<PAGE>
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, 1997.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 02-24012
ALLIED DEVICES CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada
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(State or other jurisdiction of incorporation or organization)
13-3087510
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(I.R.S. Employer Identification No.)
2365 Milburn Avenue, Baldwin, N.Y. 11510
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(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 4,506,342
(CLASS) (SHARES OUTSTANDING AT AUGUST 4, 1997)
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<PAGE>
PART I
ALLIED DEVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
2
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ALLIED DEVICES CORPORATION
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
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(Unaudited)
<S> <C> <C>
Assets
Current:
Cash $ 188,243 54,919
Accounts receivable 2,395,381 2,193,606
Inventories 5,974,523 5,882,556
Prepaid expenses and other current assets 81,944 41,619
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Total current 8,640,091 8,172,700
Property, plant and equipment, net 1,887,528 1,965,746
Goodwill 94,143 110,577
Other 60,500 88,817
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Total assets $10,682,262 $10,337,840
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Liabilities and Stockholders' Equity
Current:
Accounts payable 1,034,393 1,092,758
Taxes payable 37,562 55,693
Accrued expenses 296,585 438,035
Current portion of long term debt and capital lease
obligations 127,585 119,401
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Total current 1,496,125 1,705,887
Long term debt and capital lease obligations 2,430,438 2,642,401
Deferred taxes 182,188 182,188
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Total liabilities 4,108,751 4,530,476
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Stockholders' Equity:
Capital stock 4,512 4,402
Paid-in capital 2,497,057 2,409,086
Retained earnings 4,071,942 3,393,876
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Total stockholders' equity 6,573,511 5,807,364
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Total liabilities and stockholders equity $10,682,262 $10,337,840
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</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
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1997 1996 1997 1996
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $4,327,567 $4,595,543 $11,959,365 $13,721,549
Cost of sales 2,792,558 3,040,760 7,711,439 9,233,335
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Gross profit 1,535,009 1,554,783 4,247,926 4,488,214
Selling, general and administrative expenses 1,042,962 1,142,264 3,006,921 3,159,575
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Income from operations 492,047 412,519 1,241,005 1,328,639
Interest expense (net) 56,940 40,874 161,282 190,878
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Income before taxes on income 435,107 371,645 1,079,723 1,137,760
Taxes on income 161,860 135,042 401,657 415,701
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Net income $ 273,247 $ 236,603 $ 678,066 $ 722,059
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Earnings per share $0.06 $0.05 $0.14 $0.14
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Weighted average number of shares of common
stock outstanding 5,663,538 5,653,791 5,669,138 5,659,838
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</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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Nine Months Ended June 30,
--------------------------
1997 1996
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(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 678,066 $ 722,059
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 361,253 292,855
Provision for bad debts 65 67,732
Gain on sale of fixed assets (13,970) --
Decrease (increase) in:
Accounts receivable (201,840) (239,465)
Inventories (91,967) (499,432)
Prepaid expenses and other current assets (40,325) 10,495
Other assets 17,837 (20,793)
Increase (decrease) in:
Accounts payable (58,365) (115,524)
Taxes payable (18,131) (266,505)
Accrued expenses and other current liabilities (141,449) 57,592
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Net cash provided by operating activities 491,174 9,014
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Cash flows from investing activities:
Capital expenditures (261,902) (178,956)
Proceeds from sale of fixed assets 19,750 --
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Net cash (used in) investing activities (242,152) (178,956)
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Cash flows from financing activities:
Increase (decrease) in revolving loan (116,338) 962
Proceeds from notes payable -- 700,000
Payments of principal and accrued interest on long-term debt and
capital lease obligations (87,441) (709,657)
Proceeds from sale of common stock 88,081 26,478
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Net cash provided by (used in) financing activities (115,698) 17,783
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Net increase (decrease) in cash 133,324 (152,159)
Cash, at beginning of period 54,919 198,486
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Cash, at end of period $ 188,243 $ 46,327
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</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR JUNE 30, 1997 AND 1996 IS UNAUDITED)
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<TABLE>
<S> <C> <C>
1. Business Allied Devices Corporation and subsidiary (the "Company") are
engaged primarily in the manufacture and distribution of standard
precision mechanical components and a line of screw machine
products throughout the United States.
2. Summary of (a) Basis of presentation/principles and consolidation
Significant
Accounting Policies
The accompanying consolidated financial statements include the
accounts of Allied Devices Corporation and its wholly-owned
subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The consolidated financial statements and related notes thereto
as of June 30, 1997 and 1996, 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, 1997 are not
necessarily indicative of the results that may be expected for
the entire year ending September 30, 1997.
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, 1996.
(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, 1997 and 1996, inventory was determined by applying a
gross profit method, as opposed to the year ended September 30,
1996, 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 1997.
</TABLE>
6
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1997 AND 1996 IS UNAUDITED)
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<TABLE>
<S> <C> <C>
2. Summary of (c) Depreciation and amortization
Significant
Accounting Policies Property, plant and equipment is stated at cost. Depreciation and
(continued) amortization of property, plant and equipment is computed using
the straight-line method over the estimated useful lives of the
assets. The estimated useful lives are as follows:
Buildings and improvements 30 years
Machinery and equipment 10 years
Furniture, fixtures and
office equipment 5 - 7 years
Tools, molds and dies 8 years
Leasehold improvements Lease term
</TABLE>
<TABLE>
<S> <C> <C>
(d) Earnings per share
Earnings per share is based on the weighted average 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.
(e) Intangible assets
The excess of cost over fair value of net assets acquired is
being amortized over a period of 20 years.
</TABLE>
7
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION FOR JUNE 30, 1997 AND 1996 IS UNAUDITED)
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<TABLE>
<S> <C> <C>
2. Summary of (f) Revenue recognition
Significant
Accounting Policies Sales are recognized upon shipment of products.
(continued)
(g) New accounting pronouncement
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share", which is effective for
fiscal years ending after December 15, 1997. The Company will
adopt Statement No. 128 for the year ending September 30, 1998.
The effect on the consolidated financial statements of Statement
No. 128 will not be material on a fully diluted basis.
3. Inventories Inventories are summarized as follows:
June 30, September 30,
1997 1996
------------------------------------------------------
Raw materials $ 292,848 $ 238,325
Work-in-process 521,738 512,527
Finished goods 6,428,701 6,404,976
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7,243,287 7,155,828
Less: adjustment to LIFO (1,268,764) (1,273,272)
------------------------------------------------------
$ 5,974,523 $ 5,882,556
------------------------------------------------------
</TABLE>
8
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS: THREE AND NINE MONTHS ENDED JUNE 30, 1997
COMPARED WITH THREE AND NINE MONTHS ENDED JUNE 30, 1996
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<TABLE>
<S> <C>
Item 2- Results of Operations: Three and nine months ended June 30,
1997 compared with three and nine months ended June 30, 1996:
All statements contained herein that are not historical facts, includ-
ing, 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 risks 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, 1997, were
$4,328,000 and $11,959,000, respectively, 5.8% and 12.8% lower than in
the comparable period of the prior year. Management attributes this
decrease to a number of factors:
- Towards the end of the Company's fiscal 1996, customers in the
semiconductor equipment industry had experienced a slowdown and
had, as of August 1996, begun to defer shipments, originally
scheduled for delivery in the period September 1996 to February
1997, until after March 1997. Management estimates that
approximately $750,000 in shipments were deferred during the
first quarter (October - December 1996) and approximately
$500,000 during the second quarter (January - March 1997). As the
third quarter of fiscal 1997 progressed, the pace of shipments
improved, with the shortfall narrowing to approximately $250,000.
Virtually all of the Company's customers in this industry are
projecting a major ramp-up beginning in September 1997, lasting
for 12-36 months, during which they expect to make up for the
deferrals of the Company's fiscal year 1997.
</TABLE>
9
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS: THREE AND NINE MONTHS ENDED JUNE 30, 1997
COMPARED WITH THREE AND NINE MONTHS ENDED JUNE 30, 1996
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<TABLE>
<S> <C>
- A number of other prominent customers suspended or curtailed
buying during the Company's first fiscal quarter (October to
December 1996), in order to minimize inventories for calendar
year-end. Management estimates that, as a result of this factor,
at least $245,000 in shipments were deferred into the third and
fourth quarters.
The Company's on-going advertising campaign in certain trade magazines
is focused on the advantages of having Allied Devices as a source, and
it appears to be expanding awareness of the Company's products and
services in the markets it has targeted. Management estimates that,
exclusive of shipments to the semiconductor equipment industry, the
Company's sales volume has shown growth of about 10%. The rate at
which the Company is adding new customers remains healthy and steady.
Customer retention appears to be excellent, which management
attributes to the success of various innovative approaches to customer
service.
Reported gross margins for the third quarter and nine months of fiscal
1997 were 35.47% and 35.52%, respectively, as compared to 33.83% and
32.70% for the comparable periods in the prior year. Improved
procurement practices and favorable market conditions lowered
materials expense to approximately 32.5% of net sales during the nine
months of fiscal 1997, from approximately 38% in the comparable nine
months of fiscal 1996. While the Company lowered spending on factory
payroll and overhead during the nine month period, it did not
completely offset the reduction in volume, thus partially mitigating
the savings in material expense. The Company did institute certain
modest price increases during the second and third quarters of fiscal
1997, affecting specific product groupings in the Company's catalog.
Management estimates the effect on revenues to be less than 1%. The
LIFO reserve decreased by approximately $5,000 during the nine months
ended June 30, 1997, as certain segments of the Company's inventory
with high LIFO reserves were reduced.
Selling, general and administrative expenses as a percentage of net
sales were 24.10% and 25.14% in the third quarter and nine months of
fiscal 1997, as compared to 24.86% and 23.03% in the comparable
periods of fiscal 1996. Such expenditures were cut back approximately
5% during the nine months of fiscal 1997, yet expressed as a
percentage of sales they increased.
</TABLE>
10
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS: THREE AND NINE MONTHS ENDED JUNE 30, 1997
COMPARED WITH THREE AND NINE MONTHS ENDED JUNE 30, 1996
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<TABLE>
<S> <C>
Interest expense in the third quarter and nine months of fiscal 1997
amounted to $57,000 and $161,000, respectively, as compared to $41,000
and $191,000 in the comparable periods of fiscal 1996. This represents
a reduction of more than 15% for the nine months (year-to-date),
attributable to two factors: (1) levels of borrowings have been
approximately 9% lower on average during fiscal 1997, and (2) in
September 1996, the Company entered into a new credit agreement,
lowering the interest cost of its bank borrowings.
Provision for income taxes is estimated at 37.2% of pre-tax income for
the fiscal 1997 period, as a combination of federal and state taxes.
Liquidity and Financial Resources
During the first nine months of fiscal 1997, operations generated cash
of $491,000. Capital expenditures, net of proceeds from the sale of
certain obsolete equipment, used $242,000, and financing activities
used $116,000 (net), with the remainder increasing cash on hand by
$133,000. Working capital increased by $677,000 to $7,144,000 during
the period, principally as a result of the following changes in
current assets and current liabilities:
(a) Accounts receivable increased by $202,000, primarily as a
function of collections slowing from 45 days at the end of fiscal
1996 to 51 days at the end of June 1997.
(b) Inventories increased by 1.6% during the nine months, or by
$92,000. Turns on inventory averaged 2.0 times in fiscal 1996;
however, as a result of lower volumes of shipments, turns dropped
in the first two quarters of fiscal 1997 to an average of 1.7
times. In the third quarter, as sales volume has begun to
recover, turns on inventory have improved to 1.9 times.
(c) Prepaid expenses and other current assets increased by $40,000 as
the Company booked certain annual contracts and is expensing them
as the year progresses.
(d) Current liabilities, exclusive of current portions of long-term
debt and capital lease obligations, decreased $218,000 as
accounts payable and accrued expenses decreased $200,000 and
taxes payable decreased by $18,000.
(e) Current portions of debt and capital lease obligations increased
by $8,000 (net).
(f) Cash increased by $133,000.
</TABLE>
11
<PAGE>
ALLIED DEVICES CORPORATION
AND SUBSIDIARIES
RESULTS OF OPERATIONS: THREE AND NINE MONTHS ENDED JUNE 30, 1997
COMPARED WITH THREE AND NINE MONTHS ENDED JUNE 30, 1996
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<TABLE>
<S> <C>
Net outlays for capital expenditures in the nine month period were
$242,000. Actual outlays of $262,000 were partially offset by the sale
of certain pieces of equipment no longer required for manufacturing
purposes. Management continued to carry out its ongoing "continuous
improvement" plans, adding to capacity and modernizing and automating
its manufacturing processes. Capital spending plans for the remainder
of fiscal 1997 call for approximately $100,000 of additional
investment in machinery and equipment. In addition, the Company is
completing installation of a computer and management information
system which will involve the expenditure of an additional $25,000
during fiscal 1997. This is scheduled for completion at the end of the
Company's fiscal year.
Management believes that the Company's working capital as now
constituted will be adequate for the needs of the on-going core
business. Management further believes that the Company's current
financial resources will not be adequate to fully fund its acquisition
program. It is management's intention to complete at least one
acquisition in fiscal 1997, and to do so will require raising addi-
tional debt and/or 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 man-
agement's intention, there is no guarantee that they will be able to
achieve this objective.
The Company is not relying on the receipt of any new 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 additional 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.
</TABLE>
12
<PAGE>
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 , 1997 ALLIED DEVICES CORPORATION
- ------------------- --------------------------
(Registrant)
By: -------------------
M. Hopkinson
Chairman
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM [identify
specific financial statements here] June 1997 10Q
</LEGEND>
<CIK> 0000869495
<NAME> ALLIED DEVICES CORP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 188,243
<SECURITIES> 0
<RECEIVABLES> 2,431,165
<ALLOWANCES> 35,784
<INVENTORY> 5,974,523
<CURRENT-ASSETS> 8,640,091
<PP&E> 6,869,668
<DEPRECIATION> 4,982,140
<TOTAL-ASSETS> 10,682,262
<CURRENT-LIABILITIES> 1,496,125
<BONDS> 0
0
0
<COMMON> 4,512
<OTHER-SE> 6,568,999
<TOTAL-LIABILITY-AND-EQUITY> 10,682,262
<SALES> 4,327,567
<TOTAL-REVENUES> 4,327,567
<CGS> 2,792,558
<TOTAL-COSTS> 2,792,558
<OTHER-EXPENSES> 1,042,962
<LOSS-PROVISION> 35,784
<INTEREST-EXPENSE> 56,940
<INCOME-PRETAX> 435,107
<INCOME-TAX> 161,860
<INCOME-CONTINUING> 273,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 273,247
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
