SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549

FORM 10‐QSB

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For quarter ended November 30, 2004

Commission File Number 2-15966

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

| NEW YORK(State or other Jurisdiction of incorporation ororganization) |  | 16-0835557(I.R.S. Employer Identification Number)  |
|-----------------------------------------------------------------------|--|---------------------------------------------------------|

| 100 TAYLOR DRIVE, NORTH TONAWANDA, NEW YORK, 14120-0748Address of Principal Executive Offices |
|-----------------------------------------------------------------------------------------------|

Registrant's telephone number, including area code ‐ 716‐694‐0877

 

Check whether the registrant (1) has filed all reports required to be filed by Secton 13 or 15(d) of the Exchange Act during the last 12 months and (2) has been subject to the filing requirements for the past 90days.
| Yes |   X |  | No |   |
|-----|----------|--|----|--------|

State the number of shares outstanding of each of the Issuer's classes of common equity as of the latest practicable date.

| CLASSCommon Stock(5 cents par value) |  | Outstanding at January 13, 2005987,928 |
|--------------------------------------|--|----------------------------------------|

 

TAYCO DEVELOPMENTS, INC.**Index to Form 10-QSB**
****

PART I -

FINANCIAL INFORMATION 

PAGE

Item 1.

Financial Statements 

Condensed Balance Sheets November 30, 2004 and May 31, 2004 

3

Condensed Statements of Income for the three and six months ended November 30, 2004 and November 30, 2003 

4

Condensed Statements of Cash Flows for the six months ended November 30, 2004 and November 30, 2003 

5

Notes to Condensed Financial Statements 

6

Item 2.

Management's Discussion and Analysis or Plan of Operation 

7

Item 3.

Controls and Procedures 

9

PART II -

OTHER INFORMATION 

Item 1.

LegalProceedings                                                                                                

10

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds 

10

Item 3.

Defaults Upon Senior Securities 

10

Item 4.

Submission of Matters to a Vote of Security Holders 

11

Item 5.

Other Information 

11

Item 6.

Exhibits 

11

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

12

SIGNATURES

13

 

 

 

TAYCO DEVELOPMENTS, INC.

 

 

** **

 

**Condensed Balance Sheets**

 

**(Unaudited)**

**November 30,2004**

May 31,2004

 

 

 

 

 

 

 

 

**Assets**

**Current assets:**

Cash

**  $  166,898**

  $    46,092

Short-term investments

**         61,448**

        59,963

Receivable - other

**                  -**

                -

Prepaid expenses

**        26,953**

        15,135

Total current assets

**      255,299**

      121,190

Investments in affiliates, at equity

**   2,442,330**

   2,407,008

Receivable - affiliate

**      665,147**

      775,716

Cash value of life insurance

**                  -**

                -

Patents, net

**      106,258**

      114,358

** $3,469,034**

 $3,418,272

**Liabilities and Stockholders' Equity**

Current Liabilities

**  $    12,981**

  $    14,368

**Stockholders' equity:**

Common stock and additional paid-in capital

**      720,301**

       720,301

Retained earnings

**   2,747,207**

    2,695,058

**   3,467,508**

    3,415,359

Treasury stock - at cost

**       (11,455)**

        (11,455)

Total stockholders' equity

**   3,456,053**

    3,403,904

 

 

 

 

 

 

 

 

**  $3,469,034**

  $3,418,272

*See notes to condensed financial statements.*
 
 

 

TAYCO DEVELOPMENTS, INC.

 

 

 

 

** **

 

**Condensed Statements of Income**

**(Unaudited)**

**(Unaudited)**

For the three months ended

For the six months ended

**November 30,**

**November 30,**

 

 

 

 

 

 

 

 

**2004**

2003

**2004**

2003

Revenues:

Royalties

**  $    55,660**

  $      91,170

**  $   92,046**

  $   159,785

Research and development

**       70,870**

          67,680

**    160,840**

      146,321

**Total revenues**

**     126,530**

       158,850

**    252,886**

      306,106

Operating expenses:

Research and development

**       51,820**

         51,755

**      98,188**

      105,296

Selling, general and administrative

**       71,795**

         56,177

**    145,731**

      109,423

Depreciation and amortization

**         4,050**

           4,200

**        8,100**

          8,400

**Total operating expenses**

**     127,665**

       112,132

**    252,019**

      223,119

**Operating income (loss)**

**        (1,135)**

         46,718

**           867**

        82,987

Other income

**         8,816**

             712

**      18,960**

        54,971

** **

 

Income before income taxes and equity in net

      income (loss) of affiliates

**         7,681**

         47,430

**      19,827**

      137,958

Provision for income taxes

**                 -**

         12,000

**        3,000**

        27,000

Income before equity in net income (loss) of affiliates

**         7,681**

         35,430

**      16,827**

      110,958

Equity in net income (loss) of affiliates

**       11,690**

       (26,987)

**      35,322**

       (74,002)

**Net income**

 

**  $    19,371**

  $        8,443

**  $   52,149**

  $     36,956

 

 

Basic earnings per common share

 

 

  **$        0.02**

  $         0.01

  **$       0.05**

  $         0.04

*See notes to condensed financial statements.*

 

 

 

TAYCO DEVELOPMENTS, INC.

 

 

 

 

** **

 

**Condensed Statements of Cash Flows**

** **

**  (Unaudited)**

**  For the six months endedNovember 30,**

 

 

 

 

 

 

 

 

 

 

**2004**

2003

**Cash flows from operating activities:**

Net income

  **$    52,149**

  $    36,956

Adjustments to reconcile net income to net cash flows from

  operating activities:

Depreciation and amortization

**         8,100**

         8,400

Equity in net (income) loss of affiliates

**      (35,322)**

       74,002

Net proceeds on life insurance settlement

**                 -**

      (53,552)

Changes in other assets and liabilities:

Prepaid expenses

**      (11,818)**

        (3,301)

Current liabilities

**        (1,387)**

        (3,744)

**Net cash flows from operating activities**

**       11,722**

       58,761

**Cash flows from investing activities:**

Increase in short-term investments

**        (1,485)**

        (1,414)

Receivable - affiliate

**     110,569**

    (226,709)

Proceeds from settlement of officer life insurance policies

**                 -**

     158,610

Acquisition of patents

**                 -**

         (1,325)

**Net cash flows from (for) investing activities**

**     109,084**

      (70,838)

** **

 

Net increase (decrease) in cash

**     120,806**

      (12,077)

Cash - beginning

**       46,092**

       24,806

 

 

 

 

Cash - ending

 

 

 

 

 

**  $  166,898**

  $    12,729

*See notes to condensed financial statements.*

 

 

 

TAYCO DEVELOPMENTS, INC.
**Notes to Condensed Financial Statements**

1.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and withthe instructions to Form 10-QSB and Regulation S-B.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion ofthe Company, the accompanying unaudited condensed financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of November 30, 2004 and May 31, 2004, the results of operations forthe three and six months ended November 30, 2004 and November 30, 2003, and the cash flows for the six months ended November 30, 2004 and November 30, 2003.  These financial statements should be read in conjunction with the audited financial statements and notesthereto contained in the Company's Annual Report to Shareholders for the year ended May 31, 2004. 

2.

There is no provision nor shall there be any provisions for profit sharing, dividends, or any other benefits of any nature at any time for this fiscal year. 

3.

To calculate the earnings per share for the three and six month periods ended November 30, 2004, the net income was divided by the outstanding shares of 987,928.  To calculate the earnings per share for thethree and six month periods ended November 30, 2003, the net income was divided by the outstanding shares of 990,213. 

4.

The results of operations for the six month period ended November 30, 2004 are not necessarily indicative of the results to be expected for the full year. 

5.

Significant Equity Investees: The Company owns approximately a 23% equity investment in Taylor Devices, Inc.  For the six months ended November 30, 2004, Taylor Devices, Inc. had sales of $5,101,000, grossprofit of $1,651,000, and net income of $87,000.  For the six months ended November 30, 2003, Taylor Devices, Inc. had sales of $6,344,000, gross profit of $1,462,000, and net loss of $319,000.  The carrying amount of the investment in Taylor Devices, Inc.as of November 30, 2004 and May 31, 2004 was $2,007,000 and $1,988,000.  The Company also owns 42% of an affiliate, Tayco Realty Corporation.  The carrying amount of this investment as of November 30, 2004 and May 31, 2004 was $436,000 and $419,000,respectively. 

 

 

TAYCO DEVELOPMENTS, INC.
**Item 2.  Management's Discussion and Analysis or Plan of Operation**
**Cautionary Statement**
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements.  Information in this Item 2, "Management's Discussion and Analysis or Plan of Operation," andelsewhere in this 10-QSB 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 analogous expressions are intended to identify forward-looking statements, and as such, are not a guarantee of future performance.  The statements involvefactors, 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 cyclesand changing economic conditions; 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 beyondthe Company's control.  Consequently, investors should not place undue reliance on forward-looking statements as predictive of future results.  These forward- looking statements speak only as of the date of this report. The Company disclaims anyobligation  to release publicly any updates or revisions to the forward-looking statements herein to reflect any changes in the Company's expectations with regard thereto, or any changes in events, conditions or circumstances on which any such statement isbased.

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

**Comparison of the six months ended November 30, 2004 and 2003**

**Increase /**

**(Decrease)**

Royalties revenue

$    (68,000)

Research & development revenue

$     15,000

Research & development expense

$     (7,000)

Selling, general and administrative expenses

$     36,000

Other income

$   (36,000)

Income before provision for income taxes and equity in net income (loss) of affiliates

$  (118,000)

Equity in net income (loss) of affiliates

$   109,000

Net income

$     15,000
**For the six months ended November 30, 2004** (All figures being discussed are for the six months ended November 30, 2004 as compared to thesix months ended November 30, 2003.)
The Company's results of operations showed a 17% decrease in net revenues with an increase in net income of 41%. The decrease in revenue is attributable to a $68,000 reduction in royalties received as a result ofDevices' decreased sales of Tension / Compression Liquid Spring Isolators which use the Company's patented technology.  Mitigating the decrease from royalties was a 10% increase of research & development revenue resulting from higher levels of billableengineering hours on projects for Devices.

Management is focused on continued development of new applications for existing technology that will lead to high volume production and increased royalty income.  The primary markets targeted are militaryand aerospace.

Operating expenses increased 13% to $252,000 this year,primarily because the Company was charged for shared facility, clerical and management expenses by Devices inthe current year.  Only building rental charges of $6,000 were recorded in the prior year.

Other income in the current year of $19,000 is primarily interest earned on the note receivable from Devices.  Other income in the prior year of $55,000 is primarily the amount of proceeds from the lifeinsurance policies on the Company's founder, Paul H. Taylor, in excess of the net of the cash surrender value of the policies and loans against the policies.

Equity in the net income of affiliates was $35,000.  This compares to a loss of $74,000 for the same period in the prior year. 

Net income was $52,000 or $0.05 per share, up slightly from the prior year's level of $37,000 or $0.04 per share. This is a result of the aforementioned items.
**For the three months ended November 30, 2004**(All figures being discussed are for the three months ended November 30, 2004 as compared to thethree months ended November 30, 2003.)
The Company's results of operations showed a 20% decrease in net revenues with an increase in net income of $11,000. The decrease in revenue is attributable to a $36,000 reduction in royalties income as a resultof Devices' decreased sales of Tension / Compression Liquid Spring Isolators which use the Company's patented technology.  Mitigating the decrease from royalties was a 5% increase of research & development revenue resulting from higher levels of billableengineering hours on projects for Devices.

Operating expenses increased 14% to $128,000 this year for the same reason as noted above for the six-month period.

Other income in the current year of $9,000 is primarily interest earned on the note receivable from Devices. 

Equity in the net income of affiliates was $12,000, compared to a loss of $27,000 for the same period in the prior year. 

Net income was $19,000 or $0.02 per share, up slightly from the prior year's level of $8,000 or $0.01 per share.  This is a result of the aforementioned items.

In addition to working on product development and bid projects on behalf of Devices, Tayco's engineers are working on new military applications for the Seating Isolation System as well as expanded aerospaceapplications for the Cargo Isolation Systems.  Management believes that if the U.S. defense department increases expenditures on new development programs, royalty revenue may increase as new applications using the Company's technology are marketed.

The balance sheet as of November 30, 2004 is comparable to that of the prior year-end and management believes that it is likely to remain so throughout the fiscal year.

Management believes that the Company's internally generated cash will be sufficient to fund ongoing operations for the fiscal year ended May 31, 2005. 

 

 

TAYCO DEVELOPMENTS, INC.
**Item 3.  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 November 30, 2004 and have concluded that as of the evaluation date,the disclosure controls and procedures were adequate to ensure that material information relating to the Company was made known to the officers by others within the Company. 

                (b)           *Changes in internal controls.*          

                There have been no changes in the Company's internal controls over financial reporting that occurred during the fiscal quarter that have materially affected, or  are reasonably likely to materially affect,the Company's control over financial reporting.

 

 

TAYCO DEVELOPMENTS, INC.**Part II - Other Information**
ITEM 1

Legal Proceedings:

The Company is not currently engaged in any litigation.

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds:

(a)

The Company sold no equity securities during the fiscal quarter ended November 30, 2004 that were not registered under the Securities Act.

(b)

Use of proceeds following effectiveness of initial registration:

Not Applicable

(c)

Repurchases of Equity Securities

*Period*

*(a) Total  Number ofSharesPurchased*
*(b)AveragePrice PaidPer Share*

*( c) Total Numberof SharesPurchasedas Part ofPubliclyAnnounced Plansor Programs*

*(d) MaximumNumber (orApproximate DollarValue) of Shares  that May YetBe Purchased Underthe Plans orPrograms*

  September 1, 2004 -  September 30, 2004

-
-

-

  October 1, 2004 -  October 31, 2004

-
-

-

  November 1, 2004 -  November 30, 2004

-
-

-

  Total

-
-

-

-

ITEM 3

Defaults Upon Senior Securities:

None 
ITEM 4Submission of Matters to a Vote of Securities Holders:The Annual Meeting of Shareholders was held November 5, 2004.  The totalnumber of shares outstanding on the meeting record date of September 22, 2004was 987,928.  A total of 886,547 shares were present in person or by proxyat the meeting.  The following are the election results for the slate ofdirectors presented by management. *For**Withheld/Against*
Douglas P. Taylor

878,548

  7,999

Joseph P. Gastel

878,517

  8,030

David A. Lee

878,548

  7,999

Paul L. Tuttobene

876,017

10,530

Janice M. Nicely

878,517

  9,969 
ITEM 5Other Information: (a)None     (b)Material changes to the procedures by which security holders may recommend nominees to the Registrant's Board of Directors:NoneITEM 6Exhibits:  20 News from Tayco Developments, Inc. Shareholders' Newsletter, Winter 2004-2005.  31(i)   Rule 15d-14(a) Certification of Chief Executive Officer.  31(ii)Rule 15d-14(a) Certification of Chief Financial Officer.  32(i)Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.  32(ii)Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350. 
                                                                                                       

 

 

**Report of Independent Registered Public Accounting Firm**

The Board of Directors and StockholdersTayco Developments, Inc.

We have reviewed the accompanying condensed balance sheet of Tayco Developments, Inc. as of November 30, 2004, the related condensed statements of income for the three and six months ended November 30, 2004 andNovember 30, 2003, and cash flows for the six months ended November 30, 2004 and November 30, 2003.  These interim financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analyticalprocedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board, the objective of which is theexpression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

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

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the balance sheet as of May 31, 2004, and the related statements of income, changes instockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated August 4, 2004, we expressed an unqualified opinion on those financial statements.  In our opinion, the information set forth in the accompanyingcondensed balance sheet as of May 31, 2004 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.

Lumsden & McCormick, LLPBuffalo, New YorkDecember 23, 2004

 

 

TAYCO DEVELOPMENTS, INC.
**Signatures**

In accordance with the requirements of the Securities Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TAYCO DEVELOPMENTS, INC.
(Registrant)

 

 

By:

s/Douglas P. Taylor                       

Date:

January 13, 2005

Douglas P. TaylorPresidentChairman of the Board of Directors(Principal Executive Officer)

                                                AND

By:

s/Mark V. McDonough                 

Date:

January 13, 2005

Mark V. McDonoughChief Financial Officer

****