Form 10-QSB Quarterly Report
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, 1999.
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0 - 24012
ALLIED DEVICES CORPORATION
--------------------------
(Exact name of small business issuer 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)
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 4,858,142
(CLASS) (Shares Outstanding at July 30, 1999)
- ----------------------------- -------------------------------------
<PAGE>
PART I
ALLIED DEVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
Allied Devices Corporation
Consolidated Balance Sheets
================================================================================
June 30, September 30,
1999 1998
- --------------------------------------------------------------------------------
(Unaudited) (Audited)
Assets
Current:
Cash $ 108,292 $ 275,238
Accounts receivable 2,664,928 2,526,068
Inventories 9,458,933 8,903,220
Prepaid and other 179,943 366,057
Deferred income taxes 41,000 41,000
- --------------------------------------------------------------------------------
Total current 12,453,096 12,111,583
Property, plant and equipment, net 7,373,846 7,607,246
Goodwill 3,639,224 2,880,523
Other 460,446 374,267
- --------------------------------------------------------------------------------
Total assets $ 23,926,612 $ 22,973,619
================================================================================
Liabilities and Stockholders' Equity
Current:
Accounts payable $ 1,154,950 $ 1,243,306
Taxes payable 109,458 --
Accrued expenses 171,323 286,900
Current portion of long term debt and
capital lease obligations 1,423,605 986,625
- --------------------------------------------------------------------------------
Total current 2,859,336 2,516,831
Long term debt and capital lease obligations 11,382,668 11,031,687
Deferred taxes 309,000 309,000
- --------------------------------------------------------------------------------
Total liabilities 14,551,004 13,857,518
Stockholders' Equity:
Capital stock 4,948 4,948
Paid-in capital 3,624,721 3,624,721
Retained earnings 5,861,296 5,486,432
- --------------------------------------------------------------------------------
Subtotal 9,490,965 9,116,101
- --------------------------------------------------------------------------------
Less treasury stock (115,357) --
- --------------------------------------------------------------------------------
Total stockholders' equity 9,375,608 9,116,101
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 23,926,612 $ 22,973,619
================================================================================
3
<PAGE>
Allied Devices Corporation
Consolidated Statements of Income
================================================================================
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
June 30, June 30,
- ------------------------------------------------------------------ -------------------------
1999 1998 1999 1998
------------------------- -------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 5,688,164 $ 4,226,230 $16,689,098 $13,165,992
Cost of sales 3,795,103 2,896,717 11,222,657 8,795,877
- ----------------------------------------------------------------------------------------------
Gross profit 1,893,061 1,329,513 5,466,441 4,370,115
Selling, general and
administrative expenses 1,414,583 881,905 4,120,901 2,989,821
- ----------------------------------------------------------------------------------------------
Income from operations 478,478 447,608 1,345,540 1,380,294
Interest expense (net) 249,443 64,119 758,898 150,061
- ----------------------------------------------------------------------------------------------
Income before provision for
taxes on income 229,035 383,489 586,642 1,230,233
Taxes on income 82,682 139,844 211,778 445,344
- ----------------------------------------------------------------------------------------------
Net income $ 146,353 $ 243,645 $ 374,864 $ 784,889
==============================================================================================
Basic earnings per share $ 0.03 $ 0.05 $ 0.08 $ 0.17
==============================================================================================
Basic weighted average
number of shares of
common stock outstanding 4,903,532 4,669,525 4,903,532 4,634,850
==============================================================================================
Diluted earnings per share $ 0.03 $ 0.05 $ 0.08 $ 0.17
==============================================================================================
Diluted weighted average
number of shares of
common stock outstanding 4,995,471 4,741,435 4,995,471 4,697,550
==============================================================================================
</TABLE>
4
<PAGE>
Allied Devices Corporation
Consolidated Statements of Cash Flows
================================================================================
<TABLE>
<CAPTION>
For the nine months ended June 30, 1999 1998
- ------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 374,864 $ 784,889
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,091,237 359,094
Gain on sale of equipment (2,300) (5,825)
Decrease (increase) in:
Accounts receivable (138,860) 99,569
Inventories (555,713) (404,511)
Prepaid expenses and other current assets 186,114 (368,579)
Other assets (110,271) (9,556)
Increase (decrease) in:
Accounts payable (88,356) (93,871)
Taxes payable 109,458 (69,130)
Accrued expenses (115,577) (103,460)
- ------------------------------------------------------------------------------------------
Net cash provided by operating activities 750,596 188,620
- ------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (170,906) (381,920)
Acquisition of Kay Pneumatics -- (850,000)
Proceeds from sale of equipment 2,500 7,000
- ------------------------------------------------------------------------------------------
Net cash used in investing activities (168,406) (1,224,920)
- ------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase (decrease) in bank borrowings 150,000 (175,000)
Increase in term debt -- 1,000,000
Proceeds from sale of common stock -- 71,000
Treasury stock acquired (115,357) --
Deferred financing costs (55,350) --
Payments of long-term debt and capital lease obligations (728,429) (181,471)
- ------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (749,136) 1,064,529
- ------------------------------------------------------------------------------------------
Net (decrease) increase in cash (166,946) 28,229
Cash, at beginning of period 275,238 162,094
- ------------------------------------------------------------------------------------------
Cash, end of period $ 108,292 $ 190,323
==========================================================================================
</TABLE>
5
<PAGE>
Allied Devices Corporation
Notes to Consolidated Financial Statements
(Information for June 30, 1999 and 1998 is unaudited)
================================================================================
1. Business Allied Devices Corporation and subsidiaries (the
"Company") are engaged primarily in the manufacture of
standard and custom precision mechanical components and
a line of screw machine products and their distribution
and sale throughout the United States.
2. Summary of (a) Basis of presentation/principles of consolidation
Significant
Accounting The accompanying consolidated financial statements
Policies include the accounts of Allied Devices Corporation
and its wholly-owned subsidiaries, Empire-Tyler
Corporation and APPI, Inc., (collectively, the
"Company"). All significant intercompany accounts
and transactions have been eliminated in
consolidation.
The consolidated financial statements and related
notes thereto as of June 30, 1999 and 1998, and
for the three and nine month periods 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 nine months ended June 30, 1999
are not necessarily indicative of the results that
may be expected for the entire year ending
September 30, 1999.
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, 1998.
6
<PAGE>
Allied Devices Corporation
Notes to Consolidated Financial Statements
(Information for June 30, 1999 and 1998 is unaudited)
================================================================================
(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, 1999 and
1998, inventory was determined by applying a gross
profit method, as opposed to the year ended
September 30, 1998, when inventory was determined
by a physical count.
(c) Depreciation and amortization
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.
7
<PAGE>
Allied Devices Corporation
Notes to Consolidated Financial Statements
(Information for June 30, 1999 and 1998 is unaudited)
================================================================================
(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.
(f) Intangible assets
The excess of cost over fair value of net assets
acquired is being amortized over periods of 15
years (for fiscal 1998 acquisitions) and 20 years
(for prior acquisitions).
(g) Revenue recognition
Sales are recognized upon shipment of products.
(h) Statement of cash flows
For purposes of the statement of cash flows, the
Company considers all highly liquid debt
instruments purchased with a maturity of three
months or less to be cash equivalents.
8
<PAGE>
Allied Devices Corporation
Notes to Consolidated Financial Statements
(Information for June 30, 1999 and 1998 is unaudited)
================================================================================
3. Inventories Inventories are summarized as follows:
June 30, September 30,
1999 1998
-------------------------------------------------------
Raw materials $ 1,233,296 $ 1,056,504
Work-in-process 1,044,572 964,563
Finished goods 8,707,605 8,392,905
-------------------------------------------------------
10,985,473 10,413,972
Less: adjustment to LIFO (1,526,540) (1,510,752)
-------------------------------------------------------
$ 9,458,933 $ 8,903,220
=======================================================
4. Stock Buy Back Pursuant to the Stock Buy Back Program authorized by the
Program Board of Directors, the Company acquired, from time to
time, an aggregate of 89,800 shares of the Company's
common stock at a cumulative cost of $115,357 during the
period from April through June, 1999.
9
<PAGE>
Allied Devices Corporation
Results of Operations: Nine months ended June 30, 1999
Compared with nine months ended June 30, 1998
================================================================================
Item 2 - Management Discussion and Analysis of Financial Condition and
Results of Operations:
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, as
a result, are pertinent only as of the date made.
Net sales for the quarter and nine months ended June 30, 1999,
were $5,688,000 and $16,689,000, respectively, as compared to
$4,226,000 and $13,166,000 in the comparable periods of the
prior year, increases of approximately 34.6% for the quarter
and 26.8% for the nine month period. Management attributes
these increases principally to the two acquisitions completed
in the second and fourth quarters of fiscal 1998, the
operating results of which did not contribute materially to
the volume of revenues or profit during the first nine months
of fiscal 1998. Absent the contributions from these two
acquisitions in fiscal 1999, revenues would have been lower by
$ 2,232,000 during the nine-month period, a decline of 17.0%
from prior year sales. Management attributes this slowdown to
the impact of the fiscal and economic crisis in Asia on
various industries serviced by the Company. Shipments to those
industries slowed markedly in the fourth quarter of fiscal
1998 as capital goods manufacturers experienced order
cancellations and revenue declines of as much as 40% in the
semiconductor equipment and related
10
<PAGE>
Allied Devices Corporation
Results of Operations: Nine months ended June 30, 1999
Compared with nine months ended June 30, 1998
================================================================================
sectors of the U.S. economy. This slowdown has continued
through the first three quarters of fiscal 1999. Until July,
1999, there have been few indications of improvement in these
sectors, but recent developments appear to portend a recovery
in these markets as the fourth quarter of fiscal 1999 unfolds.
Reported gross margins for the third quarter and nine months
of fiscal 1999 were 33.28% and 32.75% of net sales,
respectively, as compared to 31.45% and 33.19% for the
comparable periods of the prior year. Materials expense (as a
component of cost of goods sold) decreased to approximately
29.4% of net sales during the first nine months of fiscal
1999, from approximately 33.3% in the first nine months of
fiscal 1998. Factory payroll and overhead during the nine
months increased as a percentage of net sales, from 33.5% in
fiscal 1998 to 37.8% in fiscal 1999. These changes reflect
management's decision to manufacture more and purchase less
during the downturn in shipping volume. Prices remained
effectively unchanged during the nine-month period of fiscal
1999. Likewise, LIFO reserves remained effectively unchanged
during the quarter and nine months of fiscal 1999.
Selling, general and administrative expenses as a percentage
of net sales were 24.86% and 24.69%, respectively, in the
third quarter and nine months of fiscal 1999, as compared to
20.86% and 22.70% in the comparable periods of fiscal 1998.
Comparing the nine month period of fiscal 1999 with the
comparable period of fiscal 1998, marketing and selling
expenses were cut as a percentage of sales by 2.73%, while
payroll increased as a percentage of sales by 1.51% and other
expenses increased as a percentage of sales by 3.21%. The
increase in administrative payroll as a percentage of sales
was principally the result of the sudden downturn in
shipments; cuts in payroll were made a few months after the
slowdown occurred, bringing payroll back into line with
budgeted levels, but the net effect of that lag is a modest
increase as a percentage of sales. Of the increase in
administrative expenses (expressed as a percentage of sales),
1.16% is attributable to increases in non-cash expenses
(depreciation and amortization), 0.82% resulted from increases
in medical insurance premiums, 0.63% was related to
professional fees associated with the acquisition and
integration of Atlantic Precision Products into the Company's
operations, and the
11
<PAGE>
Allied Devices Corporation
Results of Operations: Nine months ended June 30, 1999
Compared with nine months ended June 30, 1998
================================================================================
balance was the result of temporary diseconomies related to
the decline in sales volume and the integration of Atlantic
Precision into the Company.
Interest expense during the third quarter and nine months of
fiscal 1999 was $249,000 and $759,000, respectively, as
compared to $64,000 and $150,000 in the comparable periods of
fiscal 1998. These higher levels of interest expense are
principally the result of indebtedness incurred to acquire
Atlantic Precision Products in the fourth quarter of fiscal
1998.
Provision for income taxes is estimated at 36.1% of pre-tax
income for the fiscal 1999 period, as a combination of federal
and state taxes.
LIQUIDITY AND FINANCIAL RESOURCES
During the first nine months of fiscal 1999, the Company's
financial condition remained sound. Operations provided cash
of $750,000. Capital expenditures (net) used $168,000,
financing activities used $749,000, and cash on hand provided
$167,000. Working capital decreased by $1,000 to $9,594,000
during the nine months, principally as a result of the
following changes in current assets and current liabilities:
o Accounts receivable increased by $139,000 principally as
the result of two factors: (1) the average collection
period was about 43 days, down from 45 days at the end
of fiscal 1998, lowering receivables $120,000, and (2)
higher shipping rates increased receivables by $259,000.
o Inventories increased by $556,000 during the nine month
period. Turns on inventory averaged 1.6 times during
this period, as compared to 1.4 times at the end of
fiscal 1998. This change is attributable to increased
shipping volumes during the third quarter.
o Prepaid and other current assets decreased by $186,000
as the Company collected cash reimbursements due from
its insurance company related to the losses in April
1998.
o Current liabilities, exclusive of current portions of
long-term debt and capital lease obligations, decreased
$94,000 as accounts
12
<PAGE>
Allied Devices Corporation
Results of Operations: Nine months ended June 30, 1999
Compared with nine months ended June 30, 1998
================================================================================
payable and accrued expenses decreased $203,000, and
taxes payable increased by $109,000.
o Current portions of long-term debt and capital lease
obligations increased by $437,000.
o Cash balances decreased by $ 167,000.
Net capital expenditures for equipment in the nine month
period were $168,000 ($596,000 including equipment acquired
under capital leases) as management continued to add to
capacity and to modernize and streamline its manufacturing
processes. The Company is upgrading and expanding its computer
and information management system, which will involve the
expenditure of approximately $150,000 in fiscal 1999. Capital
spending plans for the remaining quarter of fiscal 1999
includes additional expenditures of approximately $360,000 for
productive equipment. Management expects to fund such spending
out of its working capital and lease lines.
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. It is management's intention
to complete at least one additional acquisition during fiscal
2000. 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
13
<PAGE>
Allied Devices Corporation
Results of Operations: Nine months ended June 30, 1999
Compared with nine months ended June 30, 1998
================================================================================
implement its plans and will do so in keeping with its
judgment at that time as to how best to deploy such added
capital.
YEAR 2000
Management believes that all of the Company's computer
systems, applications and operating software are Year 2000
compliant. The Company has also undertaken a review of the
major vendors and third party suppliers critical to its
operation to assess their Year 2000 readiness. Although the
Company is not aware that any such company's systems are
noncompliant in a way that will materially adversely affect
the Company, there can be no assurances that the computer
systems of other companies upon which the Company's systems
rely will be timely compliant, or that such failure to comply
by another company would not have a material adverse effect on
the Company's business.
The statements contained in this Year 2000 readiness
disclosure are subject to certain protection under the Year
2000 Information and Readiness Disclosure Act.
14
<PAGE>
Allied Devices Corporation
Other Information: Nine months ended June 30, 1999
================================================================================
PART II. OTHER INFORMATION
Item 3. Submission of Matters to a Vote of Security Holders
On April 13, 1999, the Company held its 1999 Annual Meeting of
Stockholders. At the Annual Meeting, the following matters
were submitted to a vote of stockholders.
1. The following five individuals, constituting the full
Board of Directors of the Company, were nominated and
elected to serve as directors of the Company.
Mark Hopkinson FOR: 2,986,194
WITHHOLD
AUTHORITY: 2,000
P. K. Bartow FOR: 2,986,194
WITHHOLD
AUTHORITY: 2,000
Salvator Baldi FOR: 2,986,194
WITHHOLD
AUTHORITY: 2,000
Christopher T. Linen FOR: 2,986,194
WITHHOLD
AUTHORITY: 2,000
Michael Michaelson FOR: 2,986,194
WITHHOLD
AUTHORITY: 2,000
15
<PAGE>
Allied Devices Corporation
Other Information: Nine months ended June 30, 1999
================================================================================
2. The holders of 2,988,194 shares of common stock voted in
favor with respect to the ratification of the selection of
BDO Seidman, LLP, independent certified public acountants,
to serve as independent accountants of the Company for the
fiscal year ending September 30, 1999.
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: July 30, 1999 ALLIED DEVICES CORPORATION
(Registrant)
By: //Mark Hopkinson
------------------------------------
Mark Hopkinson
Chairman
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 1999
10-Q.
</LEGEND>
<CIK> 0000869495
<NAME> ALLIED DEVICES CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 108,292
<SECURITIES> 0
<RECEIVABLES> 2,709,256
<ALLOWANCES> 44,328
<INVENTORY> 9,458,933
<CURRENT-ASSETS> 12,453,096
<PP&E> 13,768,643
<DEPRECIATION> 6,394,797
<TOTAL-ASSETS> 23,926,612
<CURRENT-LIABILITIES> 2,859,336
<BONDS> 0
0
0
<COMMON> 4,948
<OTHER-SE> 9,370,660
<TOTAL-LIABILITY-AND-EQUITY> 23,926,612
<SALES> 5,688,164
<TOTAL-REVENUES> 5,688,164
<CGS> 3,795,103
<TOTAL-COSTS> 3,795,103
<OTHER-EXPENSES> 1,414,583
<LOSS-PROVISION> 44,328
<INTEREST-EXPENSE> 249,443
<INCOME-PRETAX> 229,035
<INCOME-TAX> 82,682
<INCOME-CONTINUING> 146,353
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,353
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
