Total revenues for both the first six month period and the second quarter of fiscal 2014 increased by 41.4% and 52.6%, respectively, when compared to the same periods of fiscal 2013. Net earnings also increased by 226.0% and 281.4% for the six month period and the second quarter of fiscal 2014, respectively, when compared to the same periods of fiscal 2013. For the six month period ended
December 31, 2013, equipment sales increased by 66.3% and spare parts sales increased by 7.0%, compared with the same period of fiscal 2013. Foreign sales increased by 40.1% in the first six months of fiscal 2014 when compared to the same six month period of fiscal 2013. The Company's cash position during the first six months of 2013 increased to $6,476,173despite paying a special cash dividend of $.40per share, aggregating $2,813,493, in December 2013. Customer deposits also increased by $1,125,606enhancing the Company's cash position, however, inventories increased by $458,414to support existing orders.
Liquidity and Capital Resources
For the six month period ended
December 31, 2013, cash increased by $531,913compared to a decrease of $752,441during the same period of fiscal 2013. The following summarizes the Company's Condensed Consolidated Statements of Cash Flows: Six Months Ended December 31, 2013 2012 (Unaudited) (Unaudited) Net cash provided (used) by: Operating activities $ 3,353,293 $ 3,491,338Investing activities $ (7,887 ) $ (23,540 )Financing activities $ (2,813,493 ) $ (4,220,239 )For the six month period ended December 31, 2013, operating activities provided cash of $3,353,293compared to $3,491,338of cash provided during the same period of fiscal 2013. The increase in cash provided by operating activities during the first six months of fiscal 2014 was primarily due to a decrease in accounts and trade notes receivable of $1,145,279as some shipments made during the period were pre-paid by one large customer. In addition, cash was provided by an increase of $1,154,302in accounts payable and accrued expenses as certain payments for purchases were not yet due and an increase of $1,125,606in customer deposits to finance new orders received during the six month period. Cash was also provided by the Company's net earnings of $903,077and non-cash expenses for depreciation and amortization of $28,409. A decrease in other current assets provided cash of $272,792mostly for specialized equipment which was received and already pre-paid. These increases in cash were offset by a decrease of $671,097in accrued employee expenses, primarily to pay fiscal 2013 year-end bonuses and sales commissions, which were paid during the first quarter of fiscal 2014. Cash was also used by an increase of $458,986in inventories to support the Company's backlog of orders and a decrease of $159,960in income tax payable. All other changes in cash were due to ordinary fluctuations in business activities. For the six month period ended December 31, 2012, operating activities provided cash of $3,491,338compared to $115,507of cash provided during the same period of fiscal 2012. The increase in cash provided by operating activities during the first six months of fiscal 2012 was primarily due to an increase of $3,278,225in customer deposits connected with a number of large orders received by the Company during the first quarter of fiscal 2013. In addition cash was provided by the Company's net earnings of $276,994and non-cash expenses for depreciation and amortization of $29,489. Accounts and trade notes receivable also provided cash of $710,575as payments were received associated with heavy shipments in prior months. An increase in accounts payable and accrued expenses provided cash of 184,186 representing equipment purchased but not yet paid for. These increases in cash were offset by cash used to increase other current assets by $546,517, mostly for pre-payments to vendors for specialized equipment on order. The Company also increased inventories by $306,859to support a larger backlog of orders to be shipped next quarter. Accrued employee expenses used cash of $126,854, mostly due to fiscal 2012 year-end bonuses and sales commissions which were paid during the first quarter of fiscal 2013. All other changes in cash were of a minor nature due to ordinary fluctuations in business activities.
Investing activities used cash of
Financing activities used cash of
$2,813,493and $4,220,239during the six month periods ended December 31, 2013and 2012, respectively, to pay cash dividends to shareholders. Effective November 1, 2013, the Company's existing $2,250,000revolving line of credit facility was extended to November 1, 2014. The Company's obligations under the credit facility are guaranteed by the Company's subsidiaries and collateralized by substantially all of the Company's and its subsidiaries' assets. No amounts were outstanding under this facility at December 31, 2013or June 30, 2013, nor were there any amounts outstanding at any time during fiscal 2013 or the first six months of fiscal 2014. The Company believes that its existing cash, cash equivalents and net cash from operations will be sufficient to fund its operations and anticipated capital expenditures for at least the next twelve months and to meet its long-term liquidity needs.
Off-Balance Sheet Financing
The Company has no off-balance sheet financing arrangements within the meaning of Item 303(a)(4) of Regulation S-K.
Results of Operations Revenues.
The following table sets forth certain information with respect to changes in the Company's revenues for the periods presented:
Six months ended Three months ended December 31, December 31, 2013 2012 % 2013 2012 % (Unaudited) (Unaudited) Change (Unaudited) (Unaudited) Change Net sales
$ 18,064,800 $ 12,861,28540.5 % $ 9,737,594 $ 6,402,63452.1 % Development fees, franchise and license fees, commissions and other income 263,843 97,538 170.5 %
97,819 43,075 127.1 % Total revenues
Net sales for the six month period ended
December 31, 2013increased by $5,203,515(40.5%) from the same period of fiscal 2013. The increase is mostly attributable to an increase of 66.3% in equipment sales, and a 7.0% increase in spare parts sales. Foreign sales increased by 40.1% during the period. For the second quarter of fiscal 2014, sales increased by $3,334,960(52.1%) when compared to the second quarter of fiscal 2013. During the second quarter of fiscal 2014 equipment sales increased by 92.4%, however, spare parts sales decreased by .8% over the same period of fiscal 2013. The increase in equipment sales can be attributed to the Company's deliveries and shipments on larger
orders and installations. 11 Index
Revenues for development fees, franchise and license fees, commissions and other income, increased by
$166,305(170.5%) and $54,744(127.1%) for the six month period and second quarter, respectively, of fiscal 2014 when compared to the same periods of fiscal 2013. The increase for both periods was mostly due to commissions paid to the Company for sales made by a supplier on a direct sale to a customer in the Company's territory and increased royalty fees from our Mexican operations. Operating Expenses. Six months ended Three months ended December 31, December 31, 2013 2012 2013 2012 (Unaudited) (Unaudited) (Unaudited) (Unaudited) As a percentage of sales: Cost of sales 78.3 % 78.1 % 79.6 % 77.0 % As a percentage of revenue: Selling, general and administrative expenses 14.9 % 19.1
% 13.4 % 20.5 % Total expenses 92.1 % 96.6 % 92.2 % 96.9 %
Costs of sales, expressed as a percentage of sales, increased to 78.3% and 79.6% for the six month period and second quarter of fiscal 2014, respectively, from 78.1% and 77.0% for the six and three month periods ended
December 31, 2012. The increases for both periods were mostly due to product mix as the margins on larger orders tend to be lower. Selling, general and administrative expenses increased by $252,036(10.2%) and decreased by $4,915(.4%) for the six and three month periods ended December 31, 2014, respectively, from the same periods in fiscal 2013. The increase during the first six month period of fiscal 2014 is attributable to increased commission expense associated with increased sales. The increased commissions also applied to the three month period ended December 31, 2013, but was offset by lower professional fees and lower commissions paid for sales made outside the Company's territory. As a percentage of revenues, selling, general and administrative expenses improved for both periods of fiscal 2014 when compared to the same periods of fiscal 2013, due to the absorption of these expenses over higher revenues. Interest income decreased by $6,360(65.9%) and $2,961(58.6%) for the six month period and second quarter of fiscal 2014, respectively, from the same periods ended December 31, 2012, due to lower interest rates and a reduction in average outstanding cash balances. The Company's effective tax rate decreased to 37.8% for the six and three month periods ended December 31, 2013from 38.3% and 38.0% for the six and three month periods ended December 31, 2012. The slight variation reflects changes in permanent and temporary adjustments to taxable income.
Inflation has not had a significant effect on the Company's operations during any of the reported periods.
Transactions with Related Parties
The Company leases warehouse and office space under an operating lease from the
Sheila Steiner Revocable Trust. The trustees of this trust are Sheila Steiner, and her son, Michael S. Steiner. Michael S. Steineris the President and a director of the Company. Michael Steiner, individually, is also a principal
shareholder of the Company. 12 Index The lease was for an original three year term which commenced on
November 1, 2005, with two three-year renewal options in favor of the Company. The Company has exercised the second renewal option, extending the lease until October 31, 2014. The lease provides for annual rent increases commencing November 1, 2006of 3% over the rent in the prior year. The Company bears the cost of real estate taxes, utilities, maintenance, repairs and insurance. The Company believes that the terms of the lease are comparable to terms that would be obtained from an unaffiliated third party for similar property in a similar locale. Rental expense under this lease was approximately $62,800and $61,000in the first six months of fiscal 2014 and 2013, respectively.
Critical Accounting Policies
The accounting policies that the Company has identified as critical to its business operations and to an understanding of the Company's results of operations remain unchanged from those described in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 2013. The Company makes estimates and assumptions that affect the reported amount of assets and liabilities, contingent assets and liabilities, and the reported amounts of revenues and expenses during the reported period. Therefore, there can be no assurance that the actual results will not differ from those estimates.
Recently Adopted Accounting Guidance
Management believes the impact of issued standards and updates, which are not yet effective, will not have a material impact on the Company's consolidated financial position, results of operations or cash flows upon adoption
Forward Looking Statements
Certain statements in this Report are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this Report, words such as "may," "should," "seek," "believe," "expect," anticipate," "estimate," "project," "intend," "strategy" and similar expressions are intended to identify forward looking statements regarding events, conditions and financial trends that may affect the Company's future plans, operations, business strategies, operating results and financial position. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that may cause actual results, trends, performance or achievements of the Company, or industry trends and results, to differ materially from the future results, trends, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, among others: general economic and business conditions in
the United Statesand other countries in which the Company's customers and suppliers are located; industry conditions and trends; technology changes; competition and other factors which may affect prices which the Company may charge for its products and its profit margins; the availability and cost of the inventory purchased by the Company; the relative value of the United Statesdollar to currencies in the countries in which the Company's customers, suppliers and competitors are located; changes in, or the failure to comply with, government regulation, principally environmental regulations; the Company's ability to implement changes in its business strategies and development plans; and the availability, terms and deployment of debt and equity capital if needed for expansion. These and certain other factors are discussed in this Report and from time to time in other Company reports filed with the Securities and Exchange Commission. The Company does not assume an obligation to update the factors discussed in this Report or such other reports. 13 Index