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 December 31, 1996.
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0 - 24012
ALLIED DEVICES CORPORATION
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(Exact name of small business issuer 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)
Issuer'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
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Common Stock, Par Value $.001 4,401,842
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(CLASS) (Shares Outstanding at February 13, 1997)
<PAGE>
PART I
ALLIED DEVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
Allied Devices Corporation
Balance Sheets
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December 31, September 30,
1996 1996
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Assets (Unaudited)
Current:
Cash $63,621 $54,919
Accounts receivable 1,788,064 2,193,606
Inventories 5,918,681 5,882,556
Prepaid and other 186,699 41,619
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Total current 7,957,064 8,172,700
Property, plant and equipment, net 1,974,749 1,965,746
Goodwill 105,099 110,577
Other 81,404 88,817
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Total assets $10,118,316 $10,337,840
================================================================================
Liabilities and Stockholders' Equity
Current:
Accounts payable $969,999 $1,092,758
Taxes payable 86,127 55,693
Accrued expenses 313,339 438,035
Current portion of long term debt and capital lease
obligations 122,284 119,401
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Total current 1,491,750 1,705,887
Long term debt and capital lease obligations 2,504,389 2,642,401
Deferred taxes 182,188 182,188
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Total liabilities 4,178,327 4,530,476
Stockholders' Equity:
Capital stock 4,402 4,402
Paid-in capital 2,409,086 2,409,086
Retained earnings 3,526,501 3,393,876
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Total stockholders' equity 5,939,989 5,807,364
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Total liabilities and stockholders' equity $10,118,316 $10,337,840
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3
<PAGE>
Allied Devices Corporation
Consolidated Statements of Income
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For the three months ended December 31, 1996 1995
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(Unaudited) (Unaudited)
Net sales $3,526,354 $4,294,126
Cost of sales 2,386,351 2,943,188
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Gross profit 1,140,004 1,350,938
Selling, general and administrative expenses 882,460 1,003,518
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Income from operations 257,544 347,420
Interest expense (net) 46,358 66,153
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Income before taxes on income 211,186 281,267
Taxes on income 78,561 101,257
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Net income $ 132,625 $ 180,010
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Earnings per share $ 0.03 $ 0.04
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Weighted average shares (treasury method) 5,689,488 5,660,838
================================================================================
4
<PAGE>
Allied Devices Corporation
Consolidated Statements of Cash Flows
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For the three months ended December 31, 1996 1995
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Cash flows from operating activities: (Unaudited)
Net income $ 180,010 $ 132,625
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 116,884 86,799
Provision for bad debts 670 590
Reserve for note receivable -- 75,000
Other -- --
Decrease (increase) in:
Accounts receivable 404,873 (97,658)
Inventories (36,125) (166,211)
Prepaid and other (145,079) 41,045
Other assets 3,920 (136,975)
Increase (decrease) in:
Accounts payable (122,759) 83,525
Taxes payable 30,434 (77,998)
Accrued expenses (124,696) 80,816
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Net cash provided by operating activities 260,746 68,943
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Cash flows from investing activities:
Capital expenditures (116,915) (45,772)
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Cash flows from financing activities:
Increase (decrease) in bank borrowings (106,338) 36,131
Payments of long-term debt and capital
lease obligations (28,791) (103,778)
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Net cash used in financing activities (135,129) (67,647)
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Net decrease in cash 8,702 (44,476)
Cash, at beginning of period 54,919 198,486
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Cash, end of period $ 63,621 $ 154,010
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5
<PAGE>
Allied Devices Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Information for December 31, 1996 and 1995 is unaudited)
================================================================================
1. Business Allied Devices Corporation and subsidiaries (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 of consolidation
Significant
Accounting Policies
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 December 31, 1996 and 1995, and
for the three 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 months ended December 31, 1996 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 months ended December 31, 1996 and 1995,
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.
6
<PAGE>
Allied Devices Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Information for December 31, 1996 and 1995 is unaudited)
================================================================================
2. Summary of (c) Depreciation and amortization
Significant
Accounting Policies
(Continued)
Property, plant and equipment is stated at cost.
Depreciation and 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
(d) Income taxes
The Company and its subsidiaries file a consolidated
federal income tax return and separate state income
tax returns. The Company follows the liability
method of accounting for income taxes.
(e) 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 an assumed 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 value during the
period. The proceeds generated from the assumed
exercise of options and warrants in excess of 20% of
the outstanding shares are applied to the assumed
repayment of debt with the assumed related interest
expense savings being included in the Company's
results from operations for earnings per share
computations.
7
<PAGE>
Allied Devices Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Information for December 31, 1996 and 1995 is unaudited)
================================================================================
2. Summary of (f) Intangible assets
Significant
Accounting Policies
(Continued)
The excess of cost over fair value of net assets
acquired is being amortized over a period of 20
years.
(g) Revenue recognition
Sales are recognized upon shipment of products.
(h) Statement 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.
3. Inventories Inventories are summarized as follows:
December 31, September 30,
1996 1996
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Raw materials $ 244,567 $ 238,325
Work-in-process 520,072 512,527
Finished goods 6,429,114 6,404,976
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7,193,753 7,155,828
Less: adjustment to LIFO (1,275,072) (1,273,272)
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$ 5,918,681 $ 5,882,556
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8
<PAGE>
Allied Devices Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Information for December 31, 1996 and 1995 is unaudited)
================================================================================
4. Commitments The Company rents facilities in Baldwin, Ronkonkoma,
and Freeport, New York under various operating lease
agreements expiring through December 1999. In
addition, the Company also leases certain machin-
ery and equipment and office equipment under various
capital lease agreements expiring through 2000.
The following is a schedule of total future minimum
lease payments under non cancelable operating
leases:
Years ended September 30,
-------------------------
1997 $268,000
1998 $275,000
1999 $203,000
Rent expense amounted to approximately $77,000 and
$256,000 for the three months ended December 31,
1996 and for fiscal year ended September 30, 1996,
respectively.
9
<PAGE>
Allied Devices Corporation and Subsidiaries
Results of Operations: Three Months
Ended December 31, 1996 Compared with
Three Months Ended December 31, 1995:
================================================================================
Item 2- Results of Operations: three months ended December
31, 1996 compared with three months ended December
31, 1995:
Net sales for the quarter and three months ended
December 31, 1996, the Company's first quarter of
fiscal 1997, were $3,526,000, as compared to
$4,294,000 in the comparable period of the prior
year, a decrease of approximately 17.9%. Management
attributes this decrease principally to the
following factors:
o Towards the end of 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 quarter. Recently, as the second
quarter of fiscal 1997 has begun, the same
customers are accelerating delivery dates,
indicating that they have used up accumulated
inventory and have seen a resumption of demand.
o A number of other prominent customers suspended or
curtailed buying during the quarter ended December
31, 1996 in order to minimize inventories for
calendar year-end. Management estimates that at
least $245,000 in shipments were deferred as a
result of this factor.
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 serves. 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.
10
<PAGE>
Allied Devices Corporation and Subsidiaries
Results of Operations: Three Months
Ended December 31, 1996 Compared with
Three Months Ended December 31, 1995:
================================================================================
Reported gross margin for the first quarter of
fiscal 1997 was 33.21%, as compared to 31.46% for
the comparable period of the prior year. Improved
procurement practices and favorable market
conditions lowered materials expense to
approximately 33% of net sales during the first
quarter of fiscal 1997, from approximately 36% in
the first quarter of fiscal 1996. While the Company
lowered spending on factory payroll and overhead
during the quarter, it did not completely offset the
reduction in volume, thus partially mitigating the
savings in materials expense. There were no material
price increases during this quarter. LIFO reserves
increased approximately $2,000 during the period.
Selling, general and administrative expenses as a
percentage of net sales were 25.02% in the first
quarter of fiscal 1997 as compared to 23.37% in the
comparable period of fiscal 1996. Such expenditures
were cut back more than 12% during the quarter, yet
expressed as a percentage of sales they increased.
Interest expense of $46,000 in the fiscal 1997
period was $20,000 lower than in the first quarter
of fiscal 1996. This is the net result of lower
interest rates (approximately 7.5% in fiscal 1997,
as compared to approximately 9.8% in fiscal 1996) on
slightly lower average levels of indebtedness.
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.
11
<PAGE>
Allied Devices Corporation and Subsidiaries
Results of Operations: Three Months
Ended December 31, 1996 Compared with
Three Months Ended December 31, 1995:
================================================================================
Liquidity and Financial Resources
During the first quarter of fiscal 1997, the
Company's financial condition remained stable.
Operations generated cash of $261,000, which was
$9,000 more than was used for capital expenditures
($117,000) and for payment of debt ($135,000 net),
resulting in an increase of cash on hand. Working
capital decreased by $1,000 to $6,465,000 during the
quarter, principally as a result of the following
changes in current assets and current liabilities:
o Accounts receivable decreased by $455,000 as a
function of lower volume of shipments. Such
decrease was partially offset by an increase
($50,000) in the average collection period from
about 45 days at the end of fiscal 1996 to about
46 days at the end of the first quarter of fiscal
1997.
o Inventories increased by $36,000 during the
quarter. Turns on inventory were 1.6 times during
the quarter, as compared to 2.0 times during
fiscal 1996. This change in turnover rate is
attributable to the decrease in shipping volume
during the quarter.
o Prepaid and other current assets increased by
$145,000 as the Company prepaid various
administrative expenses.
o Current liabilities, exclusive of current portions
of long-term debt and capital lease obligations,
decreased $217,000 as accounts payable and accrued
expenses decreased $247,000, and taxes payable
increased by $30,000.
o Current portions of long-term debt and capital
lease obligations increased by $3,000.
o Cash balances increased by $9,000.
12
<PAGE>
Allied Devices Corporation and Subsidiaries
Results of Operations: Three Months
Ended December 31, 1996 Compared with
Three Months Ended December 31, 1995:
================================================================================
Outlays for capital expenditures in the quarter were
$117,000 as management continued to carry out its
capital spending plans, adding to capacity and
modernizing and automating its manufacturing
processes. The Company is in the process of
installing a computer and information management
system, which will involve the expenditure of
approximately $50,000 in fiscal 1997 and is
scheduled for completion in the third quarter of
this fiscal year. Management expects to keep other
capital expenditures to a minimum until shipments
have returned to a satisfactory level.
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 fund its
acquisition program. It is management's intention to
complete at least one acquisition during fiscal
1997, and to do so will, in all likelihood, require
raising additional 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 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 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.
13
<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: February 13, 1997 ALLIED DEVICES CORPORATION
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(Registrant)
By: ____________________________
M. Hopkinson
Chairman
14
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 63,621
<SECURITIES> 0
<RECEIVABLES> 1,846,144
<ALLOWANCES> 58,080
<INVENTORY> 5,918,681
<CURRENT-ASSETS> 7,957,064
<PP&E> 6,840,282
<DEPRECIATION> 4,865,533
<TOTAL-ASSETS> 10,118,316
<CURRENT-LIABILITIES> 1,491,750
<BONDS> 2,504,389
0
0
<COMMON> 4,402
<OTHER-SE> 5,935,587
<TOTAL-LIABILITY-AND-EQUITY> 10,118,316
<SALES> 3,526,354
<TOTAL-REVENUES> 3,526,354
<CGS> 2,386,351
<TOTAL-COSTS> 2,386,351
<OTHER-EXPENSES> 882,460
<LOSS-PROVISION> 58,080
<INTEREST-EXPENSE> 46,358
<INCOME-PRETAX> 211,186
<INCOME-TAX> 78,561
<INCOME-CONTINUING> 132,625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,625
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
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