic value of options outstanding | $ 228,132 | $ 304,252 | $ 817,629 |
| Options granted | 43,000 | 43,750 | |
| Weighted average exercise price of options granted | $ 11.90 | $ 11.15 | |
| Stock options exercised | 10,750 | 24,750 | |
| Weighted average exercise price of options exercised | $ 3.05 | $ 6.67 | |
| Stock options expired | 80,000 | 750 | |
| Weighted average exercise price of options expired | $ 11.68 | $ 19.26 | |
14. Stock Option Plans: (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Share-based Payment Arrangement [Abstract] | ||
| Common shares reserved for stock options | 160,000 | |
| Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value | $ 3.20 | $ 2.86 |
| Price per share of common | $ 11.08 | $ 10.26 |
| Shares available | 21,500 | |
| Proceeds exercise of options | $ 32,830 | $ 164,983 |
15. Preferred Stock: (Details Narrative) |
May 31, 2019
shares
|
|---|---|
| Equity [Abstract] | |
| Preferred shares authorized | 2,000,000 |
16. Treasury Stock: (Details Narrative) - shares |
May 31, 2019 |
May 31, 2018 |
|---|---|---|
| Equity [Abstract] | ||
| Treasury Stock | 550,872 | 550,872 |
17. Retirement Plan: (Details Narrative) - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Retirement Benefits [Abstract] | ||
| Retirement plan expense | $ 71,222 | $ 74,279 |
Supplemental cash flow information (Details) - USD ($) |
12 Months Ended | |
|---|---|---|
May 31, 2019 |
May 31, 2018 |
|
| Supplemental Cash Flow Elements [Abstract] | ||
| Interest paid | $ 0 | $ 0 |
| Income taxes paid | $ 550,498 | $ 61,615 |