Tayco Developments, Inc (TYCO) - Description of business

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Company Description
Business Development The Company was incorporated in the State of New York on July 22, 1955, and is a patent holding company engaged in research, development and licensing to manufacture shock and vibration isolators, energy storage and shock absorption components for use on various types of vehicles, machinery and equipment.  The Company sells research and development engineering services to its affiliate, Taylor Devices, Inc. ("Devices"), and pursuant to a certain License Agreement dated November 1, 1959 ("License Agreement") has licensed Devices to manufacture and sell certain of the Company's patented products.  The products sold are used in the defense, aerospace and commercial industries.  See "Patents, Trademarks and Licenses."The Company continues to research and develop new and advanced technology products. Principal Products The Company's primary products include a wide spectrum of components utilized for the absorption and/or attenuation of transient and/or steady state motion of mechanical elements.  Specific components include shock absorbers, vibration dampers, seismic shock arresters, vehicle suspension devices and recoil absorbers.  These components may utilize either hydraulic, elastomer, or electronic means to obtain their required output.A correlative component of these products is the analysis and development of design specifications for various types of energy absorption devices.  The Company maintains an extensive computer database of shock pulses, combined with its own proprietary structural analysis computer codes.  The Company markets analytical services utilizing these assets. Distribution The Company does not use sales representatives or distributors because the majority of its work is performed under contract with Devices. Competition The Company faces no significant competition due to the nature of its patented products and the subcontracting arrangement with Devices. Raw Materials and Supplies No raw materials are used in the Company's business, and supplies are readily available. Patents, Trademarks and Licenses The Company holds approximately 43 patents expiring at different times until the year 2021.  In fiscal 2004, royalty income from the patents accounted for 52% of the Company's revenues.Under the License Agreement dated November 1, 1959 ("License Agreement"), the Company granted Devices preferential rights to market in the United States and Canada all existing and future inventions and patents owned by the Company.   The term of the License Agreement is the life of the last-to-expire patent on which Devices is paying royalties, the date of which is October 23, 2021.  Devices pays a 5% royalty to the Company on sales of items sold and shipped.  During fiscal 2004, the Company recorded $322,000 in royalties revenue from Devices.  Under the License Agreement, payments of royalties are required to be made quarterly.  The Company has not received cash for these royalties from Devices during the last couple of years.  As noted in Item 6, Devices has issued a note payable to the Company for the balance due as of May 31, 2004.  Devices has agreed to make the required quarterly royalty payments to the Company during the year ending May 31, 2005.In addition, the License Agreement provides for the Company to pay Devices 10% of the gross royalties received from third parties who are permitted to make, use and sell machinery and equipment under patents not subject to the License Agreement. These royalties also apply to certain apparatus and equipment subject to the License Agreement which has been modified by Devices, with the rights to the modification assigned to the Company.  No royalties were paid to Devices in 2004.  Royalties, if any, are paid quarterly.  Royalties are also paid to Douglas P. Taylor pursuant to a resolution of the Board of Directors of the Company.  See "Executive Compensation."The Company, Devices, and Tayco Realty Corporation ("Realty") share common management and a close business relationship.  Particularly as it may relate to the Company and Devices, as separate corporations responsible to their own shareholders, corporate interests may from time to time diverge as to various aspects of their business, including the development of future inventions and patents, which could be licensed to licensees other than Devices. Dependence Upon Customers/Terms of Sale/Sales Backlog The Company's current business is almost totally dependent on Devices.  In fiscal 2004, 100% of sales were to Devices in the form of both direct and subcontracted project engineering.  Terms of sale are normally net 30 days, with purchase orders issued on a "cost plus" basis.  Work is subcontracted from Devices as needed, and consequently there is no backlog.  Government Contracts The Company has proposals pending with the federal government, but no assurances can be given that any contracts will be forthcoming. Research and Development The Company engages in Research and Development ("R&D") in connection with the design of products that are sold by Devices.  See "Patents, Trademarks and Licenses."  The Company's income from R&D was $302,000 and $401,000 for fiscal years 2004 and 2003, respectively. Government Regulation Compliance with federal, state and local provisions which have been enacted or adopted regulating the discharge of materials into the environment have had no material effect on the Company, and the Company believes that it is in substantial compliance with such provisions.The Company is subject to the Occupational Safety and Health Act ("OSHA") and the rules and regulations promulgated thereunder, which establishes strict standards for the protection of employees, and imposes fines for violations of such standards.  The Company believes that it is in substantial compliance with OSHA provisions and does not anticipate any material corrective expenditures in the near future. There have been no significant costs or efforts in conjunction with compliance with environmental standards. Employees As of May 31, 2004, the Company had three full time employees and one part time employee, which does not include executive officers.

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