<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 December 31, 1997.
[ ] 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
----- -----
Common Stock, Par Value $.001 4,609,942
(CLASS) (Shares Outstanding at January 27, 1998)
- ------------------------------ ----------------------------------------
<PAGE>
PART I
ALLIED DEVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
Allied Devices Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
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Assets (Unaudited)
<S> <C> <C>
Current:
Cash............................................................................. $ 359,868 $ 162,094
Accounts receivable.............................................................. 2,118,126 2,326,179
Inventories...................................................................... 6,391,662 6,402,688
Prepaid and other................................................................ 195,177 67,606
Deferred income taxes............................................................ 41,000 41,000
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Total current................................................................ 9,105,833 8,999,567
Property, plant and equipment, net................................................. 1,883,251 1,837,225
Goodwill........................................................................... 83,185 88,664
Other.............................................................................. 44,729 51,527
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Total assets................................................................. $ 11,116,998 $ 10,976,983
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Liabilities and Stockholders' Equity
Current:
Accounts payable................................................................. $ 1,308,158 $ 1,186,291
Taxes payable.................................................................... 237,276 145,263
Accrued expenses................................................................. 266,714 241,781
Current portion of long term debt and capital lease obligations.................. 109,248 118,481
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Total current................................................................ 1,921,396 1,691,816
Long term debt and capital lease obligations....................................... 1,736,556 2,084,239
Deferred taxes..................................................................... 175,000 175,000
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Total liabilities................................................................ 3,832,952 3,951,055
Stockholders' Equity:
Capital stock.................................................................... 4,610 4,610
Paid-in capital.................................................................. 2,565,559 2,565,559
Retained earnings................................................................ 4,713,877 4,455,759
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Total stockholders' equity................................................... 7,284,046 7,025,928
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Total liabilities and stockholders' equity................................... $ 11,116,998 $ 10,976,983
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</TABLE>
3
<PAGE>
Allied Devices Corporation
Consolidated Statements of Income
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 1996
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(Unaudited) (Unaudited)
<S> <C> <C>
Net sales............................................................................. $ 4,382,769 $ 3,526,354
Cost of sales......................................................................... 2,961,775 2,386,350
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Gross profit...................................................................... 1,420,994 1,140,004
Selling, general and administrative expenses.......................................... 971,644 882,460
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Income from operations............................................................ 449,350 257,544
Interest expense (net)................................................................ 38,232 46,358
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Income before provision for taxes on income....................................... 411,118 211,186
Taxes on income....................................................................... 153,000 78,561
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Net income............................................................................ $ 258,118 $ 132,625
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Basic earnings per share.............................................................. $ 0.06 $ 0.03
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Basic weighted average number of shares of common stock outstanding................... 4,609,942 4,401,842
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Diluted earnings per share............................................................ $ .06 $ .03
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Diluted weighted average number of shares of common stock outstanding................. 4,681,448 4,772,941
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</TABLE>
4
<PAGE>
Allied Devices Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities: (Unaudited)
<S> <C> <C>
Net income.............................................................................. $ 258,118 $ 132,625
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization....................................................... 108,892 116,884
Provision for bad debts............................................................. -- 670
Reserve for note receivable......................................................... -- --
Gain on sale of equipment........................................................... (2,825) --
Decrease (increase) in:
Accounts receivable................................................................. 208,053 404,873
Inventories......................................................................... 11,026 (36,125)
Prepaid expenses and other current assets........................................... (127,571) (145,079)
Other assets........................................................................ 3,305 3,919
Increase (decrease) in:
Accounts payable.................................................................... 121,867 (122,759)
Taxes payable....................................................................... 92,013 30,434
Accrued expenses.................................................................... 24,933 (124,696)
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Net cash provided by operating activities................................................. 697,811 260,746
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Cash flows from investing activities:
Capital expenditures.................................................................... (146,121) (116,915)
Proceeds from sale of equipment......................................................... 3,000 --
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Net cash used in investing activities..................................................... (143,121) (116,915)
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Cash flows from financing activities:
Increase (decrease) in bank borrowings.................................................. (325,000) (106,338)
Payments of long-term debt and capital lease obligations................................ (31,916) (28,791)
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Net cash used in financing activities..................................................... (356,916) (135,129)
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Net increase in cash...................................................................... 197,774 8,702
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Cash, at beginning of period.............................................................. 162,094 54,919
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Cash, end of period....................................................................... $ 359,868 $ 63,621
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</TABLE>
5
<PAGE>
Allied Devices Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Information for December 31, 1997 and 1996 is unaudited)
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 of consolidation
Significant The accompanying consolidated financial statements include
Accounting the accounts of Allied Devices Corporation and its
Policies wholly-owned subsidiary. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
The consolidated financial statements and related notes
thereto as of December 31, 1997 and 1996, 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, 1997 are not necessarily indicative of the
results that may be expected for the entire year ending
September 30, 1998.
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, 1997.
(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, 1997 and 1996, inventory was determined by
applying a gross profit method, as opposed to the year ended
September 30, 1997, when inventory was determined by a
physical count.
6
<PAGE>
Allied Devices Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Information for December 31, 1997 and 1996 is unaudited)
2. Summary of (c) Depreciation and amortization
Significant
Accounting Property, plant and equipment is stated at cost.
Policies Depreciation and amortization of property, plant and
(Continued) 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 subsidiary 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
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 Earnings
per Share. Statement 128 replaced the previously reported
primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects
of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where
necessary, restated to conform to the Statement 128
requirements.
7
<PAGE>
Allied Devices Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Information for December 31, 1997 and 1996 is unaudited)
2. Summary of (f) Intangible assets
Significant
Accounting The excess of cost over fair value of net assets acquired is
Policies being amortized over a period of 20 years.
(Continued)
(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,
1997 1997
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Raw materials.... $ 315,509 $ 310,260
Work-in-process.. 509,827 514,437
Finished goods... 6,876,747 6,888,412
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7,702,083 7,713,109
Less: adjustment
to LIFO.. (1,310,421) (1,310,421)
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$ 6,391,662 $ 6,402,688
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4. Subsequent
Events In January 1998, the Company acquired the assets and
business of Kay Pneumatic Valves, Inc. for $850,000.
This acquisition was funded by a new leasing agreement
of $1,000,000. This arrangement is payable over five
years at an interest rate of 7.99%.
8
<PAGE>
Allied Devices Corporation and Subsidiaries
Results of Operations: Three Months
Ended December 31, 1997 Compared with
Three Months Ended December 31, 1996:
Item 2- Results of Operations: three months ended December 31, 1997
compared with three months ended December 31, 1996:
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
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 reports filed by
the Company 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 are pertinent only
as of the date made.
Net sales for the three months ended December 31, 1997, were
$4,383,000 as compared to $3,526,000 in the comparable period of
the prior year, an increase of approximately 24.3%. Management
attributes this increase principally to the following factors:
- During most of fiscal 1997, there was a sharp slowdown in
the semiconductor equipment sector of the U.S. economy.
Sales to this industry in fiscal 1996 were estimated at 20%
of the Company's volume, dropping to approximately 3% of
overall shipments in fiscal 1997. Solid recovery was
evident in the Company's shipments in the fourth quarter of
fiscal year 1997, continuing into the first quarter of
fiscal 1998. The Company has continued to experience growth
in sales to other industries, most notably aerospace
instrumentation, medical equipment, robotics and scientific
instrumentation.
9
<PAGE>
Allied Devices Corporation and Subsidiaries
Results of Operations: Three Months
Ended December 31, 1997 Compared with
Three Months Ended December 31, 1996:
- The Company's on-going advertising campaign in certain
trade magazines remains 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.
Reported gross margin for the first quarter of fiscal 1998 was
32.42%, as compared to 32.33% for the comparable period of the
prior year. Materials expense (as a component of cost of goods
sold) increased to approximately 34.5% of net sales during the
first quarter of fiscal 1998, from approximately 30.7% in the
first quarter of fiscal 1997. While the increased shipping
volume resulted in higher levels of spending on factory payroll
and overhead during the quarter, such spending decreased as a
percentage of net sales, from 37.0% in fiscal 1997 to 33.1% in
fiscal 1998. There was one modest price increase instituted
during the quarter, the net effect of which is estimated to have
increased revenues and profits for the quarter by $25,000. LIFO
reserves were unchanged during the period.
Selling, general and administrative expenses as a percentage of
net sales were 22.17% in the first quarter of fiscal 1998 as
compared to 25.02% in the comparable period of fiscal 1997.
Actual expenditures increased approximately 10% during the
quarter, due to increased sales activity, yet expressed as a
percentage of sales they decreased.
Interest expense of $38,000 in the fiscal 1998 period was $8,000
lower than in the first quarter of fiscal 1997. This is
primarily the result of lower average levels of indebtedness.
Provision for income taxes is estimated at 37.2% of pre-tax
income for the fiscal 1998 period, as a combination of federal
and state taxes.
10
<PAGE>
Allied Devices Corporation and Subsidiaries
Results of Operations: Three Months
Ended December 31, 1997 Compared with
Three Months Ended December 31, 1996:
Liquidity and Financial Resources
During the first quarter of fiscal 1998, the Company's financial
condition remained strong. Operations generated cash of
$698,000, which was $198,000 more than was used for capital
expenditures ($143,000) and for payment of debt ($357,000 net),
resulting in an increase of cash on hand. Working capital
decreased by $123,000 to $7,184,000 during the quarter,
principally as a result of the following changes in current
assets and current liabilities:
- Accounts receivable decreased by $208,000 as a function of
more concerted and consistent collection practices. This
decrease was primarily the result of shortening the average
collection period from about 48 days at the end of fiscal
1997 to about 43 days at the end of the first quarter of
fiscal 1998.
- Inventories decreased by $11,000 during the quarter. Turns
on inventory were 1.9 times during the quarter, as compared
to 1.6 times during fiscal 1997. This change in turnover
rate is attributable to the increase in shipping volume
during the quarter.
- Prepaid and other current assets increased by $128,000 as
the Company recorded (and accrued for) certain annual
administrative expenses.
- Current liabilities, exclusive of current portions of
long-term debt and capital lease obligations, increased
$239,000 as accounts payable and accrued expenses increased
$147,000, and taxes payable increased by $92,000.
- Current portions of long-term debt and capital lease
obligations decreased by $9,000.
- Cash balances increased by $198,000.
11
<PAGE>
Allied Devices Corporation and Subsidiaries
Results of Operations: Three Months
Ended December 31, 1997 Compared with
Three Months Ended December 31, 1996:
Net outlay for capital expenditures in the quarter was $143,000
as management continued to add to capacity and to modernize and
automate its manufacturing processes. The Company is in the
process of installing a computer and information management
system, which will involve the expenditure of approximately
$70,000 in fiscal 1998 and is scheduled for completion in the
third quarter of this fiscal year. Management's capital spending
plans for the remaining three quarters of fiscal 1998 include
additional expenditures of approximately $250,000 for productive
equipment and approximately $25,000 for expansion into additional
space. Management expects to fund such spending plans out of
working capital.
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, in light of the
Company's expansion objectives, the Company's current financial
resources will not be adequate to provide for all of the on-going
cash needs of the business. In particular, management expects to
require additional financing to carry out its acquisition
objectives. Subsequent to the end of the first quarter of fiscal
1998, the Company acquired the assets and business of Kay
Pneumatic Valves, Inc. The acquisition price of $850,000 was
funded through a new lease arrangement of $1,000,000, provided by
the Company's bank and secured by the fixed assets of the
Company. It is management's intention to complete at least one
additional acquisition during fiscal 1998. Success in this part
of the Company's growth plan will rely, in large measure, upon
success in 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 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 any new capital for its existing operations. It is
important to note that, absent new capital, the Company will not
be in a position to undertake some of the most promising elements
of management's plans for expansion. In the event that new
capital is 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.
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: January 27, 1998 ALLIED DEVICES CORPORATION
--------------------------
(Registrant)
By:
--------------------------
M. Hopkinson
Chairman
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER
1997 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000869495
<NAME> ALLIED DEVICES CORP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 359,868
<SECURITIES> 0
<RECEIVABLES> 2,165,429
<ALLOWANCES> 47,303
<INVENTORY> 6,391,662
<CURRENT-ASSETS> 9,105,833
<PP&E> 7,075,927
<DEPRECIATION> 5,192,676
<TOTAL-ASSETS> 11,116,998
<CURRENT-LIABILITIES> 1,921,396
<BONDS> 0
0
0
<COMMON> 4,610
<OTHER-SE> 7,279,436
<TOTAL-LIABILITY-AND-EQUITY> 11,116,998
<SALES> 4,382,769
<TOTAL-REVENUES> 4,382,769
<CGS> 2,961,775
<TOTAL-COSTS> 2,961,775
<OTHER-EXPENSES> 971,644
<LOSS-PROVISION> 47,303
<INTEREST-EXPENSE> 38,232
<INCOME-PRETAX> 411,118
<INCOME-TAX> 153,000
<INCOME-CONTINUING> 258,118
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258,118
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
