Form 10-QSB Quarterly Reports
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 02 - 24012
ALLIED DEVICES CORPORATION
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
13-3087510
(I.R.S. Employer Identification No.)
2365 Milburn Avenue, Baldwin, N.Y. 11510
(Address of principal executive offices - Zip code)
Registrant's telephone number, including area code: 516 - 223 - 9100
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15 (d) of the Exchange Act during the past 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.
Yes _X_ No ___
Common Stock, Par Value $.001 4,402,342
(CLASS) (Shares Outstanding a August 12, 1996)
- ----------------------------- --------------------------------------
<PAGE>
PART I
ALLIED DEVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash $ 46,327 $ 198,486
Accounts receivable 2,366,345 2,182,111
Inventories 5,467,802 4,968,370
Prepaid and other current assets 42,498 52,993
----------- -----------
Total current assets 7,922,972 7,401,960
Property, plant and equipment, net of
accumulated depreciation and
amortization of $4,680,969 and
$4,415,028, respectively 1,934,050 1,756,398
Goodwill 116,056 132,491
Other 110,500 112,686
----------- -----------
$10,083,577 $ 9,403,535
=========== ===========
Liabilities and Stockholders' Equity:
Current liabilities:
Revolving loan payable $ 1,605,000 $ 1,604,038
Accounts payable 1,252,867 1,368,391
Taxes payable 20,000 286,505
Accrued expenses 448,730 391,137
Current portion-debt and leases 261,177 323,772
----------- -----------
Total current liabilities 3,587,774 3,973,843
Long-term debt and leases 815,116 497,541
Deferred taxes 182,188 182,188
----------- -----------
Total liabilities 4,585,078 4,653,572
----------- -----------
Stockholders' equity:
Common stock, $.001 par value,
authorized 25,000,000 shares,
issued and outstanding 4,402,342
and 4,297,342, respectively 4,402 4,297
Paid-in capital 2,379,192 2,352,819
Retained earnings 3,114,905 2,392,847
----------- -----------
Total stockholders' equity 5,498,499 4,749,963
----------- -----------
$10,083,577 $ 9,403,535
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------------- ----------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 4,595,543 $ 4,222,767 $13,721,549 $11,501,001
Cost of sales 3,040,760 2,786,650 9,233,335 7,699,918
----------- ----------- ----------- -----------
Gross profit 1,554,783 1,436,117 4,488,214 3,801,083
Selling, general and
administrative
expenses 1,142,264 964,219 3,159,575 2,670,059
----------- ----------- ----------- -----------
Income from operations 412,519 471,898 1,328,639 1,131,024
Interest expense (net) 40,874 75,088 190,878 237,877
----------- ----------- ----------- -----------
Income before taxes on
income 371,645 396,810 1,137,760 893,147
Taxes on income 135,042 155,000 415,701 345,941
----------- ----------- ----------- -----------
Net income $ 236,603 $ 241,810 $ 722,059 $ 547,206
=========== =========== =========== ===========
Earnings per share $0.05 $0.05 $0.14 $0.10
===== ===== ===== =====
Weighted average
number of shares of
common stock
outstanding 5,659,838 5,703,338 5,659,838 5,686,837
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended June 30,
---------------------------------------
1996 1995
----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 722,058 $ 547,206
Adjustments to reconcile net
income to net cash used in
operating activities:
Depreciation and amortization 292,855 262,452
Provision for bad debts 67,732 65,976
Decrease (increase) in:
Accounts receivable (239,465) (349,454)
Inventories (499,432) (253,442)
Prepaid expenses and other
current assets 10,495 (11,127)
Other assets (20,792) (24,753)
Increase (decrease) in:
Accounts payable (115,524) 248,452
Taxes payable (266,505) 116,990
Accrued expenses and other
current liabilities 57,593 (20,573)
--------- ---------
Net cash provided by
operating activities 9,014 581,727
--------- ---------
Cash flows from investing
activities:
Capital expenditures (178,956) (263,321)
--------- ---------
Net cash used in investing
activities (178,956) (263,321)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in revolving
loan 962 (187,663)
Proceeds from notes payable 700,000 --
Payments of principal and accrued
interest on long-term debt and
capital lease obligations (709,657) (180,854)
Proceeds from exercise of stock
options and warrants 26,478 15,688
--------- ---------
Net cash provided by (used in)
financing activities 17,783 (352,829)
--------- ---------
Net increase (decrease) in cash (152,159) (34,423)
Cash, at beginning of period 198,486 108,328
--------- ---------
Cash, at end of period $ 46,327 $ 73,905
========= =========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
NOTE 1 Business
The Company is comprised of Allied Devices Corporation ("ADCO"), and
its wholly-owned subsidiaries (collectively the "Company"), Absolute
Precision, Inc. ("Absolute"), and Empire Tyler Corporation ("Empire").
The Company is engaged primarily in the manufacture and distribution
of standard precision mechanical components and a line of screw
machine products. The Company sells all its products to the same base
of customers located throughout the United States. Because the
Company's product line comprises a comparable group of precision
manufactured parts sold to a similar customer base, it considers
itself to be engaged in a single business segment.
NOTE 2 Summary of Significant Accounting Policies
(a) Basis of presentation/principles of consolidation
The accompanying consolidated financial statements include the
accounts of Allied Devices Corporation and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The consolidated financial statements and related notes thereto as of
June 30, 1996 and 1995, and for the three and nine months then ended,
are unaudited and have been prepared on a basis consistent with the
Company's annual financial statements. Such unaudited financial
statements include all adjustments (consisting of normal recurring
adjustments) that the Company considers necessary for a fair
presentation of such data. Results for the three and nine months ended
June 30, 1996 are not necessarily indicative of the results that may
be expected for the entire year ending September 30, 1996.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-KSB for the year ended September 30, 1995.
-6-
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES (Continued)
(b) Inventories
Inventories are valued at the lower of cost (last-in, first-out (LIFO)
method) or market. For the three and nine months ended June 30, 1996
and 1995, inventory was determined by applying a gross profit method,
as opposed to the year ended September 30, 1995, when inventory was
determined by a physical count. The Company has estimated that the
change in the excess of the FIFO valuation over the LIFO cost of its
inventories will not be significant during fiscal 1996.
(c) Earnings per share
Earnings per share is based on the weighted aver- age number of shares
of common stock and common stock equivalents outstanding during each
period. Earnings per share is computed using the treasury stock
method, modified for options and warrants outstanding in excess of 20%
of the outstanding shares of the Company's common stock. Under the
treasury stock method the number of shares outstanding reflects the
use of the proceeds from the assumed exercise of stock options and
warrants to repurchase shares of the Company's common stock at the
average market price during the period. The proceeds generated from
the assumed exercise of options and warrants in excess of 20% of the
outstanding shares of common stock are applied to the assumed
repayment of Company debt with the assumed related interest expense
savings being included in the Company's results of operations for
earnings per share computations.
(d) Revenue recognition
Sales are recognized upon shipment of products.
(e) Statements of cash flows
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
-7-
<PAGE>
ALLIED DEVICES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 INVENTORIES
Inventories are summarized as follows:
June 30, September 30,
1996 1995
---------- ----------
Raw materials $235,722 $273,553
Work-in-process 815,831 538,730
Finished goods 5,692,677 5,328,138
---------- ----------
6,744,230 6,140,421
Less: adjustment
to LIFO (1,276,428) (1,172,051)
---------- ----------
$5,467,802 $4,968,370
========== ==========
-8-
<PAGE>
Item 2 Results of Operations: Three and nine months ended June 30, 1996
compared with three and nine months ended June 30, 1995:
All statements contained herein that are not historical facts,
including, but not limited to, statements regarding the Company's
current business strategy, the Company's projected sources and uses of
cash, and the Company's plans for future development and operations,
are based upon current expectations. These statements are
forward-looking in nature and involve a number of risk and
uncertainties. Actual results may differ materially. Among the factors
that could cause actual results to differ materially are the
following: the availability of sufficient capital to finance the
Company's business plans on terms satisfactory to the Company;
competitive factors; changes in labor, equipment and capital costs;
changes in regulations affecting the Company's business; future
acquisitions or strategic partnerships; general business and economic
conditions; and factors described from time to time in the Company's
reports filed with the Securities and Exchange Commission. The Company
cautions readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the
Private Litigation Reform Act of 1995 and, as a result, are pertinent
only as of the date made.
Net sales for the quarter and nine months ended June 30, 1996, were
$4,596,000 and $13,722,000, respectively, 8.8% and 19.3% higher than
in the comparable period of the prior year. Management attributes this
increase to a number of factors, principally: (1) an ongoing
advertising campaign in certain trade magazines appears to be
expanding and sustaining awareness of the Company's products and
services in the markets it serves, producing an unprecedented volume
of inquiries from potential customers; (2) a series of customer
service improvement programs appears to have resulted in enhanced
levels of customer retention and higher volumes of business with
existing customers; (3) a program to extend the range of support
services provided to the Company's customers seems to be enjoying
broad acceptance; and (4) the sectors of the U.S. economy serviced by
the Company remain generally robust, although a flattening in the
semiconductor equipment sector has delayed certain deliveries by an
estimated 3 to 6 months.
Reported gross margins for the third quarter and nine months of fiscal
1996 were 33.83% and 32.70%, respectively, as compared to 34.01% and
33.05% for the comparable periods in the prior year. This stability
arises from rising shop floor productivity (greater volume of
shipments on
-9-
<PAGE>
relatively stable factory operating costs) offsetting higher costs of
materials. The Company has not instituted any significant price
increases during the nine month period of fiscal 1996. The LIFO
reserve increased by approximately $104,000 during the nine months
ended June 30, 1996.
Selling, general and administrative expenses as a percent of net sales
were 24.86% and 23.03%, respectively, in the three and nine months of
fiscal 1996 as compared to 22.83% and 23.22% in the comparable periods
of fiscal 1995. The increase in expenses for the three months ended
June 30, 1996 is principally due to higher accruals for overhead and
workforce incentive bonuses. While general and administrative expenses
have risen during fiscal 1996 (year-to-date), management's control of
overhead during this period of expansion has resulted in these costs
rising at a slower rate than shipments.
Interest expense in the third quarter and nine months of fiscal 1996
amounted to $41,000 and $191,000, respectively, as compared to $75,000
and $238,000 in the comparable periods of fiscal 1995. This decline in
interest expense is the result of both lower interest rates and lower
levels of indebtedness.
Provision for income taxes is estimated at 36% of pre-tax income for
the fiscal 1996 period, as a combination of federal and state taxes.
Liquidity and Financial Resources
During the first nine months of fiscal 1996, operations generated cash
of $9,000 and financing activities generated $18,000, the combined
effect of which was $152,000 less than was used for capital
expenditures ($179,000), resulting in a reduction of cash on hand.
Working capital increased by $907,000 to $4,335,000 during the nine
months, principally as a result of the following changes in current
assets and current liabilities:
(a) Accounts receivable increased by $184,000 as a function of rising
volume of shipments partially offset by a reduction in the
average collection period from about 51 days at the end of fiscal
1995 to about 47 days at the end of the third quarter of fiscal
1996.
(b) Inventories increased by 10.0% during the nine months, or
$499,000. Turns on inventory continued to improve, from 2.1 times
during fiscal 1995 to 2.3 times during the nine month period.
(c) Prepaid expenses and other current assets declined by
-10-
<PAGE>
$11,000 as the Company expensed various prepaid expenses.
(d) Current liabilities, exclusive of current portions of long-term
debt and capital lease obligations, decreased $323,000 as
accounts payable and accrued expenses decreased $58,000, taxes
payable decreased by $266,000, and bank borrowings increased
$1,000.
(e) Current portions of debt and capital lease obligations decreased
by $63,000 (net) as the Company retired certain current
obligations.
Outlays for capital expenditures in the quarter were $179,000
($444,000 including capital lease acquisitions) as management
continued to carry out its expansion plans, adding to capacity and
modernizing and automating its manufacturing processes. The Company is
in the process of implementing a new computer system (hardware and
software), which will ultimately involve the expenditure of
approximately $250,000, of which some 75% has been made. Other capital
spending plans call for approximately $85,000 of additional investment
in machinery and equipment for the remainder of fiscal 1996.
Management believes that the Company's working capital as now
constituted will be adequate for the needs of the on-going core
business. During fiscal 1995, management had concluded that its
banking agreements would become a financial constraint during fiscal
1996 if growth in sales volume continued at or above the rates of
fiscal 1995. In January 1996, the Company entered into new credit
agreements, increasing maximum availability under its revolving credit
agreement from $2.5 million to $3.0 million and opening up new term
financing lines for equipment totaling approximately $1.7 million
(which had been about $400,000).
Management further believes that the Company's financial resources
will not be adequate to fund its acquisition program. It is
management's intention to complete at least one acquisition during
calendar 1996, and to do so will, in all likelihood, require raising
additional equity capital. Management believes that it has several
sources for such capital and expects that the combination of capital
raised and acquisitions completed will produce anti-dilutive results
for the Company's existing stockholders. While this is management's
intention, there is no guarantee that they will be able to achieve
this objective. The Company is not relying on the receipt of equity
capital for its existing operations, but it is important to note that
some of the most promising elements of management's expansion plans
may not be possible without raising
-11-
<PAGE>
additional equity capital. In the event that such additional equity
funds are raised, management intends to implement its plans and will
do so in keeping with its judgment at that time as to how best to
deploy such added capital.
PART II. OTHER INFORMATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: August , 1996 ALLIED DEVICES CORPORATION
----------------------------------------------------------------------
(Registrant)
By:
---------------------------------------
M. Hopkinson
Chairman
-9-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 46,327
<SECURITIES> 0
<RECEIVABLES> 2,447,801
<ALLOWANCES> 81,456
<INVENTORY> 5,467,802
<CURRENT-ASSETS> 7,880,474
<PP&E> 6,615,019
<DEPRECIATION> 4,680,969
<TOTAL-ASSETS> 9,814,524
<CURRENT-LIABILITIES> 3,587,774
<BONDS> 0
0
0
<COMMON> 4,402
<OTHER-SE> 5,494,097
<TOTAL-LIABILITY-AND-EQUITY> 9,086,273
<SALES> 4,595,543
<TOTAL-REVENUES> 4,595,543
<CGS> 3,040,760
<TOTAL-COSTS> 3,040,760
<OTHER-EXPENSES> 1,142,264
<LOSS-PROVISION> 81,456
<INTEREST-EXPENSE> 40,874
<INCOME-PRETAX> 371,645
<INCOME-TAX> 135,042
<INCOME-CONTINUING> 236,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 236,603
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.14
</TABLE>
